$25 Billion for Automakers Only Tip of the Iceberg
House Financial Services Committee Chairman Barney Frank (D-Mass.) said in no uncertain terms Wednesday that the $25 billion bailout being sought by America’s Big Three automakers would constitute just the first federal offering in what would be a much more expensive rescue plan. Asked by National Public Radio why Democrats think $25 billion for Detroit will be enough, Frank responded, “We don’t think it would be enough.”
The Massachusetts Democrat framed the debate as a something akin to class warfare. Why, Frank wondered, would the White House rush to help Wall Street with $700 billion but so adamantly resist diverting a fraction of that amount to the country’s largest manufacturers?
Well, AIG, which I don’t think anyone would think was as important to the American economy as the auto industry … got $40 billion just now to make it up over $100 billion. To some extent, let’s not have a white-collar/blue-collar bias in our public policy…I don’t want to set a precedent that bankruptcy now is a way in which you undo what gains unions have been able to hold on to.
Frank went on to describe the conditions of his version of the Detroit bailout bill (which differs from the Senate plan), including restrictions on executive pay and a dividend moratorium for the Big Three. The companies would also have to present the government with a new business model for creating more fuel-efficient vehicles. More money, Frank said, could follow.
If, on Mar. 31, the president does not believe that this is going to get them the viability with energy efficiency cars, they have to repay the loan; they get no more money. If they can show by Mar. 31 a plausible way to go forward, then we would consider giving more money, again, under equally stringent conditions.
We heard inklings of this message yesterday in the Senate Banking Committee, where Chairman Chris Dodd (D-Conn.), another supporter of an automaker bailout, told the Big Three executives that he’s under no illusions about the eventual size of the bailout they’ll need. “I suspect,” Dodd said, “that this $25 billion is not going to be the end of it.” (These three executives are testifying before Frank’s House panel as we speak.)
The issue has been at the forefront of GOP opposition to the plan. Republicans, already wary of the degree to which Washington has intervened in the private marketplace this year, think the Detroit bailout plan represents nothing more than throwing good money after bad. They think the Big Three are destined to fail due to poor management decisions, and wonder why lawmakers would waste taxpayer money to delay the inevitable.
During yesterday’s Senate hearing, one testy exchange between GOP Sen. Bob Corker (Tenn.) and General Motors CEO Rick Wagoner summarized the Republicans’ mood:
Corker: “Would you all make the pledge that if you get the $25 billion, you’ll never be back to see us again?”
Wagoner: “Sir, if you could make the pledge to us that the U.S. economy will turn around on a certain point in time, then — and the financial markets will rejuvenate, then we would be glad, based on that data, to come back to you and give you … our exact best estimate of how much financing we think we need, sir. We’d be very glad to do that.”
Corker: “You’re going to be back, aren’t you?”
But, in the middle of this financial mess, many economists are warning that the economic ripples of a Detroit failure would decimate businesses and communities far beyond Michigan.
Soon we’ll be running a longer piece detailing the reasons that the bailout option might prove far less costly for taxpayers than allowing the companies to go under.