auto bailout

I think many of us dissagreed on whether or not they should bailout the big three, but can we all agree that a $14B bailout is the worst possible action? It’s also incredibly distressing to see Pelosi say that she expects a recovery in the industry by March 31st. I guess IB’s modeling deals to perfection has been replaced by congress modeling deals to perfection. Anyway, here’s what I think the main weaknesses are: 1) It’s not big enough to make a significant impact. Either give them 0 or what they want. $14B tells me that you’ll do it over again every time they come crawling back. 2) It doesn’t address the unions or prior debt load, so it doesn’t offer any long-term solution. 3) a 5% pref (with a 9% adjustment next year) is an f-ing gift. AIG pays L+950. Way to give them incentive to refi you out and give the tax payers a sweet return… 4) and once again, assuming the auto industry recovers by March 31st is staggering.

“AIG pays L+950” - better check that. AIG did pay L + 950 and then Paulson and company fixed it so they pay less than you do on your mortgage. Anyway, it’s a brain dead last act from a brain dead Congress led by a brain dead Speaker.

I didn’t look at the details, but something like this was fairly predictable. They wanted to give the auto companies enough life support so that plans can be discussed, passed, and enacted when the new administration is seated. 14B is clearly not enough to do very much, but it is enough to make it so that an irreversible decision doesn’t have to be made by a lame duck president and a lame duck congress.

14B would make a difference in my life.

You’re probably right bchadwick. If so, the Big 3 look very savvy with respect to their timing on all of this. It’s funny that they can negotiate deals like this with congress but not the UAW…

ahahah Wrote: ------------------------------------------------------- > It’s funny that they can negotiate > deals like this with congress but not the UAW… That is funny! I bet they will blow the $14B in no time.

I am a little surprised that it is quite as large as 14B. I figured it would be more like 5b, 10b at the outside. But as a politician, they are running for cover. No one wants to be accused of being responsible for the end of something as symbolic as the audio industry.

I agree with your reasoning that no politician wants to be linked to big auto failing. but its sad to think that people would think that lack of political intervention had anything to do with them failing. NOT helping private industry and getting blamed for it failing? aren’t we only pissed if the government CAUSES industry to fail. its sad that they would feel an obligation to hold onto history when you can’t fight structural shifts in an industry. give them 1 trillion and they won’t survive.

Personally, I think they should split the big three into medium 30 or so companies including one big Bad-Co where all the liabilities, union employees, and bad contracts are lumped together. $14B won’t last, is just a band aid to prolong their life just long enough to either come up with a better solution or to see if the economy picks up enough so that they will be able to make it on their own.

This whole thing makes me so pissed off. We finally have a real oppurtunity to get rid of these companies and all the crap they bring. But of course we wont… Its quite frustrating because I know if they were allowed to fail, then yes we would suffer. But something better will eventually come out of it!

CFABLACKBELT Wrote: ------------------------------------------------------- > This whole thing makes me so pissed off. We > finally have a real oppurtunity to get rid of > these companies and all the crap they bring. But > of course we wont… > > > Its quite frustrating because I know if they were > allowed to fail, then yes we would suffer. But > something better will eventually come out of it! It’s also frusturating because I’m sure many of us, myself included, see good investments/deals every day that don’t work because the terms offered in today’s difficult financing market kills them, yet automakers get to borrow at 5%.

I don’t understand the point of giving them this money when it doesn’t fix anything - the company’s themselves aren’t competitive and they should be allowed to fold.

They’re just kicking the can down the road to buy more time. Maybe this will give the automakers time to come up with some rational sounding plan for how to become competitive, though I can’t figure out what that would be. One nasty outcome of this is that it will make it extra tempting to throw more good money after bad if no workable plan comes out. The irony is that I sense that most Americans (not just AFers) don’t want a bailout for the auto guys. This is one of the few times (also just after an election when mandates are fresh) where they could let the industry die without much consequence. Dems may not politically be able to say F-U to the unions though. What we need is a way to shift our industrial structure without screwing the ordinary laborer, and to figure out to what extent the labor unions have created unsustainable expectations for the working class. There are problems on both sides of the divide here.

I would agree that $14 Billion seems like a fart in the wind given the magnitude of the problems. Go GM go!!! Willy