American Elephants


The Very Interesting Fable of the Obama Rescue of the Auto Industry. by The Elephant's Child

— from the Associated Press:

The Obama administration said Wednesday that the government will lose about $14 billion in taxpayer funds from the bailout of the U.S. auto industry.

In a report from the president’s National Economic Council, officials said that figure is down from the 60 percent the Treasury Department originally estimated the government would lose following its $80 billion bailout of Chrysler and General Motors in 2009.

The report’s release coincides with the administration’s efforts to tout the bailout’s role in the revitalization of the U.S. auto industry after last week’s announcement that Chrysler is repaying $5.9 billion in U.S. loans and a $1.7 billion loan from the Canadian government. Those payments cover most of the federal bailout money that saved the company after it nearly ran out of cash in and went through a government-led bankruptcy.

GM previously announced that it had repaid a little more than half of the $50 billion it received in federal aid.

Treasury Secretary Timothy Geithner said U.S. auto companies are now at the forefront of a comeback in American manufacturing.

President Obama will visit a Chrysler plant in Ohio Friday to highlight the company’s success. Uh huh. Another fairy tale to enhance the Obama record book of fairy tales.

Todd Zywiki is the George Mason University Foundation Professor at the George Mason University School of law, and a senior scholar at the Mercatus Center.  In the Spring issue of National Affairs he takes on “The Auto Bailout and the Rule of Law.” He presents the fairy tale — the story that Americans are supposed to believe of an outstanding success, when essential American industries were saved by unprecedented cooperation between the government and the automakers.  It was accomplished in a deliberate and careful way, using the government’s special authority to contend with the economic crisis guiding the companies through an orderly re-organization. And the companies were saved and have a chance to thrive once again. False. False. False.

The bailouts of GM and Chrysler at the end of 2008 — and the extension of those bailouts in the beginning of 2009 — were both unnecessary and very likely illegal.  In a bankruptcy, secured debt takes first priority in payment— since the lender of secured debt offers a loan to a troubled borrower only because he is guaranteed first repayment when the loan is up. In the case of Chrysler, creditors who held the company’s secured bonds were steamrolled into accepting 29 cents on the dollar for their loans. The underfunded pension plans of the United Auto Workers—unsecured creditors— got more than 40 cents on the dollar.  How did the government get away with this?

The Obama administration’s role in this story, however, is far more troubling. One cannot explain away Obama’s overreach as a panicked response to an emergency; rather, his actions toward GM and Chrysler were part of a considered, coherent approach to the relationship between government and private industry. And this approach — defined by broad government power unchecked by legal constraints and possessing sweeping authority to pick winners and losers — has guided the administration’s policies well beyond the auto bailout. The aim of this approach is to rejuvenate the New Deal vision of the regulatory state, in which regulators are seen as disinterested experts with the factual knowledge, practical wisdom, and unwavering integrity to manage the economy. They alone are presumed to be capable of steering the nation toward prosperity.

The auto bailouts, Zywiki says, were sold as a means of revitalizing the economy.  Instead, they are a “means of transforming the relationship between the state and the market in a way that empowers large players at the cost of economic growth. Managed decline, rather than dynamic growth, is the defining feature of the Obama economy.”

It’s an important article.  You are getting screwed. You ought to understand the reasons why.


3 Comments so far
Leave a comment

Nice blog!

Like

Comment by mariamhotaki

Thanks Mariam! And thanks for reading!

Like

Comment by American Elephant

[…] The Very Interesting Fable of the Obama Rescue of the Auto Industry. The bailouts of GM and Chrysler at the end of 2008 — and the extension of those bailouts in the beginning of 2009 — were both unnecessary and very likely illegal. In a bankruptcy, secured debt takes first priority in payment— since the lender of secured debt offers a loan to a troubled borrower only because he is guaranteed first repayment when the loan is up. In the case of Chrysler, creditors who held the company’s secured bonds were steamrolled into accepting 29 cents on the dollar for their loans. The underfunded pension plans of the United Auto Workers—unsecured creditors— got more than 40 cents on the dollar. How did the government get away with this? […]

Like

Pingback by Daily Dive 5 June 11 | adeliemanchot




Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s



%d bloggers like this: