Auto Bailout Passed

Senior congressional officials say Majority Democrats and the White House have agreed a deal to get $14bn in emergency loans to US automakers with a number of Republicans grumbling loudly in the corner. The money could be dispersed in coming days to the struggling autos – GM, Ford and Chrysler – as they try to stay afloat.

On that subject, GMAC, the financial arm of General Motors, has extended the deadline on its capital-raising plan as it tries to shift to a bank holding company structure and gain access to federal bailout money. The unit has thus far failed to raise enough to qualify as a bank holding company.

Paulson, Bernanke To Update on Bailout

Treasury Secretary Hank Paulson and Federal Reserve chairman Ben Bernanke are to update senior Democrats, including House of Representatives Speaker Nancy Pelosi, regarding how the $700bn market bailout plan is working.

The bailout has been the subject of speculation in the past week following the move to open it beyond the banking and money markets to insurance giant AIG and further rumours that it could be used to bail out the Detroit Three.

Defending The Auto Industry – Newsweek

Daniel Gross argues in Newsweek that the US needs to seriously consider saving the auto industry. Gross is a proponent of free market values and the advantages of allowing failure in capitalist economies. He makes a number of compelling points that should be noted, particularly noting that, like the already bailed out AIG, General Motors has a certain systemic value in that should it collapse, the network of suppliers, manufacturers and technology firms that rely on the company, not to mention its 300,000-plus employees, would be hammered into the ground.

We’ve written about the auto bailout a number of times and I’m starting to come around to the idea. I do believe that a free market should allow companies to fail but, partly due to regulatory missteps in allowing certain companies to become too big, this just isn’t a viable view in the current marketplace. The auto industry, just like AIG, is perhaps too big to allow failure and now the government should step in to provide capital and restore confidence.

However, should this happen, the burden must be placed on authorities to prevent companies like AIG and GM from forming to such important organisations which are too big to fail. Further, the auto industry should be given extra oversight to make sure that they evolve in the US and start to provide the market with environmentally friendly vehicles that are now in demand. That will not only increase the corporate responsibility of the industry, but should save the companies in the long-run and teach a lesson on making sure they grow in line with the global automotive industry instead of relying on US appetite for homegrown cars of any sort.

Related to this however, it is looking increasingly unlikely that such a bailout will emerge for autos. Democrats believe the opposition from the Republican party will be insurmountable at the lame-duck session next week. Should Democrats be prevented from providing an aggressive stimulus package to markets, it’s likely that one of the Big Three will collapse before Obama comes to power. This, like Lehman, could have a major impact on global markets and, to put it plainly, we’d all be fucked. Watch this space.