Posted by
Always To The Right on Monday, November 17, 2008 11:00:30 AM
George Orwell, please call your office –stat. Today’s Washington Post report on the proposed auto bailout bill has the humorous oxymoron of taxpayer protection embedded in loans
to an industry whose entire market capitalization comes to less than a
third of the loan itself. If that sounds like a Fannie Mae loan
program, it should come as no surprise, since the same people who
brought you the financial collapse are pushing this monstrosity as well:
A measure to speed $25 billion in emergency aid to the
nation’s automakers will include provisions designed to protect
taxpayers, congressional Democrats said yesterday, including a ban on
bonuses for employees who make more than $200,000 a year and a
government oversight board with power to veto corporate decisions.
The bill, which is expected to be unveiled today on Capitol Hill,
also would bar the automakers from paying dividends to shareholders for
as long as the firms owe the government money, Rep. Barney Frank
(D-Mass.) said on CBS’s “Face the Nation” yesterday.
Despite strong opposition from congressional Republicans and
President Bush, Democrats plan to press ahead with legislation aimed at
staving off the collapse of the auto industry when Congress convenes
this week for its final session of Bush’s presidency. …
Both measures would carve cash for Detroit out of the $700 billion
financial rescue program Congress created last month to shore up the
U.S. banking system. The White House opposes using the money for that
purpose and has urged lawmakers instead to modify an existing $25
billion loan program to help the automakers retool factories to produce
more fuel-efficient vehicles.
The amount of money Congress wants to spend on bailout loans could buy Detroit’s Big Three,
and perhaps have enough left over for a German automaker or two. The
value of the stock in these companies amounts to $7 billion combined:
As of the close of business on Friday the market cap for
General Motors was about $1.9 billion, Ford about 4.3 billion….Chrysler
is privately held but it’s a safe bet that their FMV is less than $2
billion…probably a LOT less….so for approximately a lousy $7 billion….a
rounding error for the federal budget…the government could simply BUY
the entire U.S. auto “industry” — actually, of course, it’s just the
U.S. nameplate manufacturers, but that’s another story — for what
amounts to a pittance.
Of course, one reason Congress seems so intent on investing in these
automakers is that they run their businesses much like Congress runs
the federal government:
The numbers are literally absurd….Ford has $160 billion
in debt!….with NEGATIVE book value of equity….GM has about $60 billion
in debt…and a HUGE negative net worth on a book basis of $56
billion!….Essentially, the market is valuing the companies — well above
their (negative) book values — but at what amounts to scrap value!…so
$50 billion more from forced tax exactions should be thrown at
them?….and that’s NOT absurd?
Now, let’s look again at the oxymoron of “taxpayer protections”
regarding loans to companies who already cannot repay their debt, and
whose debt far outweighs their value. That sounds more like a Fannie
Mae security than a solid bet on taxpayer money. Putting aside the
obvious fact that the government has no business intervening in the
collapse of a poorly-run private enterprise, the loans will only
prolong the agony of collapse. If $160 billion in credit for Ford
couldn’t correct their problems, an additional $8 billion will hardly
turn the auto manufacturer into a stable powerhouse, or even keep them
above water.
And who’s pushing this bill? Barney Frank, the same genius who
assured us that Fannie Mae was solvent and that further regulation
wouldn’t be needed.
The real taxpayer protections need to be placed on Congress, not the
automakers. Representatives who engineered the collapse of the GSEs
have no business plotting any more government interventions.