Do We Need A Detroit Bailout? Really?

Declan McCullagh Assesses Claims Automakers Bailout Is A "Must-Do"

(CNET)  This story was written by CNET's Declan McCullagh.

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Our esteemed representatives in Washington are telling us that, without a bailout of Detroit auto makers, economic catastrophe looms.

Members of what really should be called the Bailout Party predict that, as Sen. Carl Levin, D-Mich., put it, saying no to the Big Three would "be felt throughout our economy and in every community across this country." Another senator from Michigan, Debbie Stabenow, claims that 2.5 million people would lose jobs.

Evaluating the Bailout Party's claims and track record is important. If its officials have been correct so far, the case for a $14 billion check drawn on the U.S. Treasury becomes more compelling.

Let's consider the Bailout Party's arguments during the legislative debate over the Troubled Asset Relief Program, or TARP, which already has proven to be poorly-managed.

President Bush said in September that without a Wall Street bailout, the country would experience higher foreclosure rates, job losses, closed businesses and "a long and painful recession." Guess what? Even after doling out billions of dollars, we still have all of that, including rising unemployment, a painful recession, and a much higher deficit.

Rep. Barney Frank, the Massachusetts Democrat who provided political cover for Fannie and Freddie's excesses, echoed Bush. Frank claimed that, absent the TARP legislation, investors will "see further erosion in the value of their stocks" and foreclosures will "continue to increase." Someone should tell the good congressman that the value of the S&P index has eroded by 25 percent since mid-September, and foreclosures are continuing to increase.

Frank also claimed that credit markets are "locked up." This is what other Bailout Party officials were alleging at the time; Treasury Secretary Henry Paulson said "our credit markets froze" and Fed Chairman Ben Bernanke said that "households and state and local governments have also experienced a notable reduction in credit availability."

Few members of the media questioned those claims, even though they provided the primary justification for the TARP law. It turns out that those statements were not, to put it delicately, entirely truthful.

Exhibit A in the case against the Bailout Party is a report published by the Federal Reserve Bank of Minneapolis. It evaluates these claims: bank lending and so-called commercial paper declined sharply; bank-to-bank lending evaporated; and rates rose to unprecedented levels. The surprise is that, using the Fed's own data, the authors conclude that those "claims are myths" perpetrated by politicians and an uncritical press.

An example can be found in the New York Times' report last month about what it described as a "frozen consumer credit market." Yet the Federal Reserve said five days earlier that "consumer credit increased at an annual rate of 1-1/4 percent in the third quarter." How can an increase be "frozen?"

It's true that credit may be more difficult to obtain than a few years ago. Would-be borrowers with poor credit scores may not be able to secure a low interest rate mortgage. Some businesses are having a harder time getting loans. Consumers are receiving fewer credit card solicitations, though most of us would consider less junk mail a plus.

This is a natural response to what was probably history's largest credit bubble, and a sign that the bubble's excesses - "If you breathe, you qualify for a zero-down mortgage!" - are being purged. The market is healing itself. (Meanwhile, in this purportedly "frozen" credit market, Bank of America is offering an "introductory 0% APR" for over a year.)

Exhibit B is a report published last week by Celent, a financial services consultancy. It picks up where the Minneapolis Fed's report left off, and concludes that politicians and bureaucrats appear to have been fibbing to the American public.

It notes that household credit is very close to its all-time high, that short-term credit has become cheaper in the last year thanks to lower interest rates, and that bank lending is at or close to a record high. It says: "The juxtaposition of policymakers' statements regarding the state of the credit market are both puzzling and troubling. A variety of fundamental assertions about the state of the credit industry in the U.S. are not supported, and in many cases flatly contradicted, by the available data. In most cases, these very data are being published by the organizations led by the policymakers in question."

This may sound arcane, but it's really not. If this had been well-known three months ago, the TARP bailout may not have passed. It would have taken only 10 percent of the House of Representatives switching sides for the bill to fail; instead, they were egged on by what Rep. Brad Sherman, D-Calif., described as threats of martial law.

This time, the Bailout Party wants to bail out General Motors, Ford, and Chrysler at taxpayers' expense. Anyone inclined to believe claims of economic Armageddon absent a billion-dollar payday should take a close look at the outright falsehoods spread the last time around.

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Declan McCullagh is the chief political correspondent for CNET. He previously was Wired's Washington bureau chief and a reporter for Time.com and Time magazine in Washington, D.C. He has taught journalism, public policy, and First Amendment law. He is an occasional programmer, avid analog and digital photographer, and lives in the San Francisco Bay area. His e-mail address is [e-mail]

[faletinme]

We definitely need to help the unions return to the same wages and benefits that the average worker receives. It is terrible that these poor union workers should be paid differently than other workers with the same skillset. Take the union guy who turns lugnuts all day. He has very nearly the skills and responsibility that a Burger King worker has. He should be paid the same $7.00/hr. Thank god we have men Like Mr. Gettlefiner to make sure that happens. Equal pay for equal work, I say!

[grigjd3]

I wonder who this guy is calling the bailout party because he seems to have gripes against both Republicans and Democrats. I get the impression that the author is assigning blame to a name that he created to artificially claim one party was to blame. Who is it that comes asking for government bailouts but those titans of the "free" market? Who is doing the bailing out? Well, both sides really. If the author is going to claim the Republicans held the line in the Senate, the author is also ignoring the fact that it was one of those rare times when there was no short term penalty. With elections over and the Senate knowing the president was going to provide the money anyways, they voted against writing up more money. However, if they didn''t know the president would have coughed up the cash, not a single one of them wants to be known as the guy who killed Detroit. I agree in perspective that we should not be bailing out these companies but the author''s stringent religious belief that Republicans are fiscal conservatives is based in myth, not fact. The fact is that the national debt always (and I mean always) grows under Republican control. The same cannot be said otherwise. I would never claim Democrats are fiscally conservative, but I am not foolish enough to be convinced that Republicans are either.

[noloyalisti]

It will help because it will set a precedent that we want to help union organizations, workers and the middle class. We send a signal that we want to rebel against We the Corporation and the Corporate States of America.

[old300d]

Detroit is our nations poorest city.

Sure we should help them.

How will bailing out the big three help the poor people of Detroit ?

[eggy1620]

Come on CBS. This is 3 days old. Post something new.

[hitoyou11]

No we did not need one, but idiot Bush gave them one any way. I hope they all have a good Xmas with the tax payers money. It will all go for fat checks for all the SCUM.

[bikerb54]

Look, I''ll be one of the firs to say "I''m tired of seeing all these big businesses get bailed out of their financial woes (ones they brought on themselves) but as for the Auto industry, when they''d lose their jobs, millions more would quickly follow. I live in Central PA and we have already seen a loss of jobs because of the auto industry''s cutbacks and jobs being sent overseas (which, please don''t get me started on that one!) We have many communities suffering high unemployment, high welfare sign-ups, low paying retail and service jobs trying to replace those manufacturing jobs. So yes, we need to try to HELP them recover. I don''t think we should give them total help because look what happened with AIG and their bail-out help. How much is going to be abused and how much will go to actually getting back on their feet???

[hitoyou11]

It is called "Freedom to Assemble"!
It is? How do you come up with that BS. Freedom to Assemble has not one thing to do with beliving every thing some ASSSS HOLLLe tells you.

[ioweign]

Some peopel belive ever thing they are told. That is why they really belive we need the UAW and the Automakers. We might need the automakers, buy we sure don''''t need the UAW.

Posted by hitoyou11 at 07:57 AM : Dec 19, 2008

It is called "Freedom to Assemble"!

Do we really need religion ?

Do we really need the ABA?

Do we really need the AMA?

[hitoyou11]

Some peopel belive ever thing they are told. That is why they really belive we need the UAW and the Automakers. We might need the automakers, buy we sure don''t need the UAW.

[mfritzen1]

I have never done this before and I''m just a High School Graduate but here goes .
We need to save the car company only for the middle class people to keep there jobs. But what I do think needs to happen is when a person of middle class or lower wants to buy a new car the Goverment give us the dicount so we can aford a new car and the discount goes to us,it will be based on our last year tax that way the middle class can aford to buy more cars which will help move cars to help the car company .that way keeping jobs going . But I also think there should be a STOP to there big outrages bonus for these upper manegment and I also I think they should be making more Hybrid cars. I feel that 25 years ago a car would get 20 mpg and today car only get 26 mpg but we can build a space station around the earth with are tecnloige. I feel they have been holding back and why I ask would we want to use up the oil before we say ops and now our gradkids will have to find the salution for our mistake , We not being good role models . Thanks for listen Michael

[idnnsg]

Corrupt as they may have become, we would not have any middle class without unions. People who think they will be paid fairly by the quality and quantity of their work once unions are eliminated are ID.IOTS.

Why did the repukes rush to bail out the banks, but refuse to help the automotive industry? It''s because the bankers are wealthy and the workers are not. And it''s because the auto industry created and supports the middle class. (We had no significant middle class until Henry Ford decided his workers should earn enough to buy the products they make.)

If we kill off the auto industry in this country, that will be the END of the middle class. The auto industry creates countless millions of jobs-- in assembly, repair, parts, transportation, etc., and the people who get those jobs pay for food, housing, energy, transportation, schools, clothing, etc., etc.

[hitoyou11]

To Koyt1:

You wrote:
I know of no other business in America where workers get $70 an hour in wagees and benefits. That number is high because of the unions. The unions ruined the industry and will continue to ruin it until they are stopped.

Please don''''t post misinformation. The workers at the automobile plants do NOT make $70/hour. That number was derived by calculating all the HR costs of the companies and dividing by the number of current employees.

That means that the number includes high-paid execs and the hundreds of thousands of retirees on pensions who are not part of the current work force.

The reality (sorry to intrude with reality amidst all of this misguided political ideology) is that Detroit''''s unionized workers make just about the same wages as those in the South''''s non-Unionized Japanese-owned plants.

If you''''re going to make an argument, please do not base it on myths.


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Posted by aakalan

You are the one posting misinformation. The number is what the UAW menber makes, with hourly pay and benefits. So "you" stop the BS. The UAW is over oaid, they are lazy and they need to go away.

[aakalan]

To Koyt1:

You wrote:
I know of no other business in America where workers get $70 an hour in wagees and benefits. That number is high because of the unions. The unions ruined the industry and will continue to ruin it until they are stopped.

Please don''t post misinformation. The workers at the automobile plants do NOT make $70/hour. That number was derived by calculating all the HR costs of the companies and dividing by the number of current employees.

That means that the number includes high-paid execs and the hundreds of thousands of retirees on pensions who are not part of the current work force.

The reality (sorry to intrude with reality amidst all of this misguided political ideology) is that Detroit''s unionized workers make just about the same wages as those in the South''s non-Unionized Japanese-owned plants.

If you''re going to make an argument, please do not base it on myths.

[kaylag04]

If it had been up to modern politicians, we''d have been subsidizing the Wagon Wheel industry since the late 1890''s.

[noloyalisti]

Don''t blame the workers who create the wealth for the ignorant and rich (kind of goes together), greedy oil corporation execs. After all, they are Republi CON supporters and need severe supervision of their businesses. You owe the unions the weekend and 40 hour weeks.

[jsd330]

Koyt1 The airlines were bailed out by the government right after 911. they filed banruptcy in 2005,when they did that they dropped their pension obligation on the federal government.Their unions gave concessions, and the airlines didn''t lower fares, service didn''t get any better as a matter of fact it got worse. They are crying now because Thanksgiving is one of the busiest travel times of the year and their planes were barly half full. With fuel prices dropping I haven''t noticed them lowering fares instead they are creating a shortage of seats by cutting flights. Comparing the airlines to the automakers is like apples to oranges the airlines provide a service, the automakers provide a product.
And according to the airlines they still haven''t returned to profitability.

[hitoyou11]

This is about workers and their unions which we ALL need to keep healthy and strong.

HAHAHAHA. We do not need a UNION in the U.S. We need people thay know how to work. That is not the UAW.

[hitoyou11]

No Money for the SCUM UAW. They do nothing , they don''t know what work is. They do not need a bailout. They need to learn how to "WORK"

[koyt1]

You don''t get the point. An organized bankruptcy is what saved the airlines, and it can do the same for the auto industry. I know of no other business in America where workers get $70 an hour in wagees and benefits. That number is high because of the unions. The unions ruined the industry and will continue to ruin it until they are stopped.