Carrots For Banks, Sticks For Autos

(The Politico)  This story was written by Jim VandeHei And Mike Allen.

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Critics of President Obama's do-or-die plan for General Motors and Chrysler are making this a fight over fairness: Why do banks get carrots and the autos get the heavy stick?

It's a fair question, and one likely to resonate with those who feel Obama has gone light on insurance giant AIG and bailed-out banks like Citigroup. But, based on conversations with White House officials and advisers, the president has a much more jaundiced view of the automakers - and sees limited upside for bailing them out.

Obama said in announcing his plans for the industry: "We've reached the end of that road. And we, as a nation, cannot afford to shirk responsibility any longer. Now is the time to confront our problems head-on and do what's necessary to solve them."

Administration officials say they are optimistic that both GM and Chrysler will continue to exist, albeit in radically altered forms. With pressure from the administration, Chrysler said it has agreed to the "framework" of a global alliance with Italian carmaker Fiat Monday, but acknowledged there are still "substantial hurdles" to a final deal.

The administration officials said they do not have different standards for banks and auto companies. Instead, the officials say, they are focused on the broad impact on the economy, and have the identical message for carmakers and the financial-services industry: "Money doesn't come free. Money comes with conditions."

Here are the five reasons the car companies got hit with the stick.

1. They swung and missed.

The prevailing mindset inside the White House is that both companies had a more than fair chance to prove they could present a realistic plan for survival. They didn't come close. White House officials said Chrysler, using the most favorable assumptions, essentially proposed to stagger along and hope for a turnaround. General Motors at least offered a convincing case it could be viable, but fell far short of convincing the president's advisers the company could do it on its own terms.

"The likelihood of failure here is too high to invest any more political or financial capital at the moment," said a Democratic official close to the White House. "For all the negative aspects of structured bankruptcy [a likely outcome for GM], it doesn't necessarily collapse the domestic auto industry for all of time. It will continue to exist in some form."

The official added: ""They have more confidence in the leadership on the banking side - that there are people in place who understand what went wrong and the steps necessary to deal with this disaster. They have no sense of confidence that the auto industry has the capacity or plans to structure a workout."

2. Bad investments = bad politics.

It is easy to ridicule the bailed-out banks, especially with reports that the companies still throw around million-dollar bonuses, buy fancy planes and throw five-star retreats for executives. But at least there's a chance some or all the federal money they got will one day be returned to taxpayers. In fact, some banks are already talking about sending the cash back, if for no other reason than to stay clear of government-mandated restrictions on pay and bonuses.

But with GM & Chrysler, things are different-which may explain why the Obama Administration is being tougher with both firms than it has with most of the financial industry. GM already has $13.4 billion in government loans, while Chrysler owes the government $4 billion. Now, federal officials are talking about a bankruptcy filing for one or both companies.

A White House spokesperson confirmed to POLITICO that the federal government's loans to GM and Chrysler have no special priority in the bankruptcy process. That means taxpayers will be among those headed to the barbershop and could lose as much as their entire investmnt in the auto firms. With billions in tax money likely lost forever, Obama may have felt he needed to demand a scalp and tough conditions to justify any more help for Detroit.

"There's a lot of residual frustration and anger with the automobile industry for driving itself into the ground," said Matt Bennett, the vice president for public affairs at Third Way, a progressive think tank. "Responsibility resided at the top. They can't compete, they're not going forward on green stuff, they've done everything wrong. The administration feels they're not admitting fundamental errors - they're blind to mistakes that have been made."

3. Not too big to fail.

This is the hard reality facing automakers: their failure would be devastating to their executives, workers and suppliers - but probably not to the broader U.S. economy.

Obama is convinced that if AIG or some of the big banks collapsed, the economy could go down with them. That's not the case with Chrysler, for sure, and probably GM, too.

The president's budget plan is focused on building a new transportation system, one dominated by a new brand of vehicles running on new kinds of fuels. The U.S. auto industry has gotten its clock cleaned when it comes to producing hybrid cars Americans are willing to buy. The Obama plan forces both companies to move faster to catch up.

"While the impact of the auto industry is huge, it doesn't touch everyone who needs to get credit or hire someone, like the banks do," said the Democrat close to the White House. "The optics aren't good, but the autos are a more discrete problem that can be dealt with on a targeted basis."

Another official added: "There's a feeling that the failure of these two autos is already priced into the market but that really shaking up the banks could be catastrophically risky."

Sen. Judd Gregg (R-N.H.) said it "makes no sense" to give the auto companies more money at this time, in part because "the auto industry is not a systemic industry" like the financial sector.

4. Bad products = bad investment.

The bottom line for Obama - and the auto industry - is many people don't want American-made cars. General Motors, which is building more popular vehicles than Chrysler, has been bleeding money for years, losing $82 billion since 2004. The company made a terrible bet that SUVs were the future - just as Toyota and Honda were putting their money on hybrids and more efficient, more reliable cars.

So it's no wonder sales are down and unlikely to rebound even if with prices lower than ever. A top White House official went as far as to point out that Chrysler doesn't produce a single car that made Consumer Reports list of top vehicles. The White House made plain it will let Chrysler simply die if it doesn't move quickly to cement the alliance with Fiat SpA. The reason: the company is no longer viable on its own, the government has concluded.

"You can't allow these to be a black hole for taxpayer dollars," said a lobbyist close to the White House. "At some point, the American people say: Enough is enough. The American people have already voted on this with their car purchases."

5. The public is demanding the stick.

It is impossible to divorce any of these bailout decisions from politics. For Obama, this is a great opportunity to show he's intolerant of big bailouts that could leave taxpayers forever holding the bag.

He was caught flat-footed by the AIG bonus uproar, but since then Obama has presented himself as skeptical of a government-only solution and tired of business-as-usual on Wall Street. The White House used a well-choreographed rollout to dominate the news-cycle the past 24 hours with his tough love approach - and present Obama as a fair-minded centrist when t comes to bailouts.

"The politics of this are brutal," a White House adviser said. "The president knew the Michigan delegation would be unhappy. But the politics of wasting hundreds of billions of dollars in a failed efforts to save this company are worse than the politics of allow them to die after taking real but not extreme measures."

"Taxpayers are already in revolt over spending all this money," the adviser added. "The image of pushing out a CEO is very helpful - very smart."

Politico's Manu Raju contributed.
By Jim VandeHei And Mike Allen

[sjc_1]

"A new form of the Glass-Steagall Act is needed NOW"

That seems to be the nature of Republican deregulation since 1980. Do not rewrite laws and regulations, do away with them entirely. No sense fixing something that is still required in some form when you can repeal it.

It is like someone coming to fix something and rather than fix it, they just start taking things out and throwing them away. There must have been a good reason for that in the first place. Is that reason still valid?

[sjc_1]

G.W. Bush gave huge tax breaks to doctors and lawyers that bought Hummers. It was based on gross vehicle weight and some tax lawyers got a great deal for their clients.

When the DOE Secretary was asked why this was, he said that they had no control over who did what with their money. That was sort of a version of "we trust people to do the right thing with their money". It may be "right" for them but not right for the nation over all.

[enriquecaliente]

Break up these companies that are too big to fail. Time to undo the Glass Stiegel repeal. A new form of the Glass-Steagall Act is needed NOW. Let banks, bank, insurance companies insure and investment houses to invest. As separate entities. Not as one big company. If AIG and Citicorp were just an insurance company and a Bank, then we could have let them fail and or made their senior management leave also.

[cheteunice]

'Obama is convinced that if AIG or some of the big banks collapsed, the economy could go down with them. That?s not the case with Chrysler, for sure, and probably GM, too.'

That's a very big 'probably' before GM. We can only pray that his assessment is correct.

[cheetah-man7]

So SORRY, its too much fun commenting on the lunacy of your party. I pledge to keep pointing out Obamas errors and outright lies to the very end.

Posted by TexasEd
_________________________

I think us Bush haters will have far too much ammunition against you redneck conservatives in TX. Lunacy? Aint nothing spells lunacy more than living in TX in a trailer park serving up grits for your kinfolk. You Repubs are going down!

[cheetah-man7]

Because banks employ college educated holy people in suites and automakers employ evil union workers who worship Satan.
Posted by Harry_Snapperorgans
____________________________

Yo, Harry..... your name sounds rather erotic - not at all Christian! Are you sure you are not in fact an evil demonic being hiding behind God's name? Why not? Evangelicals do it all the time!

[edward1975-2009]

American automakers have failed to properly adapt to their market. From stuffing profits into their pockets, to negotiating ridiculous union contracts that have outpriced the American autoworker. Their failure to re-tooling their plants and competing with Japan, have led them to this point, in an industry that for decades was dominated by America. They have brought this upon themselves and even now with extinction facing them, refuse to make the cuts and revamping that will surely come once they seek protection through the bankruptcy courts. Sad indeed.

[aziridine]

Once the land of the free and home of the brave, we are now the land of secret prisons, illegal abduction, indefinite incarceration without charge or representation, torture, murder, universal surveillance, and preemptive war of conquest......Posted by SearingFlop
__________________________________________________________________

Indeed, Obama's America., with his $700 Billion military.

[searingtruth]

Goodnight fellow citizens, I've got to get some sleep now. I hope you all, yes even those who aren't so kind, have a wonderful evening.
ST


"Ahhh, my poor America lost.

Once the land of the free and home of the brave, we are now the land of secret prisons, illegal abduction, indefinite incarceration without charge or representation, torture, murder, universal surveillance, and preemptive war of conquest.

But that didn't seem to be enough to wake us up.

Perhaps waking up to the fact that our economy has been destroyed, and that we are now literally owned by the Chinese and other foreign enemies, might finally cause us to think, and act.

Perhaps the founding fathers were right after all, and Bush and all of his accomplices should be impeached and tried for betraying them, and our beloved Constitution.

Or perhaps we will simply continue to head full speed down the path to our own destruction.

It's up to us fellow Americans. Do we value our freedom and humanity so little that we no longer deserve them? Or will we once again stand to defend and uphold American liberty?"
SearingTruth, 2008

A Future of the Brave

[searingtruth]

"Well now that's funny Searing. If an America job is a job held by someone in Ameica then it can't possibly be "exported" now can.

If we don't need foreign capital why do we accept so much of it? Under your plan all profits generated by your "building of the manufacturing base" will be paid the foreign governments whose banks financed the process...."
aziridine


Well now, that's better. No name calling or talk of killing others. That makes it much easier to actually debate.

Of course American jobs won't be able to be exported, that's what the plan says. I'm not sure what your point is.

And I didn't say anything about foreign banks rebuilding our manufacturing base, I said Americans will rebuild it. All we need to do is take back the trillions we gave to the global billionaire thugs and we can afford it right now.

However, it will take about two decades to pay back the incredible debt we have already accumulated to other nations, but that will be easy once our people are working and our manufacturing and financial industries are American again.

The fact is that America still has all the resources and technology we need to take care of ourselves, but you keep speaking of the old paradigm - the disastrous "Global Economy".

We need to wash ourselves clean of it. It will be painful, and we will have to suffer through a five to ten year depression, but we're going to have to do that anyway. We might as well emerge from it stronger and self sufficient, instead of weaker and slaves to our enemies.

Then we can trade fairly, and from a position of strength, instead of submission.

And don't worry about the free food and shelter, as I state in my plan that's just a temporary measure so Americans can survive the depression global billionaire thugs have brought down upon us.

But the free health care is permanent. Because we're human beings, not monsters.
SearingTruth


"There is a battle for good. But we are not fighting it."
SearingTruth

A Future of the Brave