What If Obama Had Treated Detroit Like Wall Street?

[leftchick]

What is Sacrosanct for One is Shredder Material for the Other


By ROBERT WEISSMAN

http://counterpunch.com/weissman04022009.html


There'd be no talk of potential bankruptcy, no firing of executives, no demands to shed failing subsidiaries, no demands for honest accounting, no insistence that creditors share some of the companies' pain. And we certainly wouldn't hear about re-writing contracts, heretofore described as sacrosanct.

Instead, we'd be hearing about a scheme to get private sector players "now sitting on the sidelines" to invest in absorbing the auto industry's excess capacity.

We'd see the Treasury Department announcing a Public-Private Investment Plan to tap hedge funds' pools of capital and expertise to create demand for autos that GM and Chrysler could manufacture but are presently unable to sell at a satisfactory price. These excess cars would be called "legacy assets" (the euphemism for failing mortgage-related securities, more widely called "toxic").

If the plan really paralleled Treasury Secretary's Timothy Geithner's proposal for dealing with Wall Street's toxic assets, it would "incentivize" the hedge funds to buy up hundreds of thousands or millions of cars, and hold them for later sale, when the overall economy improves. The idea would be that the private investors may be willing to pay a price below the list price, but above the price at which GM and Chrysler could actually sell their excess cars right now -- a price high enough to help GM and Chrysler.

What would be the incentive for the private investors to take this gamble? The government would offer to contribute $13 for every dollar contributed by the hedge funds. Thus, an investor could spend $1 billion to buy cars -- bought well below sticker price -- while paying only $71 million out of pocket.

With that kind of deal, it's possible the private investors would pay enough to help GM and Chrysler. In doing so, they would be taking on enormous risk -- they would be betting that they someday could sell the cars for more than $1 billion -- but if they couldn't … well, taxpayers would bear all of the losses except for the $71 million.

Does this sound crazy?

It is.

The Treasury plan for the banks' toxic assets is impossibly complex, but its core feature is a massive, disguised taxpayer subsidy to Wall Street (Jeffrey Sachs of Columbia University roughly estimates the giveaway component as $276 billion, based on realistic assumptions about the risks embedded in buying the assets).

The Geithner plan for the banks contrasts starkly with the very tough and hard-headed approach taken by the Obama administration to the automakers.

The administration's response to the automakers is deeply flawed. It should be faulted for continuing to demand still-more givebacks from unionized workers; for focusing too much on short-to-medium term results and not enough on investments in fuel efficiency and transformative technologies; and for threatening the use of bankruptcy, a move which would undermine efforts to direct the companies to major investments in R&D and sustainable technologies. These are very major problems.

[leftchick]

1. k

cuz I can't R.

[msongs]

2. auto biz main problem = people are NOT buying new cars nt

[The Straight Story]

4. I'd buy one. But was out of work for some time. Credit is shot. If I were a bank

It wouldn't matter, I would get huge loans :)

[chimpymustgo]

3. C-SPAN 2 - NOW. Stiglitz, Ehreneich, others on the economy. It is SO good.

Talking about auto industry now.

[gblady]

5. I wish he'd treated the banks...

like he did the auto makers.