Friday, December 12, 2008

On Bailout Failure...How Ideology is killing America

If anything, the failure of the auto bailout compromise in the Senate yesterday is emblematic of what have brought America to the point of handing over cash to private enterprise in a last gasp attempt to save capitalism: ideology trumping common sense. Of course, while I sympathize with the AP view that an absence of leadership in Washington due to a very unpopular outgoing president, that view while sympathetic to the White House, masks another fact: the White House created this monster- the ideologues and their web of followings that control congressional republicans and who will sacrifice everything for their disruptive ideology except power. Get thus -- more than the a third of the votes against (14 out of 35) came from Democrats and Republicans hailing from southern states (Bunning, Burr, Chambliss, Cochran, Corker, DeMint, Hutchinson, Isakson, Lincoln, McConnell, Sessions, Shelby, Vitter, Wicker). Much of this southern opposition can be explained by labor politics. The South is mostly anti-union, and southern GOPers last night blamed the United Auto Workers for the collapse. Also, don’t forget that foreign automakers have plants in the South: BMW is in South Carolina; Mercedes is in Alabama; and Toyota, among other places, is in Alabama, Kentucky, Mississippi, and Texas.

Of course, note this: if this bail out like the financial bail had come before the presidential election many of the republican ideologues now pontificating will for power and political convenience vote for it in order to avoid voters reprimand and loss of power from states say like Ohio and Missouri which were must win then. Of course, curious observers one to know why the ideological purists that caved in to Paulson demands for $700bn in October are suddenly reinvigorated when it comes to mere $14bn (less than 2%) for auto makers that directly saves jobs of the midst of the worst economic crisis we have seen in decades. When it comes to saving their buddies and contributors on Wall Street of course these Southern Senatorial wingnuts have no problems with that, but bailing out the companies that employ "evil union workers" that only demand a fair shake from the pie where the execs that milk the economy eat from is a taboo for these bunkums.

But this is a two-far: for one it is a great way for the newly thinned down GOP caucus to bare its fangs and deliver its revenge to those bold voters of Ohio and their union machine...and of course, a pay for their corporate dreams of union busting. The compromise on the table, gave everyone an headcut (in the words of Speaker Pelosi) except the ideological right which were unwilling to compromise at all. The democrats caved in to the White House to the consternation of the left to allow the money to come from the clean energy fund already appropriated, while the language that was used to appease the left to compel the companies to meet California's higher fuel standards (itself a compromise over withdrawing a suit against the state by GM and Chrysler) was even deleted in the Senate Version.

Still not satisfied, the GOP ideologues pushed the Corker plan (big ups to him- at least he tried and was truthful on Bloomberg on the role of politics) which in my opinion makes perfect sense except for one (the one which eventually became a sticking point). The plan called for:

    • It would have required the two firms closest to bankruptcy, General Motors and Chrysler, to reduce their debt by two-thirds. Bondholders would have “plenty of incentive to make sure that the debt is reduced by two-thirds” or risk losing even more if the firms go into Chapter 11, where their bonds might be further discounted, Corker said. “We’re going to force them into bankruptcy if they don’t do this,” he said bluntly.

    • He also would have required that the Voluntary Employee Benefit Association, the entity created by the car firms and the UAW to handle retiree health care benefits, accept stock in lieu of half the cash payments due. The carmakers had agreed to fund VEBA but can no longer afford to do so. “If a company goes bankrupt, these future payments are never going to happen anyway,” he said.

    • Finally, Corker’s bill would have forced the UAW to lower its members’ wages to the level of employees at Honda and the other foreign-owned car manufacturers operating in the United States

It makes no sense to pay someone in the boondocks of Tennessee as someone in the big city of Detroit the same thing and even Corker recognized that fact when asked on Bloomberg this morning. For one the union already conceded to eliminate the job bank and receive partial stock payments in their pension and trust funds, which in itself is a huge win for the companies...but the ideologues persisted on their union busting move until the plan failed. Curiously, these same Senators were not pushing for auto czar or that Detroit executives themselves take a cut and eliminate unprofitable dealers- details by itself that are more likely to cut costs for Detroit than wage cuts which is a mere 10% of costs for these companies. Why even keep the current Detroit executive? Well, no leadership from the bunkums on that one! You bet.

For all said and done, it appears George Bush is the one that is most pissed off now, that his own Senators humiliated him, as he appears to be on the precipice of making an even bigger error by giving these monies without the minimum compromises discussed above: especially the hair cut for bond holders that will ensure the long term viability of these firms. While they are at it- EU is giving billions to its auto firms, American southern states are bailing out VW, BMW and Honda with $3bn, and Japan is considering some money for her auto makers. "Good lucky!". Of course, largely missing from these bail out talks is how Detroit will actually get into the business of making reliable, well designed and fuel efficient vehicles of the future. That I guess is beyond the congress' pay grade!
As commentator Zakaria said, this bail out makes sense when viewed against potential job losses. In his words: "The best argument for the bailout is that it is the most cost-effective jobs program that the government can run in the short term. Spending on infrastructure to create jobs will take months, maybe years. However, keeping the Big Three afloat will keep hundreds of thousands of jobs in place quickly and easily. It's true the companies will eventually go bankrupt but by then hopefully the economy can withstand it. "

The failure of the bail out legislation is emblematic of the poison and toxicity of unbriddled partisanship of the past decades, that reached new heights under George Bush. Gone are the years when a Democratic Speaker can reach some form of compromise on taxes with President Reagan, or Bill Clinton could work republicans to pass welfare reform. What we have now is a legislature intensely crippled by ideology from acting on big issues and solving big problems. Shame!


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