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Obama pushing for $50 billion bailout of automakers


Hammerhead

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Nov. 13 (Bloomberg) -- President-elect Barack Obama is pushing Congress this year to approve as much as $50 billion to save cash-starved U.S. automakers and appoint a czar or board to oversee the companies, a move that would require President George W. Bush's support, people familiar with the matter said.

 

Obama's economic advisers are now convinced that if General Motors Corp. doesn't get a financial lifeline soon, it will have to file for bankruptcy by the end of January. And if the companies don't get almost $50 billion, Obama will be dealing with the issue again by next summer.

 

Any czar or board would be patterned after the bailout of Chrysler in 1979 and New York City in 1975. Advisers such as former Federal Reserve Chairman Paul Volcker and former Treasury Secretary Lawrence Summers are said to be telling Obama that the cash is urgently needed now.

 

Congress would have to act in a lame-duck session that begins next week. Obama would need Bush's backing to pass such a sweeping and costly measure in part because Democrats don't have enough votes to force a floor vote or override a veto. Obama also would need strong support from auto-producing states such as Michigan, Ohio, Indiana, Illinois and Wisconsin to pass such a sweeping and costly measure.

 

Yet to be determined is whether most of the money would be drawn from the $700 billion financial rescue package Congress passed last month or from newly allocated funds.

 

Obama's Exception

 

By injecting himself into the talks about how to save General Motors, Obama is making an exception to his decision to steer clear of policy-making until he takes office.

 

The president-elect also wants the Federal Reserve to extend emergency loans to General Motors, Ford Motor Co. and Chrysler LLC, according to Obama aides who spoke on condition of anonymity.

 

The failure of those companies would likely bring down parts-makers, dealerships and suppliers in addition to inflicting a deep psychological blow.

 

If the plan were to offer no strong guarantees against layoffs it would likely draw fire from unions. But Obama advisers have been persuaded that the impact on current workers and retirees would be staggering if the companies went into bankruptcy.

 

Any auto czar or committee would presumably have the job of overseeing a restructuring of the auto industry.

 

`Too Big to Fail'

 

``The auto industry is too big to fail,'' said Nariman Behravesh, chief economist at IHS Global Insight Inc. in Lexington, Massachusetts. ``While the Obama administration can wait until Jan. 20 to address other matters, on this one they need to move quickly.''

 

Obama, 47, has repeatedly insisted there can only be ``one president at a time.'' He is sending two representatives, former Iowa Republican Rep. Jim Leach and former secretary of state Madeleine Albright to this weekend's economic summit of leaders of the Group of 20 nations in Washington rather than attend himself.

 

GM risks going bust before year-end without help from Washington. Shares of the biggest U.S. automaker reached a more than six-decade low this week. The company said last week it may run out of operating cash by the end of this year.

 

``We've not being prescriptive in what would be acceptable in terms of the loans,'' said GM spokesman Tony Cervone, who said he's not aware of the government's plans.

 

Chrysler spokesman Shawn Morgan said the company is in discussions with the Obama transition team and members of Congress.

 

``We look forward to a discussion addressing the immediate liquidity crisis facing the industry, as well as the competitiveness of the auto industry,'' Morgan said.

 

``We need to wait and see what comes from Congress,'' said Ford spokesman Mike Moran.

 

Bankruptcy Risk

 

Ford and Chrysler both likely would be forced into bankruptcy eventually if GM were to fail, Mark Oline, a Fitch Inc. credit analyst, said in an interview.

 

Enthusiasm among Obama's economic advisers for a concerted rescue for the auto industry was sparked at a Nov. 7 meeting in Chicago, according to person familiar with the meeting. Michigan Governor Jennifer Granholm also pressed for additional aid.

 

A GM bankruptcy could send the U.S. jobless rate as high as 9.5 percent, up from a 14-year high of 6.5 percent in October, and produce a recession comparable in length to that of 1980-82, according to Behravesh.

 

``If it does collapse, it could make the recession deeper and longer,'' he said.

 

Pressed Bush

 

Obama, an Illinois senator, pressed Bush on the urgency of an assistance package during their Nov. 10 meeting at the White House, Obama spokesman Robert Gibbs told reporters this week.

 

Still, the Bush administration so far has opposed bailing out the carmakers, and continues to resist the idea of using the Troubled Asset Relief Program, the bank rescue which Congress passed in early October, for any companies other than banks.

 

``The intent of the TARP was to deal with the financial industry,'' Treasury Secretary Henry Paulson, who is administering the program, said yesterday in a press conference. ``My focus is on the financial sector, getting credit going, getting lending going.''

 

Congressional Democrats, meanwhile, are pushing for legislation to help the automakers. House Speaker Nancy Pelosi called for congressional action, saying failure by one or more of the big U.S. automakers would have a ``devastating impact'' on the U.S. economy. Assistance must be conditioned on ``rigorous independent oversight'' of carmakers and restrictions on executive compensation, she said in a statement.

 

``A collapse of the American automobile industry would be the worst possible thing that could happen at a time when we are already weakened,'' Frank, a Massachusetts Democrat, said in an interview on Bloomberg Television.

http://news.yahoo.com/s/bloomberg/ablcucxr33jw

 

No way in hell Bush goes along.

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If you or any mod can, you might want to correct the topic title to say billion, rather than million.

 

no big deal...billion is the new million :confused

 

not related to the mistake on the title...but it is frustrating to me how today millions sound like pennies, and the talk of adding trillions and billions to our debt is common and not seen at something that could end the US as we know it today

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If you or any mod can, you might want to correct the topic title to say billion, rather than million.

 

no big deal...billion is the new million :confused

 

not related to the mistake on the title...but it is frustrating to me how today millions sound like pennies, and the talk of adding trillions and billions to our debt is common and not seen at something that could end the US as we know it today

People see the government like I guess they see the auto industry - "too big to fail". My dad argues with me that there's no way we could ever have 100% inflation here, and the idea of the government going bankrupt isn't even conceivable to most Americans. Today there is a slightly greater consciousness about it, but I still think most people don't get it with regards to the national debt and what it means.

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I agree..and this is Psychologically at this point...My opinion is that people are living in fear, and they want the comfort of our good ol' big brother Mr Federal Government.

 

We've been living/ruled by fear since 2001.

 

 

 

:banghead

 

We as a nation have been living in fear much longer that that. Since people began to think that government is the solution rather than the cause of most problems.

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I agree..and this is Psychologically at this point...My opinion is that people are living in fear, and they want the comfort of our good ol' big brother Mr Federal Government.

 

We've been living/ruled by fear since 2001.

 

 

 

:banghead

 

We as a nation have been living in fear much longer that that. Since people began to think that government is the solution rather than the cause of most problems.

 

And allowing a trust to form (which is, btw, how I define the Big Three, even if they are separate companies) isn't the cause of the problems in Detroit? All the oil and credit crises did were accelerate their downfall, never with a check in the form of domestic competition. People look for alternatives when their preferred product goes to crap. Hence, the big uptick in Mac sales and Linux adoption in response to the disaster that is Vista (and the impending implosion, I hear, that will be Windows 7). With the exception of foreign automakers (and with them, money flows OUT of the country rather than IN), there is no such situation with the the domestic auto industry. So they go to Chapter 11, fine. They should be forced to spin off divisions in order to get any aid. That's what I mean by breaking up the trust.

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Too Big to Fail = Continuous cycle of bailouts . The Big Three have been failing for some time now let them die their natural death . Someone inevitably mention if they fail people will lose jobs. Guess what in the auto industry has been losing jobs for decades. This bailout will not create one job and it is highly unlikely in the long term to maintain these jobs. if we are going to give money away i would rather give money to the job retraining programs to help auto workers devlope skills necessary to get a new job. Our economy needs to modernize and quit propping these dinosaurs up every ten years.

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I don't know if Jim Cramer is a Democrat or a Republican (although I tend to believe the latter, after how he foamed at the mouth regarding "drill baby drill" during the summer), but he seems to be really panicking at the prospect of a GM failure.

 

http://www.cnbc.com/id/27723475

You know, not everyone is this world has to be labeled as a Republican or Democrat.

 

 

:notworthy

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