In his most recent GM Deathwatch, RF raised the specter of "Bailout Fatigue." The Detroit News' Gordon Trowbridge agrees. Their man in Washington says to the government's preference for financial sector bailouts like Bear Stearns, Fannie Mae, Freddie Mac and Indy Mac will queer the pitch for Motown. Rep. John Dingell cries foul! "If Freddie Mac and Fannie Mae ask for a bailout and they get it, [automakers] should be able to ask and get it, too," says the Dearborn democrat. Former Michigan governor James Blanchard agrees: "government seems to treat financial services with special care, and not care about manufacturing until the last minute." President Bush begs to differ: "If your question is, should the government bail out private enterprise, the answer is, no, it shouldn't." According to the Chief Excutive, the Fannie/Freddy "rescue" isn't a bailout because "the shareholders still own the company." And now a word from someone without a horse in the race. "Fannie Mae and Freddie Mac are fundamentally sound businesses," says University of Maryland economist Peter Morici, implying of course that the D3 aren't. Besides, Fanny and Freddy hold 91 percent of America's mortgage debt on houses under $470k, while Detroit only employs about as many workers as Chrysler did when it was bailed out in 1979.
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What it amounts to is socialized benefits for the rich elite and capitalism at it’s worse for the average joe, to see taxpayer monies shielding the wealthy and greedy from the consequences of their actions.
Of course the Washington elitists are going to bail out their New York elitist friends with OUR money. That’s “what they do”.
Detroit may as well be Cuba as far as Washington is concerned.
I believe the reason the financial operations are being bailed out, propped up, merged, and kept running is that if they go down then there will not be any loan money available.
No loan money – then the car business, the home business, the appliance business, etc. all go down.
Probably the old, creaky, badly managed, and out of touch 2.8 auto business should be abandoned for the sake of the rest of our economy.
Detroit wouldn’t have needed a “bailout” but for poorly managing their companies into oblivion and irrelevance.
Former St. Louis Federal Reserve President William Poole stated that the two companies were “technically insolvent”. Hmmmm.
How about this for a bail out strategy? (I didn’t come up with it, but it sounds fair to me and I like to bring it up when I can to help spread the word). I personally don’t like the idea of bailouts, but I also recognize the bad bad things that will happen to our economy if Fannie, Freddie, Detroit aren’t bailed out. What we could do is have the government offer bankrupsy-proof loans at Treasury Bill rates. Then to raise that money for the loan, the government could sell more T-Bills. In this way, there is no tax payer money being wasted as the buyers of T-Bills are the suppliers of the money, but the interest rate is kept reasonable because there is essentially no risk in investing since it’s all bankrupsy-proof.
I also advocate this method to “bail out” the all the people with upwardly adjusting ARMs. I will be very mad if they just get to walk away from their homes because I was conservative and bought a house I could afford on a fixed rate, but I also see the big problem in making it impossible for these ARM owners to get out from under their massive debt. Let them get T-Bill rate loans from the government (which like student loans and tax debt be bankrupsy-proof) to help them start to recover.
I think it’s a good compromise to bring sanity back into our financial industry.
The U.S. without credit easily available? A desolate wasteland – they don’t have a choice, they have to bail them out. But it’s not doing the dollar much good.
folkdancer,
I believe you make a false assumption that if Fannie and Freddy take a dirt nap, that no money lending would occur.
It’s all about supply and demand. F & F go out of business, I can assure you that Wells Fargo, Citi and even Wal-Mart would begin lending much more money than they currently do. Even more likely is that local and regional banks and CU’s would step into the void.
They might make more demands on a quality credit record, but lending would still be occurring.
Who do you think buys the loans that Wells, Citi, and Wall Mart (?) make? Citi is next by the way.
Besides, Fanny and Freddy hold 91 percent of America’s mortgage debt on houses under $470k…
That’s the disgusting part.
Without their implicit government guarantee, these two monsters wouldn’t have been able to swallow such a bloated portfolio – much of it toe-tag credit score types. And now, while it makes sense to put a free-market hollow point thru Freddie and Fannie’s brainpans, the resulting spatter will mess the rest of the housing market.
There has been no bailout of IndyMac, the company paid FDIC insurance, and made claims on that insurance when it went bankrupt. Big depositors still lost tons.
Fannie and Freddie haven’t been bailed out yet, and it still can be stopped. Contact your congressmen/senators if you oppose this. And you should, unless you own these bonds or stock. And you probably don’t, the biggest single owner is the government of China. This is a big deal, a $300 billion bailout is $1000 of taxpayer money for every man woman and child in this country.
The D3 still have a viable business, and still sell
The D3 still have a viable business because they still sell cars for more money than they cost to *make*.
If they can get over their massive retirement, bond, health care debts, their business itself is perfectly sound, if in decline.
Remember in Japan, Canada, Germany, etc. the government pays for health care, not employers. US automakers do not have a level playing field.
I am convinced GM must file before the Presidential election is over. Neither party can “afford politically” what the country cannot “afford economically”. Once the votes are counted, the winner will be approaching the entire economy with a very sharp pencil. Not to mention a scalpel.
http://youtube.com/watch?v=rkwtYhiJ930
It’s why America shouldn’t bail out Freddy and Fannie. And the same logic applies to GM! When they make profit, these companies keep it, and more importantly waste it by having bad policy, bad products, etc. When these companies start losing money, we have to pay?
Well what part of “Government Sponsored Enterprise” does Detroit News not understand? The very existence of Fannie and Freddie may or may not be a good idea, and there’s a lot of contentious things can be debated — but they have been government-created and government-backed organizations from the start. Everyone knows that. Hence the bailout.
The Detroit 2.8 are not Government Sponsored Enterprises. For that matter, unlike Fannie and Freddie, they do not even have a majority market share in their line of work in the U.S.
I’m 100% against bailouts. I have saved money and rented BECAUSE I couldn’t compete with the interest-only/adjustable-arm fools.
Now that said fools are losing their homes, I DESERVE lower prices for not ruining myself financially. My wife & I’d like to buy a house next year. We carry no debt except 2 years left on a sub 3% APR car loan.
Prices still need to come down significantly. What is the point of me saving my $ smartly & then getting them taken from me to bail out irresponsible people?
Read up on the Depression. We created those entities so banks would have a market to sell their mortgages. Without them the pool of available money for new loan would shrink dramatically as the banks would be stuck holding the loans. The Federal Reserve during the depression raised interest rates refused to loan money to banks and the banks were left holding mortgages while depositors clamored for their money. I can’t stand the idea of a bailout but it will happen for Fannie and Freddie. As for Detroit that’s ones for the politicians.
I think the money for Freddie and Fannie needs to be taken out of the hides of the people running those orginizations. Take everything they have, investmetns, homes, cars, etc. Seize all peoperty held by them and their spouses. If you can prove they have tried ot hide assets with children or other relatives take that too and throw the relative into the pot with them. There’s a reason that Freddie and Fannie are going under and its no different that what is sinking the american car industry and other manufacturers as well, short sighted greedy peopel at the top chasing after the quick buck with no concern for their employees, the company, or anybody else but themselves.
It’s why America shouldn’t bail out Freddy and Fannie. And the same logic applies to GM! When they make profit, these companies keep it, and more importantly waste it by having bad policy, bad products, etc. When these companies start losing money, we have to pay?
Exactly. It’s always “free market” until they screw up, then all of a sudden those customers they screwed are supposed to pay for a bailout.
John
Why do people act like govt. health care is free?
Sure, GM doesn’t have the expense on the books. Their just pay a big old honking tax bill instead of a health bill.
Intelligently managing their benefit costs is a different story.
Robstar:
Prices still need to come down significantly. What is the point of me saving my $ smartly & then getting them taken from me to bail out irresponsible people?
Responsible voters (like you) are outnumbered by irresponsible voters. And it looks like it’s going to get worse before it gets better.
I agree. I save. I live smart. I have no debt besides a few grand of student loans. I contribute to retirement funds.
Meanwhile this credit addicted population ends up screwing themselves so royally the whole economy tanks. I can do what I can to protect myself and save for myself, but I’m no match for the US economy. So their idiotic actions now affect ME, despite me being smart.
I agree completely.
Corporate BIG-wigs, who often earn more in a few months than many Americans earn in a LIFE-time of labor (my working-poor roots are likely revealed in this post) need to pay for their mis-deeds.
In a perverted sorta’ way, I hope Obama or one of his ilk (ilks, elks?) fill the federal government and descend upon the small minority who have economically benefitted so very much the past couple decades and more while my socio-economic class has lost economic ground, been spat upon, forced to directly economically compete for jobs and housing with millions of the “undocumented ones,” steadily smashed down into a 2nd-world level economic quagnmire……. descend upon those BIG money makers and tax them at a 90 percent or higher rate with NO loopholes to hide within.
Let the upper-crust suffer along with those of us at the bottom.
Heck, the CEOs can live a life of luxury on one year’s salary!!!! And, their free health insurance for life while my class, the ones harvesting the food that allows all to specialize in their highly-paid fields, get no overtime pay until AFTER 60 hours of labor is exceeded per week; and those workers include 10 year olds up to old folks in their 70s, sweltering in the 100 degree heat, and are offered NO benefits.
Bah!!!!!!!!!!!!!!!!!!!!!
Let the “mighty” fall… and may those who have prospered so greatly suffer as so many other hard-working non-priveleged Americans have.
/class envy or class reality?
//come work in the fields for awhile then chime in
///like your grocery store shelves full, don’t you? Thank the members of the working-poor class if you do
So, who bails out the USA when it goes bankrupt? The US is headed for a financial meltdown, way too many factors going against us. Did I mention the hordes of baby boomers headed into an already overburdended social security and MediCare system?
The U.S. has already, and continues to sell its soul to the China’s Europe’s, Russia’s and Middle Easter countries.
IMO, it is not a matter of if, just when.