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“Tax payers can’t be expected to pony up more money for an auto industry that is resistant to change.” Doesn’t want to be kicking the can further down the road either.
28 Comments on “Bailout Watch 242: Obama Doesn’t Want To Write A Blank Check...”
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“….However, if you are Fannie Mae and Freddie Mac, since you donated hundreds of thousands to my campaign, I fully support giving you hundreds of billions as often as possible to perpetuate your broken system.”
“In short, you gotta pay to play.”
“….However, if you are Fannie Mae and Freddie Mac, since you donated hundreds of thousands to my campaign, I fully support giving you hundreds of billions as often as possible to perpetuate your broken system.”
Now, come on. They’re bankers. No politician of reasonable stature and moderate opinion on either side of the aisle is going to piss off, or piss on, the financial industry. Nowhere across the globe are anyone–excepting fringe players–opposing this kind of thing.
The auto industry just doesn’t have that kind of clout.
I think he’s right – they should be accountable.
And I hope once the banking mess gets straightened out, they get their marching orders as well.
The difference between the banking industry and Detroit is that banks are like dominoes; knock a few over and they take some more down, and those take more down and you end up with massive collateral damage.
Detroit is more like Jenga. Them going down will topple the tower, and it will suck hard and create a mess, but it doesn’t nearly the same cascade of destruction that losing the banks would have.
That’s the basic theory anyway, reduced to board game analogies.
psarhjinian:
Thar auto industry just doesn’t have that kind of clout.
Agreed! However they do have some clout, as the UAW votes for the Dems. in mass…like clock work…every time…no questions asked. The Dems., specifically Obama, is somewhat beholden to their cause.
Feel free to straighten me out if I’m off base here.
Since when do politicians know squat about the auto industry? Yet we have to listen to them blow and scold like they know what ails all in the world? Then they get to control all OUR money, and determine who to give it to? Which apparently includes a few trillion for banks that made horrid decisions and consumers who did the same. Yet auto companies are a bunch of buffoons (may be true) that have to jump through hoops (everyone should when this much money is involved) just to get a LOAN? And this is not one company, its an entire industry. Yet I seem to get the impression the sooner the better for most of these idiots in Congress. None of whom can ever see past the green-tinted glasses to realize that for every media-darling prius Toyota sells, they sell how many more Tundras and Sequoias? They seem to think that if only Detroit had a Prius then they wouldn’t be in this situation, which is completely false.
That comment about the 200MPG “we’ve done our part” on SNL was SPOT ON. They’re clueless, and every answer they think they have for Detroit (everyone is an armchair quarterback) just demonstrates how little they know and that they’re clueless as to what the world wants, can afford, and what will sell. Mandating a 100% Prius fleet would be suicide.
Idiots. All of them.
The guys whole lifetime of real work experience is a couple years as a social worker and he is going to teach GM how to run their business?
This is going to be entertaining.
PS Fanny and Freddie were government run, and Obama’s buddies at ACORN had a big influence.
I agree about the financials vs. the big 3.
However if you were in Detroit you do have to look at the latest Citi deal and wonder. Citi had a market cap over this weekend of about $20 Billion. So the Fed’s come in give them another $20 Billion on top of the $25 Billion they got last week. Guarantee or backstop up to $300 billion in loses. In exchange the Taxpayer and Fed’s get preferred stock and some warrants that if everything works out (big assumption) the taxpayer/government ends up with about 10% ownership. So we the taxpayer give Citi $45 billion to a company with a market cap of $20 billion and walk away with 10% ownership. Brilliant deal! Detroit needs to hire the guy from Citi who sold this deal to Paulson and crew. Let him work out the bailout for Detroit.
No hearings before congress, nobody loses their job, little or no talk about executive compensation. The other nugget of this deal, Citi is going to pay $400 million for the naming rights to the Mets new stadium next year.
So I can see how the Detroit looks and cries double standard.
I agree about the financials vs. the big 3.
However if you were in Detroit you do have to look at the latest Citi deal and wonder. Citi had a market cap over this weekend of about $20 Billion. So the Fed’s come in give them another $20 Billion on top of the $25 Billion they got last week. Guarantee or backstop up to $300 billion in loses. In exchange the Taxpayer and Fed’s get preferred stock and some warrants that if everything works out (big assumption) the taxpayer/government ends up with about 10% ownership. So we the taxpayer give Citi $45 billion to a company with a market cap of $20 billion and walk away with 10% ownership. Brilliant deal! Detroit needs to hire the guy from Citi who sold this deal to Paulson and crew. Let him work out the bailout for Detroit.
No hearings before congress, nobody loses their job, little or no talk about executive compensation. The other nugget of this deal, Citi is going to pay $400 million for the naming rights to the Mets new stadium next year.
So I can see how the Detroit looks it and cries double standard.
I’m far from a Rick Wagoner supporter but I actually find him much more credible than the majority of the Senate. This whole thing was a made for CSpan dog and pony show and with Barack soon to be the keeper of the key to the cash box (that we all fill each week)he has to get in on the action. There is one thing that has been mis managed far worse than Detroit and that’s the Federal Government.
When was this press conference? If this guy asked the question today, he’s about 4 days behind the game – Obama has already given this response ad nauseum.
The better, more interesting question of today, is to contrast his response of the Citigroup bailout versus the auto industry. I have yet to see any press member conjure the cojones to challenge that one.
I think the difference is that if the financial industry fails then the entire country (and maybe world) goes into a ten year depression or worse and if GM, Chrysler or Ford fail then maybe a million lose their jobs. Nobody wants to see the big three fail but the consequences are a lot less serious than the failure of our financial system. Cynics may say that its about influence but a sober review of the situation will tell you that this is the best hope to contain greater damage to the economy – even if nobody likes it.
taxman100: Fannie Mae and Freddie Mac make the mortgage market. Fannie was created by the government during the Great Depression to subsidize home ownership, and Freddie was created later so that the secondary mortgage market would not be controlled by just one company.
If it was not for them prime mortgage rates would probably be at 8% right now instead of ~5.5%. That would be really bad.
If they were not bailed out your house, if you have one, would be worth probably 25% less that it already is. They most likely own your mortgage, the bank that you write checks to is just collecting money for them.
Also, their business model is not failed. In the 2000s the underwriting standards for the secondary loans that they bought became a bit to loose, but at the time of the government takeover 98% of their mortgages were still on time. They actually were called out by the credit crunch.
The problems are not structural for Fannie Mae and Freddie Mac, they do not have a lot of overpaid union employees that they cannot lay off, and they do not have a lot of excess brands and dealerships that they cannot get rid of.
Obama is very in debt to the Unions, this is not about “pay to play”, it is about the home values of everyone in this country (including the elderly, who will need a huge amount of welfare if their home values tank) taking precedence over UAW and dealer special interests.
In the end maybe it was wrong for the government to take ownership of Fannie Mae and Freddie Mac, but the case for that was much better than the case for loans to the big-3 that will never be repaid.
Then these banks need to be busted up. Honestly. If they can all get to the point where a collapse of just ONE of them can drag the entire world into a monster recession means they can never be allowed to get into that position in the first place.
No company should be “too big to fail” and if it is, then it needs to be broken up. The government should not be in the job of propping up institutions run privately that made ridiculously dumb decisions. You want companies to take risks, but this is just insane, and government bailouts for monster companies just because the economy can’t afford the hit is even more insane. Yeah, it would suck, but part of me says they need to go under. What we’re doing now is just encouraging businesses to take ungodly high risks, and consumers to spend way more than they can afford (because they shouldn’t lose their homes, right?!). And it isn’t like the government has this money in a safe somewhere….they’re borrowing it too. We all lose. In the end, I sometimes wonder if its better overall for us to take our hits, learn our lessons, and get on with life. At the end of the day, despite the hardship, our society will be better off.
Its disgusting to me how the billions and trillions are thrown around like they mean nothing. Even I have noticed that suddenly the government spending $10-$12B a month in Iraq suddenly doesn’t seem like as big an amount as it did just 3 months ago.
I can’t deal with this crap. And the growing hypocrisy is making it 100 times worse. Because you aren’t big enough, you get screwed, and you have to pay for other people’s mistakes?! There is nothing “American” about any of this. All talk. All of it. And run and managed by a bunch of idiots.
Meanwhile Citigroup gets another $320 billion in support ($20 billion in direct cash and $300 billion in coverage of Citi losses) with nary a hearing or cross word from Congress. Just a backroom deal cooked up with the Fed and Commerce. No mention, either of corporate jets or retreats.
Nobody likes bailing out asshole bankers, but our entire way of life depends on a functioning financial system. The disruption caused by Lehman Bros crashing scared them all into paying whatever it takes to keep things going.
And why do we have to save home values? We all make choices, we all make investments, some pay off, some don’t. There’s no written rule that says home values have to go up forever. I don’t hear anyone complaining about “saving oil prices”. Why would homes be any different? Just because millions own homes? Ok, well that’s the game you play. And if people are banking their retirement on being able to get value out of their homes, thats the gamble they took. No different than people thinking they’re going to take value out of their 401ks when they retire. That’s the gamble 401k ers took.
If you can’t make the payments, you don’t buy the house. If you buy it, and it goes down, tough luck. Yeah it sucks. It also sucks when you make an investment in anything and it goes down. That’s the market. Get over it. Just because a gazillion people made a bad bet doesn’t mean they’re somehow entitled to receive help. And if the interest rates should be 8.8% instead of 5.5%, so be it. It at least is based on reason instead of giving loans to anyone with a pulse.
Ok, I gotta take a step back from this. I can’t take it. Especially when it is my money REWARDING these kinds of choices. Those who make the less-risky bets and are careful still lose….
The problems are not structural for Fannie Mae and Freddie Mac, they do not have a lot of overpaid union employees that they cannot lay off, and they do not have a lot of excess brands and dealerships that they cannot get rid of.
Though we do have way too many way too overpaid federal employees.
As for the FM GSEs it seems to me that by encouraging the sale of securities based, in part, on some pretty flaky mortgages, the FMs helped make the problem systemic. Throw in investments based on statistical risk factors (that ignore the fact that risk includes the chance of failure) and rating agencies screwing up and we have a wonderful mess now, don’t we?
The whole scheme of bundling together mortgages with different risk factors and then coming up with an overall rating for the tranche is a bit like a produce merchant selling bushels of apples that are rated AAA, AA, A, BBB etc. The AAA bushels are almost all perfect, just a few rotten apples. BBB has more rotten apples but on average, the quality is decent. It looks good on paper but that ethylene gas is going to rot the whole bushel.
I think the difference is that if the financial industry fails then the entire country (and maybe world) goes into a ten year depression or worse and if GM, Chrysler or Ford fail then maybe a million lose their jobs.
A million lose their jobs and even more folks default on loans and mortgages and the banks go down like dominoes anyways.
Fine, so the banks are so deeply entrenched in the system that they are too big to fail. Why then, with Detroit being compelled to produce business plans for congressional oversight, is there no talk, none at all, of restructuring the financial industry so they don’t expose the entire economy to systemic risk?
Obviously Ford has a plan that they are implementing, and for the sake of argument let’s say that GM has a plan too. Where is Citigroup’s plan? What’s to stop them from buying insecure securities going forward, particularly if they now know that the gummint will step in to bail them out no matter what.
If it was not for them prime mortgage rates would probably be at 8% right now instead of ~5.5%. That would be really bad.
no_slushbox,
Just wondering if you’re old enough to remember Jimmy Carter. I realize that to some he’s a walking saint, but during his administration both inflation and interest rates topped 18%. Now that would be really bad.
no_slushbox: If it was not for them prime mortgage rates would probably be at 8% right now instead of ~5.5%. That would be really bad.
Not necessarily…housing prices would just fall to make up the difference in affordability. Contrary to popular belief, the laws of supply and demand work for houses, too.
People who own houses may not like it, but that’s just tough.
no_slushbox: If they were not bailed out your house, if you have one, would be worth probably 25% less that it already is.
Housing prices were going to fall regardless of what the government does with Fannie Mae and Freddie Mac. Again, if owners don’t like it, too bad.
Housing has been overpriced relative to income – especially in places like the New York City area and southern California – for years now, and has been due for a serious correction. Too many people are still priced out of the housing market, so prices still have a lot farther to go, especially in the coastal areas.
Last week the CEOs of the big 2.8 came to Washington in 3 seperate private jets, sat before Congress and begged for money with NO plan in hand.
They basically said give us cash with no strings attached but could in NO way explain to Congress and the American public how that cash was going to be used.
Nor were they willing to explain why Ch 11. would not work for them.
Over the last few months the American public has been getting a crash course in economics. While they may not understand the banking industry most folks can clearly understand why the big 2.8 are in deep trouble.
To get down to it Congress, the incumbent president, and the president-elect are actually acting on the wishes of the people on this one. Folks are NOT very sympathic to the Detroit players. Far too many of us have been PERSONALLY robbed by them in the past and HATE these companies. We do not feel the goodwill to help them or the UAW workers out.
WE HAVE BEEN SCREAMING AT THEM FOR 30 YEARS TO GET THEIR SHIT TOGETHER AND HAVE ONLY BEING GIVEN THE BIRD IN RETURN!
The banks have lost a lot of false VALUE recently. GM, Ford, and the UAW have made and WASTED enormous fortunes in REAL EARNED money over the last couple of decades.
Ronnie Schreiber:
There were not nearly as many adjustable rate mortgages during Carter, and mortgage rates had not been as low beforehand. In the extortive language of government bail-outs keeping rates low is less expensive than dealing with failed mortgages.
The real answer preventing financial crises like the one we are in is to prohibit adjustable rate mortgages on residential homes. Only fixed rate mortgages with straight line amortization should be allowed on residential loans. However, that is politically impossible. The banking and real-estate industries would scream bloody murder and communism.
geeber:
At the end of my comment I left the possibility open that the Fannie and Freddie bailouts were wrong, but they are certainly more defensible than a big-3 bailout.
The thing about “[p]eople who own houses may not like it, but that’s just tough” is that a majority of voters own houses, which, for those that don’t own houses, is just tough.
There were not nearly as many adjustable rate mortgages during Carter, and mortgage rates had not been as low beforehand.
Were you even alive in 1976? I don’t know the percentage of mortgages back then that were ARMs, but ARMs were certainly available. The prime rate when Carter took office was 6.25% and the avg fixed rate 30 year mortgage in 1977 was 8.85%. The prime rate in Dec. 1980, just before Carter left office, had climbed to 21.50% and while rates started coming down a few months after Reagan’s inauguration, the avg. mortgage rate for 1981 16.63%, the highest it’s been since WWII, maybe ever. So during the Carter administration, mortgage rates almost doubled, going up about 8%, a much larger delta than over the past couple of years. While the number of people who may have been at risk of foreclosure due to rising ARMs may have been lower, hardly anyone could afford to buy a home in the first place because the rates were so usurious. The construction industry was moribund. Why do you think so many homeowners refinanced when rates came down?
The late 70s was a crappy time in America. The word most associated with that era was “malaise”. Cars were at their nadir, with tacked on 5mph battering ram bumpers that didn’t exactly help handling with all that weight at the extremes of the car, and early emissions controls that left cars underpowered with driveability problems. Cars wouldn’t run smoothly, they’d balk and have flat spots when you’d try to accelerate. Many if not most cars would “diesel”, they’d continue to run, clattering and backfiring, after you shut off the ignition. But hey, that’s what you get when you try to legislate technology changes. Engineers aren’t magicians and without the ECUs, Fuel Injection, Electronic Ignition and Ignition Sensors that today give engineers tremendous control over what’s happening in the combustion chamber it was hard for them to meet the mandated standards without affecting the way engines ran.
Banks being in the “financial” sector should have had better early warning systems that the auto industry in my opinion. Ironically the auto industry’s failure is partly attributed to “bean counters”.
It’s unacceptable for banks to fail like this in my opinion, after all they are in the “financial” sector. Auto industry should be given an inch and get the bail-out. Ironically the American auto industry’s problem is partly attributed to “bean counters” interference.
No bail outs should be granted to banks, they are in the FINANCIAL sector after all and should be best positioned in forecasting the markets well ahead of time. Ironic that the auto industry is in the mess, partly due to “bean counters” interference, allegedly.
no_slushbox: The thing about “[p]eople who own houses may not like it, but that’s just tough” is that a majority of voters own houses, which, for those that don’t own houses, is just tough.
But a house is only worth what someone can pay for it. It’s now apparent that housing prices have been artificially inflated by exotic mortgages and giving loans to anyone with a pulse. Prices are going to fall, as lenders return to sane lending standards, and many people simply pull out of the market.
If the government tries to prevent this (and it certainly can try), it will quickly discover the futility of such a move.