VHeadline commentarist and money market expert Fred Cederholm writes: I've been thinking about AUTOs ... about this week's coming bailout, escalations, economics, hypocrisy, and camels. After last week's grandstanding and haranguing, Congress will approve some form of interim bailout for the BIG 3 US automakers. Their hat-in-hand request for a quickie infusion of $25 BILLION from two week's ago has blimped into the current request for $34 BILLION this week.
It looks like Congress is primed to fork over some $15 BILLION in loans to keep the MOTOWN MOGULS cruising at least thru January. Consider this a first installment.
You see America's love affair with its vehicles has sort of … well … soured.
Oh we still love our vehicles -- regardless of who makes or assembles them… The problem is that BIG 3 US automakers are driving down a very rough patch of road where they are NOT selling the vehicles necessary to cover their current operating costs, much less underwrite the sunk costs of the health care and pension costs for their respective retirees! They are hemorrhaging money and are on a countdown to insolvency within weeks -- under the best scenario maybe months. The auto sector has now eclipsed the financial services sector in capital evaporation. Thus … it is now their turn to seek a bailout from Uncle $ugar.
Economics deals with the allocation of resources. Most economic models eventually get around to discussions of supply and demand. When supply and demand are in sync; pricing, goods' inventories, sales, and company's solvencies tend not to be problems. When supply and demand are out of sync, market forces (or government meddling) work to re-achieve some workable balance. A market force fix would leave the BIG 3 to their own devices -- downsizings, bankruptcies, liquidations, and dissolutions. That does not appear to be an option … so once again Uncle $ugar will stick his finger in the pie.
Thus far all of Uncle $ugar's deep pocket options involve infusing more money to keep the BIG 3 producing vehicles. The problem now is NOT that the BIG 3 are not producing vehicles; the problem now is that the BIG 3 are not selling them. Once again Congress has it "bass end backwards." Remember that Capitol Hill, the US Treasury, and the FED are still trying to con the public that the solutions to the wider banking, financial, and economic messes of too much debt: are to cut interest rates, ease lending standards, and flood the drowning souls with more liquidity. When you are in a hole, keep on digging!
My US Congressman, Don Manzullo R-Ill 16th, again has been a beacon of light and common sense during the past week's hearings. Manzullo: "Unless people are buying automobiles, it doesn't do any good to give money to a company to go and pay its bills when they're going to be plugged up again in a couple of days." Week's ago Don twice voted against the unrestrained $700 BILLION bailout slush fund. Now his Congressional cohorts refuse to tap that kitty for the current BIG 3 money request, but choose to raid another fund instead! Could it be that the $700 BILLION is already gone and nobody's talking about that fact? Transparency and accountability have not exactly been hallmarks for bailout monies thus far. The public still does not know definitively who has gotten how much? -- and when?
The current bailout infusion of the $15 BILLION in loans will have a 5% APR coupon rate for the first five years and 9% APR after that.
"Oversight" is the MEGA buzz word for this chapter in the unending potboiler saga of bailouts. Congress is concerned about the taxpayers' money and will oversee the BIG 3's budgets and spending to prevent misuse of funds and over-spending… (Re-read that last sentence again, once you have stopped laughing!)
A watchdog commission of five cabinet secretaries plus the head of the EPA with a "car czar" appointed by the President will be established to ride as shotgun. These so-called checks and balances do not give me a whole lot of warm fuzzies about the deal under consideration for "saving" the BIG 3 US automakers. Ah politics…
It has been said that a "camel" is a horse designed by a committee. I can hardly wait to see what rolls off the assembly lines with Congress and their "car czar's" cadre of Presidential cabinet secretaries calling the shots!
Fred Cederholm
asklet@rochelle.net
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