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Paulson, Bernanke, and Congress on the Bailout: Incompetence All Around

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Let me get this straight – Banking Institutions cause the world economy to collapse because of risky sub-prime loans. As a result American taxpayers lose their jobs, their life savings, and their homes. Then the U.S. Government and The Fed, force taxpayers, who have lost everything they own, to loan $1 Trillion Dollars to the Banks who caused the problem, to save them. Wow! That sounds really fair. The Super Rich and the Bankers are really grateful to Bernanke, Paulson, Cox, Bush, The Credit Rating Agencies, and Congress for taking care of them. But the people don’t even have enough money to buy a turkey for Thanksgiving.
I wonder what God thinks about that?

Steve of CO 1:41PM November 26, 2008

Congressional Bailot is the easy way out of the delemma
that the Big three Auto Makers find themselves.
If they were forced into the bankruptcy courts, would that
force them to alter the Labor Contracts that the Unions
for the Big Three, to meet some of the competition, coming
from the "Deep South", namely Honda, Toyota, and the others?
Moreover, I notice nobody in the media and in the Congress is
willing to bring this issue up for discussion.
We, the consumming world have been "spoiled" with better
mileage, better cars and lower prices in recent years, from
those Japanese auto makers.
Getting me and others back to "Buying American", namely
the Big Three, will take a tsunami to even look at a car
make by the Big Three.

George Courlas of CA 5:07PM November 24, 2008

Manipulating the cost of a barrell of oil... has absolutely nothing to do with supply and demand! Hogwash! The oil companies CRIPPLED this country last summer with their outrageous prices - people couldn't pay their mortgage because they had to pay for gas - nobody wanted cars that used a lot of gas - it goes on and on.
Don't forget about their factor in this whole mess.
It's not only the mortgage lenders.

Tricia of CO 4:08PM November 21, 2008

Let's say the Big 3 go under. Toyota and Honda will employ a lot of the workers, as demand for cars will resume at some point. We get an immediate management transplant and sustainable cost structure. Clearly, the UAW will have to take a big wage and benefit cut to bring it into the 20th century.
If demand is there for cars, the transition is seamless. If demand is not there, no bailout in the world will work. Capitalism will work like a charm here. If the government wants to pay welfare, better to pay it to reeducate the workers. We'll need them to help build the nuclear plants, solar and wind farms, oil rigs, and clean coal plants to make us energy independent. We need 10,000 officers in the Army to rebuild it after the debacles in Iraq and Afghanistan. I'm sure they could find some volunteers.
The key point is we don't need to fear the consequences one way or the other. If demand is there, Toyota and Honda will pick it up. If demand is not there, no bailout will work anyway and we get through this the best we can. Unemployment and retraining are cheaper in the long-run than bailing out companies. Otherwise, taxpayers just end of paying bloated union salaries. This bailout will cost $200-$300 billion before its over, don't kid yourself!

Dave D. of IL 12:42AM November 21, 2008

As someone with a corporate finance background, I would like to make two simple points:
1) The big 3 are collectively burning $5B in cash a MONTH. That $25B gets us to Independence Day or maybe Labor Day 2009.
2) Because the other creditors already own the assets, the tax-payer loan would likely unsecured. The cash would evaporate in operations, and tax payers would be left with zippo.
Better to let them go Chap 11, and then the gov't can advance funds as the first-in-line creditor (DIP financing), AFTER a reorg plan is submitted. The gov't can stand behind the warranties, etc if that is the issue.
The reorg plan needs to show how they can cash flow with US volumes at 11-12M annually. The plan needs to include radical ideas re: dealerships, pay, brand consolidation, etc. For example, GM ought to have no more than 3 brands plus trucks. Maybe Chrysler needs to be absorbed into GM? Better minds than mine could surely come up with some ways to reduce redundancy and structural costs.
I agree that secured DIP financing is preferable to letting this whale beach. The pension liability plus the uninsured benefits prob exceed the secured loan.

JohnBoy of FL 9:52PM November 20, 2008

Paulson is an ex Nature Conservancy exec. The most profitable non profit organization ever!! The nature conservancy is not about conservation. Its a money heist and a land grab. People in West Texas can tell horror stories about the Nature Conservancy as well as the Sierra Club.

Tonga of TX 8:44PM November 20, 2008

Where is OBAMA on any of this? He is going to be president. Maybe it would show some kind of leadership if he voiced his opinion on this.
WHERE IS OBAMA?

Don of FL 8:21PM November 20, 2008

Would that they had dithered longer, about 4 years longer. If so, the not-so-free market would have corrected the problem and the taxpayers would not be out $350 billion that has gone for absolutely nothing, as was completely predictable.

Jeff Perren of ID 7:41PM November 20, 2008

I always appreciate your cogent comments and learn from your assessments.
One of your sentences above took me a couple of extra seconds to digest; accordingly, I humbly encourage you to place a comma between "that" and "as" in the following sentence so as to provide a better example of your redoubtable verbal aptitude:
"These essays, usually written with fellow academics as coauthors, are hard slogging, and I have to say that as a graduate of Harvard College and Yale Law School with a high verbal and even math aptitude, I have had a hard time understanding them."
My own math aptitude being quite uneven, I complete understand that part of it.

B Warner of WA 7:32PM November 20, 2008

Dear Mr. Barone; I think the federal government should offer the hope of post-Chapter 11 financing to the Big Three to induce them to file, slim down, reorganize, and then we could make their employees and retirees the first participants in our new gov't. sponsored health insurance program. Let's think...Big Ideas. Robert P. Zisgen, Esq.

Robert P. Zisgen of NJ 6:28PM November 20, 2008