The bailout oxymoron

posted at 10:45 am on November 17, 2008 by Ed Morrissey
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George Orwell, please call your office –stat.  Today’s Washington Post report on the proposed auto bailout bill has the humorous oxymoron of taxpayer protection embedded in loans to an industry whose entire market capitalization comes to less than a third of the loan itself.  If that sounds like a Fannie Mae loan program, it should come as no surprise, since the same people who brought you the financial collapse are pushing this monstrosity as well:

A measure to speed $25 billion in emergency aid to the nation’s automakers will include provisions designed to protect taxpayers, congressional Democrats said yesterday, including a ban on bonuses for employees who make more than $200,000 a year and a government oversight board with power to veto corporate decisions.

The bill, which is expected to be unveiled today on Capitol Hill, also would bar the automakers from paying dividends to shareholders for as long as the firms owe the government money, Rep. Barney Frank (D-Mass.) said on CBS’s “Face the Nation” yesterday.

Despite strong opposition from congressional Republicans and President Bush, Democrats plan to press ahead with legislation aimed at staving off the collapse of the auto industry when Congress convenes this week for its final session of Bush’s presidency. …

Both measures would carve cash for Detroit out of the $700 billion financial rescue program Congress created last month to shore up the U.S. banking system. The White House opposes using the money for that purpose and has urged lawmakers instead to modify an existing $25 billion loan program to help the automakers retool factories to produce more fuel-efficient vehicles.

The amount of money Congress wants to spend on bailout loans could buy Detroit’s Big Three, and perhaps have enough left over for a German automaker or two.  The value of the stock in these companies amounts to $7 billion combined:

As of the close of business on Friday the market cap for General Motors was about $1.9 billion, Ford about 4.3 billion….Chrysler is privately held but it’s a safe bet that their FMV is less than $2 billion…probably a LOT less….so for approximately a lousy $7 billion….a rounding error for the federal budget…the government could simply BUY the entire U.S. auto “industry” — actually, of course, it’s just the U.S. nameplate manufacturers, but that’s another story — for what amounts to a pittance.

Of course, one reason Congress seems so intent on investing in these automakers is that they run their businesses much like Congress runs the federal government:

The numbers are literally absurd….Ford has $160 billion in debt!….with NEGATIVE book value of equity….GM has about $60 billion in debt…and a HUGE negative net worth on a book basis of $56 billion!….Essentially, the market is valuing the companies — well above their (negative) book values — but at what amounts to scrap value!…so $50 billion more from forced tax exactions should be thrown at them?….and that’s NOT absurd?

Now, let’s look again at the oxymoron of “taxpayer protections” regarding loans to companies who already cannot repay their debt, and whose debt far outweighs their value.  That sounds more like a Fannie Mae security than a solid bet on taxpayer money.  Putting aside the obvious fact that the government has no business intervening in the collapse of a poorly-run private enterprise, the loans will only prolong the agony of collapse.  If $160 billion in credit for Ford couldn’t correct their problems, an additional $8 billion will hardly turn the auto manufacturer into a stable powerhouse, or even keep them above water.

And who’s pushing this bill?  Barney Frank, the same genius who assured us that Fannie Mae was solvent and that further regulation wouldn’t be needed.

The real taxpayer protections need to be placed on Congress, not the automakers.  Representatives who engineered the collapse of the GSEs have no business plotting any more government interventions.

Update: Fixed the bad link; should have gone to Power Line.

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