Grassley likes Obama's double standard on bailout recipients

Like a lot of Democrats, I’m not happy with President Barack Obama’s double standard on bailouts. If you’re a Wall Street financial giant, the federal government will shovel tens or hundreds of billions of dollars your way, without demanding basic accountability. The executives who ran those firms into the ground aren’t fired, and they even get their inflated bonuses because (according to the White House) there’s nothing they can do about bonuses that were promised in contracts.

Meanwhile, automobile manufacturers who asked the federal government for loans in December got a long list of strings attached. Now President Obama has made sure General Motors’ CEO got the boot and wants Chrysler to merge with a foreign company. Even then, the White House is indicating that GM and Chrysler may be headed for bankruptcy. If that happens, you can be sure that the United Auto Workers will be forced to accept huge concessions. Apparently what middle-class UAW members were promised in contracts is less important than the million-dollar bonuses AIG executives were promised.

David Sirota thinks Obama’s approach is reviving the tactics of Reaganism:

Reagan famously backed a massive increase in the defense budget and corporate welfare while pretending to be a budget hawk by bemoaning the supposed wastefulness of programs like welfare – programs whose expenditures were tiny in comparison to those on the Pentagon and corporate welfare.

Likewise, we’ve seen Obama support giving away hundreds of billions of dollars – no strings attached – to Wall Street banks while simultaneously presenting himself as getting tough on Corporate America with his promise to hold the auto industry accountable for its failures. Of course, the automakers are asking for a tiny fraction of what Wall Street has already gotten.

Look who loves Obama’s Reaganesque approach: Senator Chuck Grassley.

Grassley says it’s an issue of letting capitalism run its course. Grassley says, “When the government is intervening to make that point, it appears to a lot of people to appear to be a government running a private corporation and is that good? That’s the questions that are raised.” Based on the latest actions, analysts believe G-M and Chrysler will surely face bankruptcy, a merger or both.

Grassley says that’s the way the system works. “It’s a balancing act between being good trustees of the taxpayers’ money when it’s given to corporations like General Motors and the extent to which you rely just simply upon the company to make the decision.”

That’s classic Grassley–upset over the prospect of some money going to manufacturers but content to let the Troubled Assets Relief Program of the Wall Street bailout consume trillions. Hey, it’s just how the system works. Will the Iowa media call out Iowa’s senior senator on this hypocrisy? Don’t count on it.

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Nine Predictions for 2009

(The 2008 Bleeding Heartland election prediction champion gets out the crystal ball for the year to come... - promoted by desmoinesdem)

My apologies for not getting this in closer to the actual new year, but you could say that “a day late and a dollar short” has been the theme of the new year so far for me. Or five days short, as the case may be.

In any case, before we start the new political year for real, I thought it might be fun to share our predictions for the new year. Here are nine predictions of mine for two thousand and nine.

1. The state budget is in far worse shape then we think. Expect the fight over the budget to get ugly, quick.

The Iowa state fiscal year runs from July 1 2008 to June 30 2009–right in the heart of the economic meltdown. Given that the estimates for this period are just starting to come in, it's reasonable to assume that the stories we're currently hearing about the “budget crisis” represent only the tip of a much larger iceberg. Likewise, the 1.5% across-the-board cut currently proposed by Gov. Culver isn't going to be nearly enough to solve the crisis. It's going to get ugly and fast.

2. Unemployment will hit 10% by the end of 2009, and recovery will not come until early 2010.

Call me a pessimist, but I think things are going to get much worse before they get better. When you combine the potential failure of the Big 3 (a still unresolved issue, by the way), plus a global manufacturing slowdown, with the fact that up to 25% of retail stores may declare bankrupcy in the next year–you have the recipie for unmitigated economic disaster.  

To complicate matters, I do not expect President Obama's recovery measures to be passed before May of this year. (There are already signs that a long battle is ahead for this bill.) That means that many of the infrastructure projects given funds through the program will miss out on the summer construction window–meaning they likely won't start until Summer 2010. Many other measures, like tax cuts or social programs won't go into effect until 2010 as well…moving the light at the end of the tunnel further and further away.

3. The Big 3 will not survive in their current form. Get ready for the Big 2.

Regardless of whether the auto bailout was the correct move at the time, by the time the big ball drops in 2010–there will no longer be a Big 3 as we know them now. My best guess is that one of the Big 3 automakers (most likely Chrysler) will implode into disorganized bankrupcy. No buyer will be found, and the brand will simply cease to exist. This will spark a crisis that will either lead to the organized bankrupcy/restructuring of the other companies, or government assistance with severe Bob Corker style conditions. 

The good news is that out of the multitude of laid-off engineers and designers, we could see new  and innovative technologies, designs, and companies form. By 2020 we could all be driving solar hybrids designed and built by ex-Big 3 designers who started their own companies.

6. The Supreme Court will rule in favor of same-sex marriage in the case of Varnum v. Brien.

Beware the ides of March rings true in Iowa in 2009. Expect a ruling on the case of Varnum v. Brien to come down with a rulings for several other cases on March 13, the conclusion of the Court's March session. When that happens expect a whirlwind of craziness to descend on the state: national media, a rush of spring weddings, celebrity attention, half-cocked legal challenges, right-wing rants, Fred Phelps-ian protests, legislative blustering, Steve Deace's head exploding, and who knows what else.

I don't think the moon turning to blood, the dead walking the streets, or any other Pat Robertson-style pronouncements will come true…but expect a wild ride.

5. The Republican candidate for Governor will be a serious contender who already holds a major elected office.

The current fight over the RPI chair has a definite and familiar theme: change. Old hacks are out, new hacks are in. While there is a faction of the GOP that clings to BVP like life preserver, the majority of the party is, I think, waiting for someone new to come along.

That someone is either State Auditor David Vaudt, Sec. of Agriculture Bill Northey, or 4th District Congressman Tom Latham.

Vaudt looks to emerge as one of the main faces of opposition to Culver on budget issues, a position he could use to slingshot him to the governorship. Northey is the darling of the Republican Party and, with agricultural issues on the back-burner this year and little to do, may find the Governor's race an attractive prospect. Latham, by all measures a low-importance member of the minority party might decide that its now or never for him. And he has nothing to lose: if he wins, he's the Governor; if he loses, he can run again as the elder-statesman in the dogfight that will be the new 3rd district.

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Open thread on the auto bailout (updated)

I opposed the massive Wall Street bailout rushed through Congress this fall, but if the government can provide hundreds of billions of dollars to financial firms with no oversight, it’s only fair that $13.4 billion of the Troubled Asset Relief Program be used to prevent General Motors and Chrysler from collapsing:

“These are not ordinary circumstances,” Bush said at the White House today. “In the midst of a financial crisis and a recession, allowing the U.S. auto industry to collapse is not a responsible course of action.”

The cost of letting automakers fail would lead to a 1 percent reduction in the growth of the U.S. economy and mean about 1.1 million workers would lose their jobs, including those in the auto supply business and among dealers, the White House said in a fact sheet.

‘Necessary Step’

President-elect Barack Obama endorsed the plan, calling it in a statement a “necessary step” to avoid a major blow to the economy.

“I do want to emphasize to the Big Three automakers and their executives that the American people’s patience is running out,” Obama said later at a news conference. “They’re going to have to make some hard choices.”

The United Auto Workers are “disappointed” that Bush added “unfair conditions singling out workers,” the union’s president, Ronald Gettelfinger, said in a statement.

“We will work with the Obama administration and the new Congress to ensure that these unfair conditions are removed,” Gettelfinger said.

This diary by TomP has a lot more detail and reaction to the bailout deal.

It would be grossly unfair for only the workers to be asked to sacrifice to make these companies profitable. Some Republicans, notably Senator Bob Corker of Tennessee are explicitly trying to drive wages in union shops down to the level paid to non-union employees of Japanese automakers in the southern states.

But it’s no coincidence that the standard of living in states with more union workers is higher than the standard of living in the deep south.

I don’t know enough about the details to know whether this bailout can save GM and Chrysler, but failing to act was not an option with so many jobs on the line.

By the way, all three U.S. automakers have made a lot of mistakes over the years, but kudos to management of Ford Motors for locking in a large credit line while credit was easy to obtain. In case you were wondering, that’s why Ford is not currently on the brink of collapse, begging for a government bailout. Nevertheless, I’m sure Ford will have to do a lot of restructuring to adapt to this tough economy, just like GM and Chrysler. I can’t imagine 2009 will be much better for new car sales than 2008 was.

Chrysler has already idled all of its plants for a month. Ford is extending the holiday break at most of its plants until January 12, and GM plans massive production cuts next year.

Those actions may be necessary to save the automakers, but they will have disastrous ripple effects in all the communities where the idled factories are located.

Some of these problems could have been avoided if Congress had fixed our broken health-care system years ago. This report is more than two years old:

The competitive disadvantage of U.S. automakers resulting from the absence of a national strategy on health care financing is becoming increasingly clear. GM faces legacy costs (health care plus pensions for retired workers) of $1,500 per car. Together, the Big Three automakers support roughly 800,000 retirees, compared to less than 1,000 for foreign-owned competitors in the United States.

Clearly the failure to address America’s health care finance problems has become a major competitive disadvantage for our economy as a whole and has placed U.S. workers in a diminished bargaining position for wages and job security in relation to the rest of the industrialized world. Targeting retiree health costs offers an opportunity to provide strong incentives for industry action on fuel savings investment and reduces the competitive disadvantage.

Share any relevant thoughts in the comments.

UPDATE: Why I am not surprised to learn that banks like Goldman Sachs and Morgan Stanley are giving out large bonuses to some executives after receiving billions in bailout money from the federal government?

Note also that George Bush attached all kinds of conditions to the loans for automakers, while major financial institutions just got free money with no oversight.

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