Couple of months ago, when the Wall Street financial giants went before the Congress and begged for financial assistance, the Congress did not hesitate to approve financial aid to the tune of $840 billion dollars (it started with $700 billion, but in order to bring enough Senators on board, it was increased to $840 Billion). No criteria was set for giving the money to the financial institutions, nor was there any oversight by any government agency. The funds were quickly approved and gradually disbursed to the financial institution and to this date it is stated by the Treasury that almost $300 billion or so have been disbursed.
The irony is that the financial institutions such as AIG could not account for the money that they received from the government. That is sloppy record keeping given that it was the taxpayers’ money. The issue is not whether the Wall Street should have been rescued or not, in fact this author’s belief is that it should have, but under certain condition and with much supervision and accountability.
Now comes the auto industries crisis and their turn to seek the Congress’ assistance. First the CEOs of the three American Car Manufacturers; GM, Ford, and Chrysler are ridiculed by the members of the committee among other thing for flying with private jets rather than taking commercial flights, then they were demanded to come back with a plan to the liking of the Congress, before the Congress would agree to any bailout. That was immature and totally childish. It seems that the Committee members or at least some of them, don’t understand the corporate jets are not private jets owned by the CEOs, but belong to the companies and happen to be assets for the Corporation. However, whether these CEOs came with plane or any other mode of transportation should not have mattered. It is true that the members of the committee were trying to make a point about the CEOs’ wasteful conduct, but this could have been handled in a more positive and professional way.
This author is not defending the conduct of the auto manufacturers which put them in the current situation, but what is concern of this author is the double standard of the Congress.
The CEOs come back, this time with their hybrid cars and presented their plans. The total rescue package is $34 billion which is spread as $18 billion to GM, $9 billion for Ford, and $7 billion for Chrysler. Incidentally Ford is not asking for bail out, but be able to have access to funds just in case. There is no comparison between what was given to the Wall Street and what is being asked by these auto manufacturers, but yet the Congress has acted so tough with them, but yet so kind with the Wall Street bunch.
The Congress should approve a massive bailout, even larger than $34 billions requested by the three auto manufacturers.
At least these three companies manufacture products that people can use and be exported, the financial companies not only do not manufacture anything, but they engage in a sophisticated financial betting and creating complicated bonds and securities based on home loans and some other dubious securities. The reckless conduct of the Wall Street CEOs’ has cost the taxpayers hundreds of billions of dollars in bailout and trillions of dollars in the loss of equities in the stock market and bond market. Every Americans who has any sort of non-cash savings such as mutual funds, stock, etc. has lost its value. America as a whole has become much poorer thanks to the Wall Street.
Going back to the treatment of the auto manufacturers, the Congress is in the process of passing a bill to authorize only $15 billion for immediate rescue and coming up with many restrictions/requirements, including having a Car Czar to monitor the auto industries conduct. Although it is a very good idea to make any financial bailout conditional on meeting certain requirements, but what is disappointing is the Congress discriminatory conduct.
Now, should the auto manufacturers be bailed out? The simple answer is yes, absolutely. There are about 400,000 or more people working directly for the auto manufacturers. Another few hundred thousands work for the companies which supplies parts and service support to the auto manufacturers such as companies that build the transmission, stereos, etc. Add employees of the dealerships throughout the USA who would have lost their jobs, we would see couple of millions of unemployed people. We also need to add the other businesses which provide other services to the employees of these corporations such as the local restaurants, clothing shops, entertainment industries, etc. who would be impacted by lower sales and have to layoff some employees. Allowing any of the three auto manufacturers to go under is to allow an American icon to disappear. Besides the US is fast losing its place as a manufacturing country and loss of auto industries would undoubtedly be a big push to this disappearance.
US cannot afford nor can she allow any of these companies go under. The current economic condition of the country is too weak to allow such a jolt. The Congress should approve a massive bailout, even larger than $34 billions requested by the three auto manufacturers. The Congress should also develop a set of rules and requirements which put the auto manufacturers on the path to success. The requirement should first and foremost include re-design of the cars to make them more fuel efficient and develop alternative fuel and zero emission cars such as electric cars. Under the rules the Congress should have the power to remove any executives that fail to carry out the plans and stop making payments should the company digress from the plan agreed upon.
It seems that the CEOs are serious in trying to save their respective companies as all three CEOs have announced that they will work for $1 salary for the next year
There is no question that the auto manufacturers have been mostly responsible for their current financial crisis, by failing to produce smaller, more fuel efficient, and environmentally friendly cars. They also failed to improve the qualities of their cars so they could effectively compete with Japanese and European cars. The blame game should be postponed for some other time, but first let’s take care of the problem at hand. It seems that the CEOs are serious in trying to save their respective companies as all three CEOs have announced that they will work for $1 salary for the next year. It is a good gesture and it would help if they could also forego any stock options, bonuses too.
As to the Congress, although they have the duty to protect the taxpayers, but they also have the duty to ensure the country and its economy is based on a sound footing. As such the Congress must develop set of rules and requirements which are sufficient and effective enough to ensure the success of the bail out. Such rules and requirements must be applied to all bailouts and not only to the auto manufacturers. In fact the Congress should re-visit the bail out package approved for the Wall Street couple of months ago and make the bail out subjected to the rules developed.