$25 billion in perspective

Peggy Risley of Blanchard Gold sent an e-mail around, detailing steps the government has taken so far in this financial crisis. I haven’t done my usual fact checking on this but it seems right. Here’s the list (edited somewhat):

Wall Street

• $1.6 trillion in loans to banks so far in exchange for otherwise unwanted collateral. The Fed increased its monthly auction limit to $300 billion in October, up from $20 billion when the Fed began the program.
• Unlimited dollars to 13 foreign central banks to provide liquidity to foreign financial institutions. The Fed lifted its cap after raising it to $620 billion in October from $24 billion in December.
• Bear Stearns: $29 billion in a special lending facility to guarantee potential losses on its portfolio. 
• $70 billion lent on average every day to investment banks, after facility opened to non-commercial banks for first time in March. $92 billion a day to commercial banks.
• $250 billion allocated to banks from $700 billion rescue package in exchange for equity stake in the financial institutions in the form of senior preferred shares.
• Citigroup: $300 billion in troubled asset guarantees and $45 billion in cash-injections to prevent fourth-largest bank from failing.
• Fed rate cuts: Down to 1% in October 2008, from 5.25% in September 2007. That means the government is making very little on money lent, while paying much higher interest on money borrowed.
• $50 billion in insurance for money-market funds; an unlimited amount of money lent to finance banks’ purchases of debt from money-market funds. The Fed then agreed to purchase up to $69 billion in money-market debt directly. In October, the Fed said it would loan up to $600 billion directly to money-market funds, which was extended for six months in November.
• $152.5 billion bailout of AIG, including a direct investment and easier terms on a $60 billion loan.

Housing industry

• $4 billion to states and municipalities in assistance to buy up and rehabilitate foreclosed properties.
• $300 billion approved for insurance of new 30-year, fixed-rate mortgages for at-risk borrowers. The bill includes $16 billion in tax credits for first-time home buyers. But lenders have been slow to sign on.
• Fannie Mae, Freddie Mac: $200 billion to bail out the mortgage finance giants. 

Corporations

Individual and other aid

• $100 billion in stimulus checks to 140 million tax filers
• $8 billion toward an expansion of unemployment benefits, to 39 weeks from 26 weeks.
• $15.5 billion drawn down so far from the FDIC’s deposit insurance fund after 22 bank failures in 2008.
• $9 billion so far in government purchases of student loans from private lenders.
• Deposit insurance raised to $250,000 in insurance for interest-bearing accounts, up from $100,000. The FDIC also issued unlimited guarantees on non-interest- bearing accounts and newly issued unsecured bank debt.

Now, with all those trillions of dollars going out and the government printing money like toilet paper, except that they don’t bother printing the bills (just altering some bytes), you might think that a business like the auto industry would get some cash. After all, the government hasn’t asked anyone in any other industry to take pay cuts; not even at AIG, though I suspect their lavish support of some charities will be cut. But no, not for automakers.

There are a few problems. Republicans generally see this is a great opportunity to break the UAW, thereby making sure there are far more of the working poor, taking pressure off the imports to pay high salaries, and for ideological reasons. Some Democrats see this is a great opportunity to force Detroit into making high-mileage vehicles they probably won’t be able to sell. Some on both sides, and many on the sidelines, see this as an opportunity for revenge against Chrysler, which many are now saying has no right to exist. Many mindless plans for either shutting it down, selling it, or breaking it up are on the table, as far as pundits and Congressmen are concerned, and that’s going to hurt. Like Daimler’s talk of a sale, it becomes a self fulfilling prophecy far too quickly. Cerberus should put an end to this talk, but apparently they’re holding a sale out in front of the bankers to get loans extended or something like that, and, besides, they don’t like talking to the media, so that’s going to be an ongoing problem. 

Personally, I’m torn. I agree with the Democrats that the Big Three should slash their lavish executive expenses, for morale, for the symbolism, and because when you’re losing money, every million dollars helps; and frankly I don’t think their executives are worth the money they’re paid. Jim Press, Bob Lutz, and perhaps even Mullaly; but not Wagoner, LaSorda, Nardelli, or many of the others (Tom and Bob, I respect you, but not eight figures’ worth.)  I also agree that a real business plan needs to be shown (note that the details will be kept confidential and not shared.) Finally, like the Republicans, I think that there needs to be some (more) shared sacrifice with the UAW — though heaven knows they’ve taken enough hits already, and I’m not advocating by any means the draconian changes made by Delphi or proposed by millionaire legislators.  

I find myself wondering about the many cartoonists and cartoon-like pundits who are claiming that the Democratic leadership wants to build its own car company. The American people have demanded oversight by Congress; it’s really not a power grab but doing the minimum needed to push these loans through. The mass of Americans believe the domestics should solve their own problems, or at least that’s what the polls indicate. Republicans keep pushing bankruptcy, except for G.W. Bush, who insists that the $25 billion already earmarked for the Big Three – which should already have been lent, except that his own appointee wants to block the funds until 2010 – is enough. Never mind that what the Detroit Three need is enough operating funds to get through until 2010, and that the $25 billion is allocated for certain capital expenditures only.

It reminds me of Broadway Community, a charity I’ve worked with. People always want to donate food. They can use food, but they really need money – unallocated money, money to pay ordinary bills. They use a lot of volunteers, but they need to pay a volunteer coordinator, part-time security and maintenance people, a part-time accountant (to stay out of hot water with the IRS), and the usual panoply of plumbers and electricians. In short, they need money to survive. 

So do the Detroit Three. And while I’m find with reasonable restrictions – no buying each other, no insane salaries, no owning corporate jets, etc. – I disagree with the insane restrictions – ultrahigh mileage cars, bankruptcy, and post-hoc destruction of labor contracts. 

At a time when the government (largely the executive branch) is tossing trillions of dollars at banks and the housing industry, shouldn’t an industry responsible for so many middle-class jobs get some help?

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