Political Physics: Can the Obama Administration Afford Another Bail Out?
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a blogumn by Monique King-Viehland
A few weeks ago I was pondering why in the hell American International Group (AIG) was allowed to give $165 million in bonuses given that they received $173 billion in bailout funds. I argued that the response to the AIG bonus situation and how President Obama will move to ensure these types of things do not happen in the future would be a critical indicator of success for the Obama Administration.
Fast forward two weeks later.
G.M. and Chrysler have almost exhausted the combined $17.4 billion in federal aid they have received since December. G.M. has asked for up to $16.6 billion more, and Chrysler has requested another $5 billion.
The New York Times reported today that President Obama gave the auto industry a “do-or-die ultimatum, laying out strict standards that the carmakers must meet to get more government aid and declaring that the industry must survive because it is like no other, an emblem of the American spirit.” Obama has given the companies a limited amount of time to continue to work with creditors, unions, etc. to produce a restructuring plan that would “justify an investment of additional tax dollars and give the American people confidence in their long-term prospects for success.”
But can you blame Obama for acquiescing to the pressure for another bailout of the auto industry? The NY Times estimates that “10 percent of American jobs – a total of roughly 14 million jobs could evaporate if the Detroit Three are allowed to fail.” Now to be accurate, that number is extremely high because it includes direct jobs, indirect jobs, wholesalers, suppliers, parts, etc. But even if we were only talking about the million plus employed directly by the industry, the pressure to save those jobs is significant. In addition, the failure of the auto industry could translate into the failure of the last major manufacturing sector in the US and we’re not sure the US economy could take that hit.
On the other hand, a recent Gallup poll suggests that seven in 10 Americans oppose using taxpayer money to help the ailing major U.S. auto companies. In a CNN/Opinion Research Corp. poll conducted in February, 61 percent of Americans opposed giving money to the automobile manufacturers, while 37 percent favored it. And 74 percent said they had little faith in auto executives, while 26 percent said they felt executives would make sound economic decisions.
So what about you? What do you think? Should the Obama Administration provide the auto industry with additional bail out funds? If not, why? If so, what concessions if any should the President require to avoid another AIG incident? I’d love to hear your thoughts, insights, etc.
Next week I plan to share my thoughts on the auto industry bailout and I’d love to incorporate your comments. Tell me what you think; I’d really appreciate it.
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Oh, Monique, such a tough question. I go back and forth on this, for reasons that I can't expound upon b/c of certain signed contracts. I hesitate to say, yes, let anything that would cost Americans millions of jobs fail, but on the other hand I question keeping the leadership of any company that has been through downs like these in place. Again, I really can't talk about this online, but call me later and I'll give you all sorts of anonymous quotes for your next post. :)
Oh, Monique, such a tough question. I go back and forth on this, for reasons that I can't expound upon b/c of certain signed contracts. I hesitate to say, yes, let anything that would cost Americans millions of jobs fail, but on the other hand I question keeping the leadership of any company that has been through downs like these in place. Again, I really can't talk about this online, but call me later and I'll give you all sorts of anonymous quotes for your next post. :)
General Motors is getting close to going bankrupt and to being liquidated. Ineptitude and greed of its management, its board, and its union are finally catching up with the former king of the automotive industry.
General Motors is getting close to going bankrupt and to being liquidated. Ineptitude and greed of its management, its board, and its union are finally catching up with the former king of the automotive industry.