Nobody Can Figure Out How To Bailout The Car Companies

Earlier it looked as if GM and maybe Chrysler were going to be pushed towards the bankruptcy courts by the Bush administration. Now we hear via Bloomberg that the outgoing group might extend them enough money to get them to March. This is getting curiouser and curiouser.

According to the article, which is woefully short on detail, the government would extend somewhere in the neighborhood of $14 billion-about what they have left under the first tranche of the TARP-to the companies and this money could be taken back if they didn’t comply with some undefined restrictions. Probably something on the order of washing your hands before dinner.

Bush himself defined the issue as only he can:

“I’m worried about a disorderly bankruptcy and what it would do to the psychology of the markets,” President George W. Bush said yesterday during a forum at the American Enterprise Institute in Washington. Bush said he doesn’t want to “dump a major catastrophe” on his successor, Barack Obama. Still, he added, he is “worried about putting good money after bad.”

Only a cowboy could straddle a fence that well.

In order to avoid running afoul of the intent of the TARP (why are they worried about that now?) they plan to run the money through the finance arms of Chrysler and GM. Here is the logic:

The Treasury Department may lend to the automakers through their credit arms, GMAC LLC and Chrysler Financial, to avoid having other industrial companies line up for access to the $700 billion Troubled Asset Relief Program, the people said.

“The idea of TARP is to help with troubled assets, so Treasury can do it this way, and it already has permission to do it,” said Ed Fredericks, a professor at Pepperdine University’s Graziadio School of Business in Malibu, California.

OK, I understand politics, so the subterfuge is understandable from that point of view. Why though, unless he was desperate for ink, would a business professor lend his name to this kind of bait and switch?

Now here is the real kicker. Why don’t they want to put the two basket cases in some sort of pre-pack? Because they don’t want to hurt Ford. I kid you not, that’s the balloon they’re floating.

While the option of placing Chrysler and GM into a prearranged bankruptcy has been considered, the administration decided that such a move would put Ford at a competitive disadvantage, the person said.

Come on. If the other two go into a chapter proceeding Ford is in the catbird seat. Imagine the subliminal advertising that’s probably already cued up. In my opinion, Ford has played its cards beautifully so far.

Earlier, when I posted that BK was looking more likely, I promised to give you my take on the politics of this whole charade. Really, that’s what is driving this whole dance.

Personally, I think that the Republicans,would like to see the whole mess dumped on the Obama administration (I’ll get to them in a minute). Outside of bankruptcy just about anything that is done is going to be subject to criticism. A federal “car czar” will be a joke as he gets whipsawed by competing factions. Ultimately a lot of good money will be thrown after bad. Failing that, they would probably like to see a bankruptcy for the simple reason that it would rob the Democrats of a big play pen with which to pay back the unions and the greens.

As for Obama, I have to believe that as much as he might like to meddle in an industrial policy for Detroit that involved the environmentalists and the unions, he feels as if he has bigger fish to fry. The upside is dwarfed by the downside if he starts paying off campaign supporters through a bailout and it goes badly. Like mortgages, Detroit is a bomb that politically is better off being kicked over to the courts.

And so it goes. Muddling along, nothing truly resolute is done. It’s kick the can and who knows what else down the road. As much as I might criticize or express doubts about Bernanke’s actions, he at least seems to be moving forward with some sense of a plan and an idea as to how to implement it. I hope. If not, our gooses are truly cooked.

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