Do the automakers want salvation badly enough?

Okay, so the auto bailout bill died before going anywhere. But that’s not to say all is lost. Tom Friedman hit the nail on the head today, I think:

If [the Big Three] are ready to bring in some visionaries and totally restructure – inside or outside of bankruptcy – so they can make money selling cars that people will want to buy, then I say help them. I’d hate to see the Detroit auto industry go under. But if all we are doing is prolonging auto undertakers, then we have to let nature take its course.

How you think this auto-company saga should play out depends largely on whether you believe U.S. automakers can reform themselves. For my part, I think the Big Three want to survive badly enough that they’ll do anything for a bailout, even if it means tossing out all the old manuals and starting over with “visionaries” again. But I could be wrong.

Let the Big Three crash and burn? No thanks

I wanted to take a moment and weigh in on the current debate over what to do with America’s automotive companies. General Motors, Ford and Chrysler have all been practically begging Congress for a financial bailout package. Over at Slate, Daniel Gross is saying that the Big Three are already dead, so let them go. He’s got a point—there’s little sense throwing good money at them if they can’t get their act together. But Gross is looking at this issue on his knees where he really ought to be standing on a chair.

Gross is talking mainly about saving the auto industry. That’s fine; he’s allowed to be skeptical about that. I’ll even give him that there’s “no guarantee the Big Three will return to health, that they’ll be able to stay current on debt payments and raise capital from tough-minded investors.” What he’s missing, though, are the broader implications of Congressional action on the Big Three.

Source: http://www.canyonchasers.net/blog/uploads/general/car-crash.jpg

I’m as in favor of teaching these top executives a lesson as the next guy. Their failure to anticipate obvious market trends, diversify their product lineups, and avoid a crippling path dependency before it was all too late is shameful. But the consequences of standing idly by while these companies crash will be enormous. Together, the Big Three claim to employ around 250,000 in the United States alone. It hardly seems fair, in the interests of punishing a few key individuals, to force so many others into unemployment. It’s just not fair. Besides, mass unemployment brings a whole new set of economic problems. And let’s not even get into the shockwave that a U.S. auto industry crash would send around the globe. To simply write off the Big Three is to express a fundamental disregard for the way their problems relate to the broader economy. This isn’t just about the auto industry.

Call me an optimist, but I think there’s a golden opportunity for America here. The auto execs are clearly in need, and if Congress offers them a hand—you can bet your hat that they’ll take it, along with any conditions it comes with. Whether or not the bailout will work is a different story (as I said, Gross could very well be right on that count); but the important thing is that we’ll have tried not to leave thousands out in the cold and taught the auto industry how to conduct itself properly in the 21st century. Here’s what’s possible if we decide to act in the interests of the Big Three:

1. Slow the loss of American jobs.
2. Set (and enforce) even more aggressive goals for fuel efficiency standards, emissions outputs and the development of alternative technologies.
3. Show that the U.S. government is responsive to American concerns and that it is willing to help struggling (undeserving?) businesses recover—provided they make significant reforms like the Big Three will be required to do.

Ford has already pledged to accelerate development on its electric car programs in hopes of getting a bailout package. This is exactly the sort of thing we need. Let’s keep GM, Ford and Chrysler dangling for a little longer to see what else they’re willing to compromise on. But not too long.

Our debt to the Chinese (and theirs to us)

FP’s Passport blog underscores just how interconnected the Chinese and American economies really are.

It would be enough that the Chinese own the second-most United States’ treasury bonds of any foreign nation (about $518 billion as of July). Almost certainly, if the bail out goes forward, that number will rise.

While expanding the debt to China could give Beijing dangerous leverage over Washington, the country’s elite realizes that if the U.S. tanks, so do they. So they’re understandably being careful with the economic relationship. And given that’s the case, there’s good reason to believe they’ll extend that caution to the political sphere, too.

Only fools rush in

Source: http://content.answers.com/main/content/wp/en/e/ee/Wall_Street.JPG

The White House is asking Congress for $700 billion in order to help bail out struggling American financials. That’s close to $200 billion more than what’s already been spent on the war in Iraq. This is one of the biggest financial undertakings the president has ever proposed—and yet oversight and responsibility have gone out the window in the mad dash to “save” Wall Street. Not only does the bill represent another dangerous expansion of executive authority (which we’ve seen all too much of for the past decade), but it would ultimately mean putting taxpayers at further financial risk in the future.

Look before you leap, Congress.