More thoughts on bailouts
current mood: annoyed
A lot of people I know have been talking about the recent loans made to the auto industry, with most people tending to vehemently oppose this federal aid. I agree with nearly all of the criticisms made by bailout opponents.
But the alternative to helping the auto companies is a complete collapse of the American auto industry, similar to the collapse of the American consumer electronics industry. And if one of the Big Three were to fail, we'd have massive job losses spreading through the economy in the midst of already high unemployment, a financial crisis, and a severe recession.
Both options are incredibly bad in the short term. Over the long term, I believe that, handled properly, federal aid stands at least some chance of helping the U.S. auto industry return to respectability. On the other hand, it's hard to see any long-term benefits from losing yet another key manufacturing industry.
And even if we did agree that the Big Three should collapse, the economic peril cannot be ignored. The government would have to be ready to step in with immediate and significant aid to those who lost their jobs, along with concrete plans to rapidly deal with the ripple effects across the economy. The government has no such contingency plan for this scenario in place.
Knowing that, knee-jerk opposition to a bailout without considering the consequences to those who would be affected is reckless and shortsighted. This is not theory we're talking about. This is the ability of hard-working blue-collar families to make their mortgage payments and put food on the table.
This is not to say that I am happy about handing over so much taxpayer money to companies that have been so badly mismanaged for so long. As much as I loathe to give the Bush Administration credit for anything, I think the temporary loans the White House has offered may be on the right track and could be a foundation for how any longer-term deal could be structured.
Specifically, companies must limit executive compensation, sell some assets like their corporate jets, open their books to the government, and come up with a long-term recovery plan. Companies will not be allowed to pay a dividend until all government money is paid back. And if any of the strict terms are not met, the loans will immediately come due in 90 days, likely forcing the companies into bankruptcy.
I would like to have seen, as a part of the plan, the appointment of a federal "car czar" to oversee the industry's efforts to recover and thus ensure that federal loans have a long term benefit. Ideally, this would be someone who had experience in the auto industry or at least with running a large corporation. In the latter category, retired GE CEO Jack Welch comes to mind.
I would also have liked to see management changes as part of the requirements for getting federal money. If management has been so bad that companies are reduced to begging the government for handouts, these managers need to find other lines of work. Many auto industry directors and executives have been in their posts for a long time. And Citigroup, which has already received government bailout money, has directors who have been in office for ten years who kept their jobs.
Where, exactly, is the accountability here? Oh, right, it's laid in the laps of workers. The ugliest part of the federal loans are the requirement that workers accept concessions on pay and benefits. Thus, we're led to believe that the inability of badly managed auto companies to be competitive in the world economy is the fault of those who have the least decision-making power in the companies.
This nonsense is particularly hard to swallow when one considers that practically all industries have to compete with an availability of cheaper foreign labor and yet, not all industries are running to the government for help.