Bailout for Big 3 Pushed!
In a press conference earlier today, Bush stated that he is going to pass a $17.4 billion dollar bailout package for the domestic car industry! The money will be coming from the pre-existing $700 billion bailout package for the banking industry.
What I found shocking is that it went up from the original $14 billion, which was in the congress bill which did not pass last week! He stated that he felt if they waited for the new congress to convene it would be too late. In any other economy he would have been able to just allow the industry to go down, but this would have a huge ripple effect on the economy as a whole! As such, even though he does not want to, he is passing this so that there is not a larger loss of jobs and a longer recession! According to most figures, if the entire domestic car industry were to close you would see a total job loss of 2.5 million jobs!
So why can’t the automobile industry just do a chapter 11 bankruptcy? Simply stated, a company can not do an organized bankruptcy unless they have been planning it for a few months! At this point, if the automobile industry were to do it, there would be huge job losses and it may mean that the companies would not be able to recover. This is the reason that Bush passed this executive order.
Bush stated he wished one of two things would occur
1) It would give the domestic car manufacturers 3 months to restructure so that they could get on their feet again.
2) If they were not able to restructure and have a plan, they could organize themselves to do an organized chapter 11.
Details of the bill:
1) The companies have till March 31st to come up with a plan as to how they are going to restructure and become more competitive!
If they do not come up with a plan by March 31st, they will need to pay the money back to the US government!
2) The compensation paid to employees needs to be adjusted by Dec 31, 2009, so that they are paid the same as their counterparts working in foreign car manufacturing plants in the United States.
3) The bailout is for a total of $13.4 billion. $9.4 Billion will be given to General Motors Co. and $4 billion to Chrysler LLC.
4) GM and Chryslers must both provide the government with Stock warrants allowing them to purchase stock at a specific price.
5) Executive pay would also be limited as well as the use of jets!
6) Paulson will be the short term overseer. But their will be a “Car Czar” that will be overseeing the process to make sure that the domestic car manufacturers keep up with their end of the deal.
So what are your thoughts on this new bailout deal? What do you think they could have done differently? I would love to hear from you. You can either leave a comment right here or email me at psingh@rempower.com
I look forward to seeing you in a future workshop!
Prabhjit Singh
December 19th, 2008 at 11:28 am
Hey how’s it going?
I personally think these bailouts are pointless and go against the idea of free market economics. You’re taking money from productive workers and companies and giving it to companies that messed up and made their own mistakes. Where’s the logic in that? This whole idea of too big to fail is nonsense. These banks got free money, which instead of lending out they bought out other banks for FREE! Tell me the logic in that? Citigroup got a nice chunk of the bailout money and they still end up laying off 53,000 workers…what did that solve? This idea of giving companies free money, incentives, and subsidizing got us into this mess in the first place. How does it make sense to have Fannie and Freddie be the largest holders of mortgages and yet be govt sponsored corps? They get free money from the govt every yr and look what happens? And yet people blame the free market for this? Bullshit! America has never been free market in decades. Now we have more talks of regulation? America is gonna go through hell if the govt doesn’t simply step aside and let these companies fail. Yeah sure things will suck for a yr or so, but the market will be cleansed of all these bad debts and assets. The idea of propping up these systems needs to end.
As for the auto industry….let them go bankrupt, the demand for cars….well anything for that matter has gone down substantially. No one really wants a car, you can’t even get car loans…how the hell will ppl buy cars? Why not have GM or Chrysler have talks with chinese automakers? they have billions in surplus, plus the chinese have been trying to get into this market for yrs? why not bring them into the picture? why should our tax money go to ppl who can’t even manage their own revenue? Well so called “tax” money.