He Admits It May Run Into the Hundreds of Billions
NPR's Morning Edition featured a very interesting interview with
Chairman Barney Frank this morning. In it he asserted that the $25
billion that the Big 3 is now seeking is definitely not enough to
keep the companies going, and it will be followed by tens of
billions more if the companies come up with a 'plan' that seems
promising. Although if you listen to the
interview, he gets awfully agitated at the NPR host for trying
to hone in on this point:
Steve Inskeep: I want to ask you about something
mentioned in that report from an economist from the University of
Maryland. What makes you think the $25 billion would even be
enough?
Rep. Barney Frank: We don't think it would be enough. The way we
have this structured, they will get $25 billion if the bill passes,
with a lot of conditions. No dividends can be paid, no bonuses for
people over $200,000, and some other things. But they would have to
prepare and file by March 31 a plan that shows how they plan to get
much more efficient and to get cars that can be marketed.
But let me ask you about the first thing you said,
Congressman, because you said you don't think $25 billion is
enough.
Right, I'm trying to explain to you how it works.
OK.
They get $25 billion — the federal government would be in the
first position to be repaid. We will come ahead of the debt
holders, the shareholders, etc. They file this plan on March 31.
If, on March 31, the president does not believe that this is going
to get them the viability with energy efficiency cars, they have to
repay the loan; they get no more money. If they can show by March
31 a plausible way to go forward, then we would consider giving
more money, again, under equally stringent conditions.
So this could be $50 billion, $75 billion, $100
billion?
Well, [insurance company] AIG, which I don't think anyone would
think was as important to the American economy as the auto industry
... got $40 billion just now to make it up over $100 billion. To
some extent, let's not have a white-collar/blue-collar bias in our
public policy. You know, those who say, hey, go bankrupt so you can
cut back on what the unions have won — the unions have already made
some concessions. But, you know, we've had enough anti-union
activity, and enough increase in income inequality in this country.
I don't want to set a precedent that bankruptcy now is a way in
which you undo what gains unions have been able to hold on to.
Notice Frank is already retreating from a debate on the merits
of the proposal. For him, a decision on whether or not to bail out
the automakers is really a decision on whether unions are good
things. And of course, given
the information that Rob Bluey provides about average wages for
unionized auto workers, it's easy to see that the
competitiveness of the Big 3 is not helped by the UAW.
Beyond that, is Frank willing to speak honestly about his plan
for hundreds of billions in taxpayer money? How much is he willing
to spend? And what does he expect the Big 3 'plan' to look like, in
order to convince him to loosen the purse strings. Lastly, he
should stop pretending that the automakers will pay back the first
$25 billion in April if their plans are found wanting. That money
will be spent relatively quickly, and if more federal dollars are
not forthcoming, the Big 3 won't have any revenue with which to pay
back.
On a related note, let's remember that the real reason for all
this bailout talk is that Democrats in Washington want to run a car
company. They believe the team in Detroit failed at the job, and
they want to take a shot themselves. If you have any doubt of that,
look at Frank's bill:
• Long-Term Restructuring Plan – Not later than 3/31/09, loan
recipients must submit to Treasury acceptable restructuring plan
for long-term viability and international competitiveness,
including fuel efficiency standards and advanced technology vehicle
manufacturing, rationalization of costs, and proposals for
restructuring existing debt.
• Oversight Board The Financial Stability Oversight Board
(Oversight Board) established under EESA will provide oversight of
the loan program, and will have four additional members for
purposes of the loan program (Secretaries of Energy, Labor and
Transportation and the EPA Administrator) in addition to the five
existing members (Fed Chairman, Treasury Secretary, FHFA Director,
SEC Chairman, and HUD Secretary).
[snip]
• Warrants – Treasury must obtain warrants from each loan
recipient (or economic equivalent in the case of a privately held
firm) equal to 20% of the loan or such greater percentage as may be
determined by Treasury in consultation with the Oversight
Board.
• Executive Compensation and Corporate Governance – All
executive compensation restrictions from EESA apply to loan
recipients for the duration of the loan plus the following
additional restrictions:
no bonuses to employees making more than $200,000 (which Treasury
will adjust for inflation). no golden parachutes under any
circumstances. no compensation plan that could encourage
manipulation of reported earnings to enhance compensation.
• Ability to Prohibit Transactions, Oversight of Financial
Condition – For duration of the loan, Treasury in consultation with
the Oversight Board will have the authority to review and prohibit
any asset sale, investment, contract, or commitment proposed to be
entered into by the recipient valued in excess of $25 million.
So Barney Frank's plan is for the federal government to acquire
a stake in the car companies, approve their operating plans going
forward, and to have veto power over any business decision costing
more than $25 million. He might as well appoint himself CEO.
The management in Detroit has not done a great job. Do you think
Barney Frank and Barack Obama's Cabinet are likely to do better?
Because Barney Frank's plan is to switch the latter for the former
-- with the taxpayer donating untold billions for the privilege to
make the switch.
Bankruptcy sounds better by the day.