If the bailout mentality continues, eventually the Federal Government will be asked to bailout every corporation that makes bad business decisions.

If the legacy auto industry goes BK, a free market will correct the excesses faster with a much better financial environment afterwards.

Use what would have been bailout funds for extended unemployment benefits for everyone who is or will be affected during this transitional period.

No one ever said that investing was a guaranteed path for success.

A number of analysts have said the collateral costs of an auto industry BK (unemployment, state and local govt, etc. for the industry, its suppliers, etc.) could easily exceed the bailout costs. The idea is not to bail out investors or current management, it is to prevent dramatically worsening an already terrible economy.

I think the first thing that should happen would be to get a consensus on Peter Morici's assertion that bankruptcy is inevitable for the domestic auto industry. What if we gave them all bridge loans with stipulations and they all survived intact three years from now? If we are primarily looking at the domestic auto industry as benefit providers rather than employers, what about trying out expanding Medicare to the UAW's current and retired workers in place of their current plans and give them the bill as a concession?

Can anyone tell me:

1) why the CEOs of corporations like GM have not been beating down the doors in DC for the past decade demanding universal health care ?

and

2) if the government does provide relief to GM, why it wouldn't be possible to bring in a management team with enough vision to correct some of the major things (aside from the cost of medical coverage) impeding their sucess ?

Great questions, Anonymous. I too would like someone to explain that, if possible.

I saw the proposed auto bailout being "debated" by the MI & AL senators on "Meet The Press".

The LameStream Media seems to be depicting a false choice bt bailout without tough Govt stipulations
v
no bailout.

I like the ideas above about instead of bailout, offer health care & job training benefits to the industries' laid off workers

Here's some other ideas I can think off of hand, would love for anyone to comment on the feasibility of them.

1 Govt buys out & takes caretaker ownership of Big 3, ala how Dr Baker described the UK & Sweedish government did to failed banks (forget the banks' names). Stockholders lose all equity. Board, CEO, & all VPs who report to CEO fired. Some ceiling on total compensation (incl stock options, health benefits) to company executives, even including the new CEO, to some reasonable amount like $200 or $400K. A few years later, when the company is profitable, reprivatize it, hopefully at a profit or minor loss to the US Gov.

2 Require a high percentage (80%?) of cars sold in the US, to be mfged in the US. Also require a percentage (50%?) of direct parts to also be mfged in the US. This way some laid off Big 3/Big 3 parts supplier workers could become Toyota, BMW, etc workers.

3 Contract manufacturing scheme. Not sure if the nature of car mfg is such that this would be relevant, but if so this might be a useful idea. In the electronics industry, there is a segment of contract manufacturers like Solectron, which provide manufacturing, supply chain, & prod development services, but do not actually sell products themselves like Ipods or PCs. Maybe the factories from the Big 3 could be spun off into 1 "US Car Mfg" company. This would also make the "barriers to entry" for new car startups easier, as they could focus on prototyping new cars, & marketing, & not have to buy a factory to startup the company.

Few people are looking to unassisted markets to solve the problems of energy supply and climate change. Rather than just give money to the automakers to continue making things for which the demand is decreasing, why not take the oportunity to redirect America's industry in a direction it will probably need to go anyway in the future? How about making electric cars or windmills, for example? (If Americans could buy cheap electric cars, maybe they wouldn't buy so many Toyotas.)

Industrial redirection under government control is something that happens in every major war. In WW II the economy was quickly redirected to making airplanes, tanks, ammunition, etc. all of which went up in smoke or were otherwise disposed of, and the result was an end to the depression. Taxpayers have continued to subsidize the military-industrial complex since the 40's, and we don't hear any complaints about socialism in that case.

The only way to consider this is to have many preconditions including new management, increased fuel efficiency, renegotiations with the unions and NO lobying. However, good luck getting all of these parties to agree and follow through.

Not proving the bailout will be painful but is absolutely necessary.

Two questions:

1) Heard UAW pres. day or two ago say labor costs are 8-10% of price of car. If that's true, cutting wages by 10% would only cut price of car by 1%. Is that the best place to attack the problem? Cutting wages more? Haven't they already been stagnant in the last X years despite other inflation?

2) Doesn't ERISA from the early 1970's (or so) require current funding on actuarially sound basis of future retirement costs? If so, what happened to the money? Why are "legacy costs" for retired employees now a burden on the companies? Did the actuaries use the wrong tables? Did the investment advisers screw up? Just what?

OK that's more than two questions, but some of them are suggested answers.

The easiest part of any bailout is controlling excessive compensation and undesirable expenditures such as lobbying.

A part of the bailout should be special income tax provisions that target expenditures for excessive compensation and, for example, lobbying expenses.

The special tax imposed upon the auto company for the undesirable expenditure would be say a tax equal to three times the expenditure. A companion special tax in the amount of the undesirable expenditure would be imposed upon recipient. The whitleblower provisions in the tax law would be amended to grant the whistleblower 40% of the amount recovered. The tax court should be given exclusive jurisdiction over income taxes imposed on the auto companies during the bailout. Such special taxes should be imposed without regard to any other tax (no losses, deductions or credits would offset the special taxes).

This is a fairly simple concept, easy to administer and if the auto companies choose to make undesirable expenditures, I'm confident that whistlebloweres will have ample incentive to rat out the miscreants.

Whether in three years or now, what I'm concerned with is what the hell are we going to do as a nation without an auto industry?

Dean,

Below is a good example of your description of The Nanny State!

Nov. 13 (Bloomberg) -- JPMorgan Chase & Co., Bank of America Corp. and Goldman Sachs Group Inc. are among banks that told the government its program to back their bonds is flawed because it doesn't have a strong enough guarantee.

The Federal Deposit Insurance Corp. guarantee for repayments in default needs to be clearer, fees are too high and banks need more freedom on whether to opt in, according to a letter from law firm Sullivan & Cromwell LLP posted on the agency's Web site on behalf of nine banks. The comment period on the interim rules for the FDIC's Temporary Liquidity Guarantee Program ends today.

The comments shed light on why almost a month after the government placed its guarantee behind new bank bonds, no U.S. company has yet tested the market. By contrast, under a similar program in the U.K., banks have issued the equivalent of 13.9 billion pounds ($20.6 billion) of government-guaranteed bonds.

``A guarantee obligation that is anything less than an obligation to pay all amounts due could severely curtail the demand for these securities and might impair a bank's access to guaranteed funding,'' New York-based Sullivan & Cromwell said in the Oct. 31 letter.

I also need full unconditional gty so I could get lower interest rates!

Dr. Baker,

What do you think about Sen. Inhofe's proposal to freeze the bailout until further review? It sounds too good to be true.

You seem to be one of the few making any sense.

There seems to be a rising powerful political movement. It is the rise of "The New Liberal Aristocracy." Being for abortion and gay marriage type questions is the only requirement. A main goal of the group is to get rid of obsolete blue collar workers who make more than the minimum wages. Nothing should be manufactured here, because it all pollutes and because it can all be bought at Wal-mart anyway. And oh, yea, the day must finally be at hand when all Americans will march off happily into high-tech jobs that the rest of the world has reserved for us.Illegal immigrants are ok. Now they know how to work! Come in handy for nannies, gardeners etc.

The domestic automakers will become viable when we stop allowing imports to reap the benefits of manipulating their currency giving them a $4,000-10,000 advantage per vehicle. Imports also reap an advantage through their governments use of a Value Added Tax system that rewards them for exporting to America. To top it off, increased access to their markets and the foundation for a successful domestic auto industry will have been laid.

Dean,

Morici's statement runs somewhat parallel to one I would stress (though with a different intention from his): namely, that given our utter dependence on an exhaustible-fuel-fed living arrangement, the real alternatives are managed contraction or uncontrolled collapse. I agree with the spirit of your concern with the consequences of the alternative of just letting the companies sink, but since I am contemplating an even worse set of consequences, I have to be an even stronger advocate of strong-armed government action (because if it is left to local population to figure out how to survive without the supply chains they currently rely on, most of them will die prematurely).

Economists need to modify their understanding of the effects of stimulus. An economy can be stimulated only up to the level of available energy supplies, and these are expected to decline dramatically over the coming years. But, moreover, the consumer economy is itself fatally unsustainable, and there must be a transition away from an economic mechanism based on maximizing sales.

The government should have, as its highest priority, the goal of maintaining the production of goods and services essential to literal survival, perhaps 5 to 10 percent of the current economy. These should be distributed freely to the population. Meanwhile, the persons thus freed from their current economic arrangements would make a transition, with all deliberate speed, to local activities (e.g. food production, shelter modification) that would gradually replace that same 5 to 10 percent of essential goods and services. In conjunction with these efforts, other activities would be geared to cultural revitalization, production of (e.g) wind turbines and bicycles, and perhaps a small number of large-scale projects - available resources permitting - like national passenger rail transit or the construction of a system of transportation and irrigation canals, extending from the Mississippi to the southeastern U.S., modeled on China's, as F.H. King proposed back around 1910.

Since current population levels are unsustainable (just consider the water supply in the southwest without fossil fuels, for example), a one-child per family policy will need to be strongly encouraged, perhaps under the slogans "Better to be an only child than to be an orphan" and "Better to have only one child than to bury a child."

Steve Athearn

"The domestic automakers will become viable when we stop allowing imports to reap the benefits of manipulating their currency giving them a $4,000-10,000 advantage per vehicle. Imports also reap an advantage through their governments use of a Value Added Tax system that rewards them for exporting to America. To top it off, increased access to their markets and the foundation for a successful domestic auto industry will have been laid.

Sure, it's those Japanese currency manipulators! ;-) Seriously, you cannot clamor for "access" to foreign markets while keeping the domestic car industry on taxpayer support. Interestingly, nobody ever mentions this but if Detroit gets its bailout, how will the EU react? Will they shut out subsidized US cars from their market? This would be entirely justified, of course.