Congress Acts Like Jilted Lover: Burned by the absence of accountability with half of the $700 billion spent to bailout the financial sector, Congress is poised to loan U.S. automakers $15 billion with a million strings attached. The reason is simple. Congress and the American people don't understand the intangibles of financial markets. You can't wrap your arms around a tranche like, say, a car. Besides, timing is not one of Detroit's strongest suits. Consider the financial sector bailout. Treasury can't track how the money was spent. Several banks used bailout money to purchase smaller banks. Insurance giant AIG spent more than a half million dollars on parties and then asked Treasury for additional billions. An Associated Press survey reported Treasury starting in October negotiated options to buy up to 1.2 billion shares of common bank stock that was valued at $27 billion. Value of that common stock today is less than $18 billion, a $9.3 billion loss to taxpayers. "We're not day traders, and we're not looking for a return tomorrow" said Neel Kashkari, the director of Treasury's Office of Financial Stability, which oversees the $700 billion financial rescue fund. "Over time, we believe the taxpayers will be protected and have a return on their investment." Potential losses among these common stocks include more than $3 billion for the administration's biggest deal, a $45 billion injection into Citigroup Inc. The government gave the New York-based giant $25 billion on Oct. 28. In addition to preferred stock worth $1,000 per share, the deal included warrants to pick up 210 million shares of common stock at $17.85. In late November, the White House put together a plan to give Citibank another $20 billion. The deal also included warrants to pick up 254 million shares, with the price set at $10.61. Citigroup stock has since fallen below $8. Despite their arrogance, greed and stupidity that led to the housing and financial market meltdown, these captains of the financial world barely received a hand slap from Congress.
Passing The Buck: Now consider the auto bailout for GM, Ford and Chrysler. A tentative agreement between congressional Democrats, House Speaker Nancy Pelosi and the White House offers $15 billion to the three automakers to tide them over into early next year when the new Obama administration takes over. Automakers must submit a viable recovery plan before any federal funds are dispensed. The aid will come from a fund set aside for the production of environmentally friendlier cars Congress approved earlier this year. Any legislation Congress might approve — in an emergency session next week — is likely to include appointment of a trustee or board to assure that the automakers use the aid to return their firms to viability.
In other words, Congress will dictate the terms that Detroit will produce environmentally clean cars -- or else. Solving Wall Street's woes, in theory, involves pumping a lot of money into the financial system and hoping the credit crunch goes away. Detroit's problems are more systemic and will require more extensive triage efforts. That said, a bailout's a bailout, at least as far as taxpayers are concerned. "Most Americans don't understand -- or don't want to understand -- the complicated deal we made with Citigroup," said economist Robert Reich, Labor Secretary in the Clinton administration. "But when you talk about General Motors, it's much more concrete. People know what a car is." For that reason, he said, lawmakers in Washington have been more assertive about wringing concessions from the auto industry, whereas the heads of Wall Street firms essentially got by with slaps on the wrist. "It's completely backward," said Eve Weinbaum, director of the labor studies program at the University of Massachusetts at Amherst. "There's this perception that the people who make things with their hands somehow count for less than people on Wall Street who sit around thinking up things like derivatives. "You could argue that an economy doesn't need derivatives but does need manufacturing."
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