The American Spectator : Compassionate Conservatism for Detroit

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Compassionate Conservatism for Detroit

By G. Tracy Mehan, III on 12.23.08 @ 6:07AM

Bailout nation comes to Motown.

President Bush's multi-billion bailout of GM and Chrysler, festooned with a fig leaf, a faux restructuring requirement, airily deferred to spring, well into Barack Obama's administration, may be the last great expression of "compassionate conservatism." Yet, it is neither compassionate nor conservative. It certainly isn't going to be very effective from the perspective of the companies, the plant workers, and the American taxpayer.

What economist Larry Kudlow calls "bailout nation" has come to Motown.

What the Bush administration has essentially done is hand out many billions of dollars with essentially zero leverage over the final restructuring of the companies including the product lines and platforms, dealerships, UAW wages, benefits and work rules. The so-called conditions are so much hot air. Absent a pre-arranged or "orderly bankruptcy," the Big Two will most assuredly become perpetual wards of the federal government with two of three branches firmly in control of the Democratic Party and, pari passu, the UAW. There will be no true reform or accountability. It is the same old same-old.

The President's plan extends an immediate $13.4 billion loan-with $4 billion more to come in February-to prevent a "disorderly bankruptcy." This money will come from the previously authorized Troubled Assets Relief Program (TARP) funds, a source of questionable legal provenance. Is this really what Congress intended? Theoretically, the auto companies are to use this money to achieve financial viability. If they do not achieve this happy state by the end of March '09, the loan will be called and previously disbursed funds will be returned to the Treasury.

Right.

Senator Bob Corker (R-TN), who did yeoman work on the failed congressional legislation to mandate a restructuring of the auto firms, released a statement (December 19) indicating that the "best solution" would have been "definite terms, within a finite time period, committed to law, that protected taxpayers."

"Instead, we have ended up with an agreement open to interpretation, that eliminates the sense of crisis, where taxpayer dollars are expended and we are left to hope that the next administration has the will to enforce the tough concessions necessary to make these companies viable for the long term," argues Corker. "Unfortunately, it is clear that stakeholders are already working to undo those tough concessions."

What are the odds that (a) GM, Chrysler, thousands of auto dealerships and the UAW will achieve viability by March, and (b) the next administration will actually call in the loan if they don't? Somewhere between zip and zero, I would guess.

The willingness to put more money into Chrysler, thereby subsidizing the private equity fund which owns it, is truly mind-boggling. I have not heard or read a single commentator or knowledgeable observer who doesn't believe the company is on its last leg. Shouldn't we be talking more about a merger or assistance to employees to re-tool and move into other industries?

Unless President Obama, with the guidance of his first-rate economic team, does a Nixon-goes-to-China, and lowers the boom in March or revisits the pre-arranged bankruptcy idea, his administration, with the full support of Congress, will inevitably come up with even more money for Detroit. Under this scenario, the Bush plan is, basically, just a down payment. Mark Zandi, a supporter of bailing out the auto industry, chief economist and co-founder of Moody's.com, testified to the Senate Banking Committee on December 4 that the federal government should spend between $75 and $125 billion to keep the industry out of bankruptcy. Moreover, there is no assurance that even this robust amount will be sufficient to save GM and Chrysler if they don't take the tough steps to restructure their balance sheets.

WITHOUT THE STRONG medicine prescribed by the likes of Senator Corker, the Big Two will become permanently dependent on Washington, unable to succeed and likely to continue in an inevitable death spiral that will mean the loss of numerous jobs some of which could have been saved in a pre-arranged bankruptcy reorganization. Federal dollars could have backed up warranties and customers throughout the process.

The Bush plan bravely defines auto company viability in terms of positive net present value, not to be equated with immediate profitability, and the ability to repay the government loan, a highly unlikely eventuality. Taxpayers are unlikely to see much of a return on their investment.

"No one enjoys a crisis but sometimes it is the best opportunity to bring real reform," says Corker. Again, this present arrangement will work only if the Obama administration can summon the nerve to stand up to congressional Democrats and supporting constituencies. Again, maybe the Obama economic team will hold the line.

This episode is another very disturbing indicator of a political culture, maybe an entire society, that is incapable of coming to grips with the tsunami-like challenges and threats to its financial and civic health. Social Security? A political third rail and off limits to reform. $53 trillion in entitlement liabilities? Let's not think about that today. The national debt? Let the Chinese take care of it. Farm subsidies? The more the merrier. All of these issues require rigor and self-discipline in analyzing and diagnosing the problem and, most importantly, executing solutions.

Compassion is a worthy sentiment and a legitimate motive for action, but it is not a substitute for sound policy much less a justification for fiscal recklessness and self-defeating bailouts and subsidies.

The Republicans failed to confront these threats to America for nearly a decade. Hoping for better from the Democrats probably qualifies for Samuel Johnson's taunt as the triumph of hope over experience. But hope is a theological virtue, not grounded in pure rationality. So this Season let us hope.

About the Author

G. Tracy Mehan, III served at the U.S. Environmental Protection Agency in the administrations of both Presidents Bush. He is a consultant in Arlington, Virginia, and an adjunct professor at George Mason University School of Law.

Letter to the Editor View all comments (16) | Leave a comment

Rocco| 12.23.08 @ 7:19AM

It is a measure of the general ignorance (thanks to our Democrat-run public school factories) that no one understands the concept of bankruptcy, or makes distinctions between Chapter 11 (reorganization) and Chapter 7 (liquidation). And what exactly is a disorderly bankruptcy? Both processes are orderly and set down by law, and run by the courts. Generally what most (including myself) advocate is reorganization (Chapter 11), whereby these companies can streamline their structures. Obviously their stock will be delisted from major exchanges but will still trade OTC. Companies DO emerge from Chapter 11 - it doesn't mean GM and Chrysler stop manufacturing and selling cars. But, it may force GM to do away with its divisional structure and build better quality cars at an affordable price which the market wants. The stupidity and ignorance out there is really appalling.

Jason| 12.23.08 @ 7:23AM

The Bush plan just throws money (MY MONEY) into a black hole. How many people like me worked the entire year paying taxes to see every dime get sucked into this scheme?
http://www.rightklik.net/

McBain| 12.23.08 @ 8:59AM

"Mark Zandi, a supporter of bailing out the auto industry, chief economist and co-founder of Moody's.com, testified to the Senate Banking Committee on December 4 that the federal government should spend between $75 and $125 billion to keep the industry out of bankruptcy. " He was also asked what the cost would be on the economy of not providing loans and he said it would be "cataclysmic". When asked if he meant several hundred billion dollars, he said "not even in the same universe". The point being if we did Tarp to avoid a Depression, then we did the auto loans for the same reason.

Pat| 12.23.08 @ 1:23PM

This writer dimly sees an important truth about Detroit that will become much clearer in future months. S. E. Michigan and Metro Detroiters understand one fundamental concept concerning economic survival: In America, there is tremendous strength in being helpless. Americans see folks in trouble and immediately want to help, the more helpless you are, the more the money pours in. No one who knows the autoworkers or the inhabitants of the rust belt expect the Big 3 to make a dramatic turnaround after receiving the bailout billions, no one expects the automaking communities to pull together and find a solution; in fact, no one expects Detroit to do anything but continue to fail. So why are we so eager to throw away additional billions to prove what we already know?

If this writer understood the answer to that question, the Big 3 bailout money might not be completely wasted. And how did Detroit get away with this undeserved bailout? Metro Detroit has nothing going for it, which is why they stumbled on the Zen-like contradiction "there is strength in being helpless". As a community, they lack a shared cultural heritage, Eastern European immigrants, sharecropper blacks up from the Deep South, tall, lanky hillbillies from Kentucky and Anglo-Irish transplants from America's coastal states comprise Michigan's historical melting pot, and the resulting stew is terrible. Metro Detroit has all the ugly racial problems of the worst urban areas in our country. Education is minimal, illiteracy is high, respect for learning is non-existent - all the ingredients necessary for personal and community failure within a highly technological society which demands educated competence. Michigan has fine taxpayer supported universities, but the sons and daughters of Michigan earn their degrees and then leave for greener pastures. The ones who remain and don't leave Michigan are the ones you wish would leave.

Put all these factors together and you have the toxic culture and moribund economy that is S. E. Michigan. So, how did they pull it off? Detroiters are experts at failure - they failed until they succeeded in generating sympathy from fellow Americans - it almost always works to achieve a generous handout. Rather than see people lose their jobs, lose their homes, go on unemployment or welfare, maybe even commit suicide, Americans will open their wallets and shell out the charity in huge installments. And this bailout is nothing more than charity. We pretend to believe it's a "bridge" loan, but we know it's welfare driven by plain old American compassion and the secret fear that what is happening to Michigan might soon be happening to the rest of us.

Pecos Pete| 12.23.08 @ 3:01PM

Pat:

On the button. More could be said, but in the end the 12/08 auto bailout will be repeated and repeated and repeated for compassionate or political reasons ... until a Patton like personage appears and pulls the plug for compassionate and political reasons related to the rest of us taxpayers.

DaveS| 12.23.08 @ 4:02PM

Kudlow saying we're a 'bailout nation' now? Pleeeaaaasssssse. Larry's a good guy, but he's been lamely wrong on the TARP he favored (and still does) - if only because TARP was the camel's nose and because it's un-American and because it is institutionally free of real oversight and penalties and because it's been abused and because it vests decisions solely with the Treasury King Paulson and because Bush did not ask for Paulson's resignation immediately afterwards and because King Solomon no longer is on the scene to make sense of any of this and because tin cups are still available and there is no stigma when automotive GMs employ them and because we've all lost something Kennedy said at his inauguration and because we're saps, etc. , etc., etc.

Pat| 12.23.08 @ 5:40PM

Pecos Pete: I think you've got a pretty good crystal ball - but, I don't think President Obama, the UAW's friend and fairy godmother, will fill the role of Gen. Patton and say "enough is enough". The UAW represents the ultimate "strength through helplessness" practitioners. Their talent lies in negotiation, that's what they do, that's all they do. For the past several months, Ron Gettelfinger, the UAW president has been building a case for the American taxpayer to subsidize the UAW into the forseeable future. As a master of the "success through failure" psychology, he is working a split wide receiver game plan - right side receiver is "yes, we know we have to give concessions" and the intended passing route is to convince Americans the UAW is not stubbornly intransigent - they see the handwriting on the wall. This elaborate fake is intended to lull taxpayers from a stern and demanding position into a more forgiving posture.

The left side wide receiver is the intended pass recipient - the argument here is that the union has already given concessions, how much more can be asked of them? And that's exactly where Gettelfinger has the tougher passing route. Americans not earning union wages believe that plenty more can be asked - parity with wages paid in Toyota's and Honda's American car plants for instance. Gettelfinger was smart in offering up the Job Bank as a sacrifice, there weren't many union workers left in the Bank anyway, probably less than 1,000 and he knew Americans deeply resented the idea of not working while receiving almost full pay. It was also the opening ante while the future success of the bailout was in doubt.

Now that the first bailout installment will be paid, the game plan is to concede as little as possible while avoiding alienating the taxpayers. Critics claim this so-called "loan" can rescinded if the parties don't bargain in good faith - but that's absurd logic. If the bailout was granted to save massive job losses in December, will the loan be rescinded at the end of March so there will be massive job losses in April? Most Americans realize that withdrawing Federal assistance, once it's been granted, is an empty and childish threat.

So, we will all have ringside seats for the performance of a master negotiator - this bargaining process has been honed through decades of experience and the UAW is an expert at winning the battle while losing the war. The hope this time around is that the war can also be won with a permanent subsidy that substantially preserves all that the UAW has achieved over the past 60 years. For example, underwriting the retirement pay and full medical benefits of retirees has been frequently discussed as a way to reduce "legacy" costs, but the taxpayers are the ones who will do the underwriting. In essence, the UAW wants to keep everything, every current wage and benefit award, while granting the automakers a cost reduction - the way to do that is simply shift the present and future costs to the taxpayer - simple tactics but a hard sell.

Jeremiah| 12.23.08 @ 6:22PM

So let me see if I have this straight....

The mess in Detroit is the fault of union labor.

The mess in our schools is the fault of teachers.

I suppose the reason health care costs are so high is that nurses are not forced to work for free?

When are we going to get the conservative take on energy costs: gas station attendants are overcharging us!

debbieqd| 12.23.08 @ 7:46PM

Senator Corker is a self-serving pimp. The whores he's interested in using are foreign made. You can't really believe that anything he says or does is for the good of this country, can you?

John Lofton| 12.23.08 @ 8:37PM

Forget "conservatism," please. It has been Godless and therefore irrelevant. Secular conservatism will not defeat secular liberalism because to God both are two atheistic peas-in-a-pod and thus predestined to failure. As Stonewall Jackson's Chief of Staff R.L. Dabney said of such a humanistic belief more than 100 years ago:

"[Secular conservatism] is a party which never conserves anything. Its history has been that it demurs to each aggression of the progressive party, and aims to save its credit by a respectable amount of growling, but always acquiesces at last in the innovation. What was the resisted novelty of yesterday is today .one of the accepted principles of conservatism; it is now conservative only in affecting to resist the next innovation, which will tomorrow be forced upon its timidity and will be succeeded by some third revolution; to be denounced and then adopted in its turn. American conservatism is merely the shadow that follows Radicalism as it moves forward towards perdition. It remains behind it, but never retards it, and always advances near its leader. This pretended salt bath utterly lost its savor: wherewith shall it be salted? Its impotency is not hard, indeed, to explain. It .is worthless because it is the conservatism of expediency only, and not of sturdy principle. It intends to risk nothing serious for the sake of the truth."

Our country is collapsing because we have turned our back on God (Psalm 9:17) and refused to kiss His Son (Psalm 2).

John Lofton, Editor, TheAmericanView.com
Recovering Republican
JLof@aol.com

Dolmance| 12.23.08 @ 11:16PM

Let's see - 700 billion to the banks, credit and insurance industry, allowing the CEO's and others in management to reap billions in personal compensation, while the auto industry gets around 15 billion in the hope we don't lose a million plus jobs over the next few months, not to mention all the related jobs over the next year, given with a caveat that $50,000 a year workers will take pay cuts. And this has got the Republicans upset?

The Republicans aren't out of ideas. They aren't out of their minds.

baseballguy2001| 12.24.08 @ 12:31AM

The current WH occupant is the most religious president in a long, long time. To say the country is collapsing because the country has turned away from God is ridiculous. The country is collapsing because of the policies of the Legislative and Executive branches of our Govt. I agree with another poster, The 700B and Auto bailouts are neither Compassionate nor Conservative. They are part of a liberal policy using Govt. to 'help'. When Republicans Legislate like Libreals, Conservatives end up in the wilderness for a long, long time.

Mitten Envy| 12.24.08 @ 6:34AM

The most distressing element of this bailout has been the treatment of the taxpayer and consumer as mere spectators. The taxpayer and the consumer are the same person, and Detroit's condescending attitude toward southern state politicians will just make it that much harder for Detroit to sell cars in the South. The Detroit media has been whipping up scorn of southern Republicans. Detroit has already abandoned the West Coast consumer. Now they are alienating the South. GM's customer base is shrinking into the size of a nose around Detroit's neck. The Detroit media and the UAW are destroying SE Michigan. Most companies are so terrified of offending any customer, employees are now forbidden to even say, "Merry Christmas." Yet the UAW can spend millions to attack US Senators, like they did with Dole in North Carolina.

old programr| 12.25.08 @ 1:19PM

Why not simply give the money directly to the UAW? The thugacracy can skim-off their share and then distribute as they desire. All that GM will do is pass the funds through their books before handing it to all of those GM retirees. Remember, the direct wage rates for current workers, with benefits, at the Detroit automakers is within 10-15% of the transplants. Direct costs are not the problem. Those staggering legacy costs for those "30- and- out" retirees drive retiree costs to 700% of the transplants' costs. There is no way that the Detroit automakers can manage around these absurd "fixed" costs.

When those 45% of wage earners who pay no Federal Income Taxes, mostly non-Union, encounter the enevitable Obama Admin tax increases on everybody, across the board, to pay for all of these bailouts, I would expect there to be a significant backlash against those on the Union gravytrain while other hard working people struggle. Don't kid yourself, the country can handle the escalating bailouts with ease when the Dem socialists impose the European-like super-progressive tax structure they so worship. When will the rebellion begin when a lower middle class family with taxable income of about $65,000 sees their effective Federal tax rate increase from about 12% to 30%. It's going to happen, look at the numbers. Look at Europe. This is the leftist utopia we will soon experience. But, hell we are all going to get free healthcare and those rich people are really going to be punished and finally pay their fair share!

Remember: " I have been working as hard as I can to get that middle class tax cut, but the mess the former Admin left me just requires more not less taxes to get our National Budget back in-line; I feel your pain.", a previous President.

Michigan Matt| 12.26.08 @ 7:56PM

I can remember in 1999 that the UAW pressed GM into allowing UAW-member workers to take election day off; it was like giving the unions a $100m manpower base every election day. GM, Ford and D-Chrysler agreed and the paid day off works mostly to the benefit of Democrat politicians and political action groups because of the UAW's overwhelming partisan inclinations.

Frankly, I think every single GOP politician should have given GM, Ford and the new-Chrysler the cold, cold, frigid shoulder on the bailout... as well as the UAW.

Romney has it right: a well ordered bankruptcy by GM and Chrysler isn't a bad thing in our economy... it's the perfect payback. Open up those contracts and reduce legacy costs. Excise the waste, corporate abuse and failed product lines. Do what the customers and consumers have been unable to do up to this point: force real change on the unions and their sly-in-the-bed auto leader friends.

My next car: it'll be a BMW in protest.