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Outside the Bailout Box

by Robert Capozzi

Watching President-Elect Obama yesterday on Meet the Press, I was impressed. While I mostly disagreed with him, he's impressed me as a thoughtful, wise individual. For instance, I was convinced that he understands the concept of "moral hazard," which I can't say about most pols and the populace generally.

In a sense, I agreed with him that some sort of bailout of the domestic auto industry will happen. It's like when it rains and I have plans for an outdoor event...I wish it were not so, yet precipitation happens.

Of course, bailing out GM, Ford and Chrysler are really bad ideas on a lot of levels. But, if it's to be inevitable, I wonder if there's a way to do it that is least injurious.

Governments have large auto fleets. Why doesn't President Obama pre-pay the Detroit 3 for a fleet replenishment? At $25 billion and an average of say $30,000 per vehicle, that's about 834,000 cars and trucks. The Feds don't need that many, so they can disperse them to the states and counties in lieu of federal payments. They might even offer them to government employees in lieu of pay, with terms of, say, 0% for four years. Or even ship them as in-kind foreign aid, as an offset, of course.

The optics would be even better if this pre-payment plan was for hybrids only.

Such pre-payment serves as a form of a bridge loan, but it could also be positioned as part of Obama's green shift. Ultimately, though, it would not be a bailout, but rather an acceleration of the normal course of doing government business, i.e., fleet maintenance. It could be close to net neutral for taxpayers, which is far better (or less bad) than what's on the table now. It could even be a net positive for taxpayers, considering the cost to taxpayers of increased unemployment that a failure of the auto industry would entail in the short-to-intermediate term.

-RC

UPDATE: I was listening to Rush Limbaugh this afternoon, and he suggested something very similar to my suggestion. A bit chilling, yes, but then I'm a transpartisan.

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Comments

Very interesting... I'd like to see more talk about the option set for government action outside of pure giveaways. What about a tournament in which the government would award the money to the best program to create a hybrid car? The winner could buy up one of General Motor's defunct factories and put people with knowledge of car-making back to work. Or they could move to Asheville, NC where hippies could put together custom molded energy efficient cars out of fiberglass (You'll have to ask Carl Milsted for the whole utopian vision of this :-). /KDR

I remember reading years ago in a financial magazine (I think it was Forbes) that the unions effectively owned the Big 3 based on pension and other contractual obligations.

Fair enough. Give the Big 3 to the workers. Turn enough of the contractual obligations into stock and see if the workers can do a better job of managing GM, etc. The gigantic moral hazard is both management and labor treating these once great companies as horns of plenty with no responsibility needed.

If unionized workers want to boss the bosses, give them the responsibility that needs to come with being the boss.

I like the contest idea, but I wonder if there's time to pull it off.

Unions tend to not be syndicalist. They DON'T seem to want to manage businesses, which exposes them as hypocrites.

# posted at by Robert Capozzi

Carl,

I agree, give the unions what they want.

If they are right, they can prove it. In any case, it will be a learning experience.

As America heads toward greater government involvement in the economy we should be the artisan jokers and get people see their foibles by helping them slip on the bananas they are so intent on stepping on.

/KDR

we should make Gm produce model cars.

# posted at by Ron

Is General Motors part of the government? I have a friend that said that the government owned General Motors. I think General Motors employees should get government benefits if this is the case.

# posted at by Katie

Fuck Milstead. He's always pushing government. It is right or wrong, you can't go around talking about saying that government is Okay if it's going to tyrannize the public anyway.

+ 1. Please visit my website.

# posted at by Mike Vine

Unions are professional organizations that get workers they need against aggressive capitalists. I don't know why it should so controversial to give them more power and greedy corporations less.

We need to organize so we can get changes. Obama is a black man who is mostly interested in being the new Bill Clinton. I like him but he can't be expected to always be on the side of unions.

- Mom Anderson

Hi,

What a great idea. I love Carl Milsteads idea that we let ordinary employees help administrate the businesses they are in.

all I could think was let the teachers run the schools!

How we could spend the money:

1) $200 billion into a renewables trust fund. The only thing the money can be used for is for R&D and opeartion of non-fossil fuel renewal-energy projects. Rustbucket America - the auto industry, would retool to meet the demand.

2) $200 billion -- To fix America's crumbling road, bridge and **rail** infrastructure and build out a high-speed interurban rail network in congested auto corridors. The construction industry would boom!

3) $200 billion -- To invest in Teach for America, building new schools and retraining teachers to be able to teach for the 21st century.

4) $100 billion -- To create a system of stipends for health care for America's poor - conditioned on reaching a national consensus on a bifurcated health-care system -- allow the private system to continue to operate, but end private health insurance and establish a single-payer system, nationally administered. The same companies that now offer health insurance -- the Aetna's, the BC/BS's of the world, could become contractors to the government running all the paperwork. But it would be coordinated.

Robert says "Such pre-payment serves as a form of a bridge loan".

Bridge to nowhere. Ha ha.

No one listens to Kroes.

http://www.earthtimes.org/articles/show/245169,brussels-to-approve-frenchaustrian-bailout-plans-kroes-confirms.html

Adam Adrianus

Stoe

# posted at by Al Ustrian

1. UAW supports bipartisan compromise.
It's good news that Congressional leaders and the White House are working on a bipartisan compromise to assist domestic automakers.

2. Bankruptcy is not an option; inaction by Congress is not an option.
We must find a solution this week that keeps the doors open at America's auto plants.

3. The consequence will be devastating if Congress fails to act:
• 3 million lost jobs.
• Thousands of businesses at risk.
• Hundreds of billions in lost tax revenue -- far more than the assistance being requested.
• Health care and pensions are risk for millions of workers; taxpayers at risk for these obligations if companies fail.
• With 500,000 jobs lost in November, America cannot afford another economic disaster.
• If Congress fails to act and the auto companies fail, it could turn today's deep recession into a depression.

4. UAW supports tough conditions in exchange for emergency bridge loans.
• Limits on executive pay.
• An equity stake to protect taxpayers.
• Ongoing Congressional oversight.
• Bringing all stakeholders together to restructure company operations and ensure long-term viability.
• Long-term viability includes a commitment by automakers to re-tool U.S. facilities to build the fuel-efficient vehicles of the future. If green technology funds are used for the emergency loans, they should be replenished right away in the next Congress.

5. MESSAGE TO CONGRESS:
• Congress must act this week to avoid the terrible consequences that would result from a collapse of the domestic automakers.
• A bipartisan compromise for an emergency bridge loan will keep America's factories open during the current economic crisis.
• The emergency loans should include requirements that will protect the taxpayers, and ensure accountability and long term viability of the domestic auto companies.

# posted at by Save Cars

1. UAW supports bipartisan compromise.
It's good news that Congressional leaders and the White House are working on a bipartisan compromise to assist domestic automakers.

2. Bankruptcy is not an option; inaction by Congress is not an option.
We must find a solution this week that keeps the doors open at America's auto plants.

3. The consequence will be devastating if Congress fails to act:
• 3 million lost jobs.
• Thousands of businesses at risk.
• Hundreds of billions in lost tax revenue -- far more than the assistance being requested.
• Health care and pensions are risk for millions of workers; taxpayers at risk for these obligations if companies fail.
• With 500,000 jobs lost in November, America cannot afford another economic disaster.
• If Congress fails to act and the auto companies fail, it could turn today's deep recession into a depression.

4. UAW supports tough conditions in exchange for emergency bridge loans.
• Limits on executive pay.
• An equity stake to protect taxpayers.
• Ongoing Congressional oversight.
• Bringing all stakeholders together to restructure company operations and ensure long-term viability.
• Long-term viability includes a commitment by automakers to re-tool U.S. facilities to build the fuel-efficient vehicles of the future. If green technology funds are used for the emergency loans, they should be replenished right away in the next Congress.

5. MESSAGE TO CONGRESS:
• Congress must act this week to avoid the terrible consequences that would result from a collapse of the domestic automakers.
• A bipartisan compromise for an emergency bridge loan will keep America's factories open during the current economic crisis.
• The emergency loans should include requirements that will protect the taxpayers, and ensure accountability and long term viability of the domestic auto companies.

AC:

The challenge with branding things simply "right" or "wrong" is that they are mere opinions. I happen to believe this impending bailout is "wrong," but it seems inevitable. My proposal outlines a means to make the best of a bad situation.

Perhaps you're above such thought experiments? If so, all the best in pursuing that tack. Sanctimony seems to be an ineffective approach to me, but then I've been incorrect before!

# posted at by Robert Capozzi

I'm glad that Bob has stirred up some creative thoughts here. Definitely most creative was whoever posted what appears to be a talking point list from UAW twice. It reminds me of how Shane Cory at the LP used to send out multiple copies of the exact same fundraising letter. If we just keep repeating the message it will be true!

Unfortunately, that seems to be the problem with the bailout box itself. All we hear is that we need a "bailout". If it is the only thing that will work, we just gotta do it.

Another tack free-marketeers might take is to progressively suggest bolder and bolder proposals for more and more money. Why not throw all our money into this one hand of poker to see if it works. Nothing to lose, right?

:-)

/KDR

I like Carl's suggestion about converting contract obligations into ownership. That's awesome.

Let them benefit from their entrepreneurship and creativity-- see who can unleash the "entrepreneurial spirit for good."

There is a chapter in _The Starfish and the Spider_ that discusses what happened when Toyota was given the reigns at a GM plant (I think) that had a bitter and explosive relationship with it's union. Toyota decentralized responsibility for the good of the product and plant, and union members rose to the challenge. An undercover GM manager tried to ambush the experiment by creating hazards and messing things up on purpose, but the unshackled entrepreneurs (formerly "laborers") took initiative to correct these errors and run the plant a lot better.

I might be misremembering important details, but I don't have the book on hand at the moment. I'd love to see this experiment repeated.

Anarchist Capitalist appears to misunderstand me. I want some already contracted obligations to workers and pensioners turned into equity INSTEAD of a government bailout.

One can argue that these excessive obligations are the result of the Wagner Act and other pro-union legislation. However, the odds of going back that far at this time is vanishingly close to zero.

The workers were given part ownership of the Big Three decades ago, but without the responsibility that comes with ownership. The resulting moral hazard is leading the Big Three towards bankruptcy and is giving the Democrats yet another excuse for socialized medicine in the process.

It's time to put power and responsibility into the same hands.

----

Marie: I'm all for teachers running the schools as long as parents can shop between schools. Currently, school administrators serve as an extremely poor proxy for the voters who pay for the schools. School vouchers and teacher coops would be far more efficient and pleasant for all -- except current overpaid administrators and textbook publishers.