As of this moment, GM has received $19.4B in government loans and will be facing a Monday (June 1) deadline to voluntarily restructure or be forced to file for Chapter 11 bankruptcy protection. Bankrupt Chrysler LLC received another $760M from the US Treasury out of the Congress-approved TARP funds recently, topping off nearly $10.1B in cumulative loans when including Chrysler Financial Services to the total. That's just shy of $30B or roughly $300 per US household.
What's staggering is not the size of the US Federal Government "investment" into two out of the Big Three legacy Detroit automakers, but rather that the investment is hardly noticeable in a US Treasury investment portfolio of over $700B and a Federal budget deficit expected to exceed $1.8T (that "T" is for trillions) or over 10% of the US GDP for fiscal year 2009.
There are so many angles from which to look at the $30B.
One angle is the angle of outrage at a level of unwarranted government intervention. This is still supposed to be America right? Land of free enterprise capitalism? Why put public money at risk to subsidize failed automakers. We have bankruptcy courts and bankruptcy codes, so why not let the judiciary system do what it is supposed to do. Bondholders who thought they held investment grade senior collateralized debt have been abruptly bumped down the debtholder food chain. Costs for financing will be forever higher as future lenders will require premiums to account for this facile appreciation for contract law. Fool me once, shame on you Uncle Sam. Fool me twice...
Another angle is relief at the support- late but here at last. This is still America and we are talking about cars. We already depend on foreign sources for critical resources like petroleum. Do we really want to lose the capability to build our own cars? Millions of jobs and families depend on automakers that have been fighting foreign competitors that are supported by many subtle (or not so subtle) government props. A level playing field is as mythical as fair trade terms. Workers rights have helped create the American middle class and the collapse of Detroit would just further the slide towards an unstable two-tier society- haves and have nots. In the end, $30B will look small compared to the full cost of a liquidating Detroit and the devastation it would wreak across the country in general, and in the upper Midwest in particular.
Thirdly, there might be an angle that see a unique opportunity. With Detroit now under Washington's thumb, and with the theoretically limitless resources of the Federal Government, a new green revolution can be forced through the automakers. Where market forces failed to correctly signal an end to big SUVs and gas guzzlers, public policy can now step in and utilize a unique opportunity to reshape American auto designs for decades to come. A merger of Chrysler with Fiat is already set to bring a host of new fuel efficient European cars to American showrooms. While unfortunately this didn't happen on its own, this may be the best thing that's ever happened to the American auto industry.
These are just three hypothetical and contrasting viewpoints. The facts of the matter at present are too murky to attempt anything resembling an objective forecast for the outcome of this particular intervention. There are likely elements from all three of these (and many other viewpoints) that will be found as true, in part or in whole. Yet, what is curiously discernible now from these (and other) viewpoints is that the perspective you resonate with may be well indicative of your own perceived aspiration in American society- borrower or lender, consumer or producer, manager or worker, policy maker or policy taker, owner or renter, driver or passenger.
The shared narrative of the US consciousness, from its inception, has been one of high aspirations and an optimistic view of one's trajectory in life- no matter the starting point. Perhaps it is this trenchant optimism that has bedeviled socialist and unionist movements at various points in American history- at some deep level, we believe we'll wind up being the payor and not the beneficiary of socialism and so we summarily reject it. And so it may be this individual optimism that lies at the heart of an "American difference" with many of our peer countries around the world, in Europe, Asia and Latin America.
Yet if we see this optimism wane, and recession give way to a depression- not in economic terms but describing a dejected state in the national psyche; if we stop believing we are (or will be one day) the lender, the producer, the manager, the policy maker, the owner, the driver of our own national destiny, then and only then will we see a true revolution in American politics, and perhaps it will be at that time that the recapitalization of Detroit will be written in history books as the end of not one but two eras- the death of the gas guzzling SUV and the demise of an American free market capitalism.
-Austin
Posted via email from Austin
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