Auto bailout fails. What a mess.
The deal died in the Senate, so Wall Street’s likely to take a dive.
The failure of Senate talks on a $14 billion deal to rescue the U.S. auto industry sent Asian shares lower Friday, while the Japanese yen and government bonds gained on renewed risk aversion.
“It’s a very bad sign. U.S. stocks will likely nosedive later,” said Yasutoshi Nagai, chief economist at Daiwa Securities SMBC in Tokyo.
U.S. stock futures were lower in screen trade with Dow Jones Industrial Average futures down 320 points; spreadbetting firms in Europe were calling stocks sharply lower with CMC Markets tipping London’s FTSE 100 to fall 154 points and the French CAC-40 176 points.
The future of the U.S. auto sector was thrown into doubt after a marathon meeting of the GOP Senate Conference; Senate Majority Leader Harry Reid acknowledged on the floor of the Senate that lawmakers would be unable to reach agreement.
Several Republican senators pointed the finger at the United Auto Workers labor union as being unwilling to accept reductions in employee compensation.
It’s hard to figure out which is worse, the prospect of GM and Chrysler going belly up, or the GOP’s sadism by voting against this to try to break the unions by letting GM and Chrysler go belly up. More below the fold. The demands by the Republicans included concessions already made by the UAW:
Concedes the elimination of Supplemental Unemployment Benefits; Concedes elimination of the Jobs Bank Program; Agrees to either reduce company retiree health care obligations or otherwise convert a portion of such obligations into equity; and Agrees to reduce wages and benefits to the levels paid by non-Big Three manufacturers.
I think it’s safe to say that last item is the crux where the Republicans are going when you have “right to work” state South Carolina’s U.S. Senator Jim DeMint saying Sen. Jim DeMint (R-SC) said yesterday on NPR that, in regards to an auto loan, “we’re not going to do it with the barnacles of unionism wrapped around their necks.”
In the end, what makes me ambivalent about this bailout is the prospect that the car companies will fail anyway, because they will not be able to retool and rethink their business models in time to avoid financial ruin. I haven’t seen any compelling evidence (by the banks re: the first bailout as well) that suggests they can stop this runaway economic train. Oliver Willis agrees.
I think the GOP did this for the wrong reason – to screw the unions – but at the end of the day I don’t think the auto industry made a strong enough case for this money. They didn’t sell the idea that they would really change and innovate.
And it doesn’t help that the first bailout for the banks and AIG looks like a boondoggle because of such pitiful oversight to suss out waste and corruption. AIG took your taxpayer dollars and decided to use it to pay bonuses (renamed “retention payments”) to keep some of the same executives who ran it into the ground on the payroll.
But so far, no one’s stopping AIG from paying millions to some employees in its new retention program. The company has told 168 employees they’ll receive between $92,500 and $4 million per individual if they stay with the company for one year. That angers some on Capitol Hill.
“These so-called retention payments are nothing less than bonuses,” Rep. Elijah E. Cummings, D-Md., told CBS News. He sent letters to AIG, demanding details of the retention program.
“No one is indispensable, particularly when you’ve got tens of thousands of people being laid off from Wall Street and financial firms every day,” Cummings said.
…”It’s very unfortunate, but a culture of entitlement has emerged among Wall Street executives,” said Peter Morici, a University of Maryland economist. “They’re paid far too much money and they’re trying to find ways around the rules.”