“Senator John Ensign today called on the White House to take the option of using the Troubled Asset Relief Program (TARP) funds for the auto industry off the table. Ensign led efforts in the Senate this week to stop the White House-Democrat auto bailout legislation because it took experts out of the process, injected politics and failed to require the necessary changes to make the Big 3 auto companies competitive over the long term.” [Ensign PR, December 12, 2008] So much for Senator Ensign’s clout with the White House. The Detroit 3 will be backstopped at least until March 31, when the President will be back in Texas – having ditched the “prop-ranch” in Crawford for his luxurious digs in Dallas.
Not that Senator Ensign didn’t give it the old college try on the Senate floor on December 11th. [Senate Journal] The following are the full remarks which contain the semi-notorious reference to bailing out the casino industry. However, the full text deserves consideration. The Senator’s comments are in italics.
Mr. President, I rise today to speak about the possible bailout of the Big 3 automobile manufacturers. General Motors, Chrysler, and Ford have come before this Congress asking for tens of billions of dollars from the taxpayers. This bailout, however, raises a number of questions that concern me greatly. The economy of the United States is rooted in free-market principles. These principles, coupled with our Nation’s entrepreneurial spirit, helped America become the richest and most innovative country in the world. Even though our economy is struggling right now, we cannot abandon those principles.
This would, of course, be nothing like the hundreds of billions the Bush Administration has ineptly pitched at the financial and banking institutions, and perhaps even less like the $10-$12 billion per month sinking into the sands of Iraq? Interesting isn’t it – every time the GOP wants to pile cash on a defense contractor or manufacturer there’s no problem, but speak of manufacturing domestic products and we MUST revert to “free-marketeering?”
American automobile company executives have made many poor decisions over the past few decades. Those decisions combined with a poor economy, have put them in a desperate situation, particularly General Motors. It seems to me that this is exactly why we have Chapter 11 bankruptcy. Now, when I say bankruptcy, I am not talking about liquidation. That is Chapter 7 bankruptcy. Chapter 11 bankruptcy provides struggling companies with the opportunity to restructure responsibly so that they can transform into efficient and profitable firms. Chapter 11 exists to protect both the employees and the company itself by giving them a chance to get things right. The Big 3 should not view Chapter 11 as some sort of death sentence. Instead, they should see it as the best opportunity to put themselves on the same competitive footing with companies such as Toyota and BMW. Venerable companies in America such as Macy’s and Continental Airlines have filed for Chapter 11 and have emerged as stronger, more viable companies. So why should the Big 3 be treated any differently?
Of course Senator Ensign wouldn’t be thinking of Chapter 7 because that might entail having some of our technology transferred to foreign companies, and the utter collapse of one of our largest manufacturing segments during a Republican Administration. The whopper difference between Macy’s and Continental and the automakers is that it has never occurred to me, or anyone I’ve ever met, that I would need to purchase parts for the 737 in which I’m sitting, or need a 10 year warranty on a sweater from Macy’s.
I know these companies would say they are somehow unique and that bankruptcy simply will not work for them. I am not so sure about that. The Big 3 worry that today’s financial environment would prevent them from securing debtor-in-possession financing from the private sector. They would need such funding to keep operating through a bankruptcy proceeding. This is where the government can step in. This would ensure that automakers have the funds to complete the Chapter 11 process.
Whoa Nellie! This really doesn’t work both ways. Somehow, according to Ensign logic, it’s perfectly all right for the federal government to backstop more expensive Chapter 11 DIP funding than it is for the federal treasury to backstop less expensive operational bridge loans? What about those “free market principles” in the first paragraph?
The Big 3 also worry that few consumers would buy a car from a company that might not be around in a few years to stand by the car’s warranty. Again, the government could step in and guarantee the warranties. After all, what is a better backup of a warranty than the full faith and credit of the U.S. Government? And if the government took these steps, wouldn’t that give the Big 3 a good chance to successfully reorganize through Chapter 11 bankruptcy? Speaking of spending taxpayer money – the Federal government is going to guarantee 10 year warranties? Excuse me, but harkening back to the testimony given at the Congressional hearings, [MrkWtch] it was clear that the auto industry expected about 11 million new vehicle sales in 2008. Add this figure to the 17 million vehicles sold in 2007 and the taxpayers could be footing the bill for a substantial number of warranties.
The Big 3 have testified before Congress that they would require about $34 billion to avoid liquidation. They would need this help over the next year or two. Many independent analysts, however, believe that number may triple that. Frankly, I am more inclined to believe the independent estimates are closer to reality. After all, the Big 3 have time and again proven unable to adequately plan for the future. Why should we believe their projections now? With the deficit reaching $1 trillion or more next year, why aren’t we having a debate over the true cost of such a bailout? We should be worried about the U.S. taxpayer. First, does it occur to Senator Ensign at any point that automobile workers are taxpayers? Secondly, does it occur to the Senator that people who work for parts suppliers, and who work for after-sale peripheral companies are also taxpayers?
In this legislation, there has been talk about creating a “car czar” to oversee any restructuring that would accompany a bailout. This czar, however, would not have nearly the same sort of powers a bankruptcy court judge would have under Chapter 11. Injecting a government bureaucrat into the process is not a serious solution. If you have been around Washington long enough, you know it is more like a serious problem. Wouldn’t it be better to have an expert such as a bankruptcy court judge oversee the process? Not only would a bankruptcy judge have more tools than a car czar, but the judge would not be influenced by the political process. A bailout would invite all sorts of meddling from lawmakers to have the companies carry out their own pet policies. We should not be using this bailout as a vehicle to implement domestic social policy.
This section is about the only part Senator Ensign gets correctly – the car czar notion was silly – almost as silly as the Commission to Study Whatever’s the Matter with Cars idea. Senator Ensign rambles on, spending the bulk of his floor time inveighing against the Car Czar notion – as if it had a snowball’s chance south of the mythological Cerberus to be enacted.
Not to mention that creditors or stakeholders will just lobby Congress to make the sort of concessions that would be required of them under the bankruptcy. We see this sort of lobbying right now with the TARP program. Everyone is trying to tweak the program to benefit their own narrow self-interest. Why would we expect the auto unions or suppliers or dealers to behave any differently? I worry that politicizing the restructuring of the Big 3 would jeopardize any chances of success they may have. Or, why wouldn’t we believe that contracts with dealers, parts suppliers, and workers might be valid and should be honored? One of our time honored precepts in our economic system is that contracts are enforceable. Only ideology would dictate that some contracts are more enforceable than others.
All this talk of government-directed restructuring also raises bigger picture questions. Why does Congress think we can succeed where so many businessmen have already failed? What sort of experience in the car-making business does this Congress have? Last I checked, none of my colleagues have a background in running a car company. And this car czar seems doomed to failure too. One government bureaucrat to oversee the reorganization of three massive companies? What track record can we point to that makes us think this will work? Senator Ensign now shifts to some rather revealing commentary:
This strikes me as a questionable intervention by the government into the private sector. We have the government thinking it can run these businesses better than they can. Heck, we cannot even run the government. We also have the government choosing which individual companies deserve help and which do not. This is not what the Government should be doing. Government should not be picking winners or losers in the private sector. For the long-term health of the country’s entrepreneurial-based economy, this could be a dangerous precedent. This is, indeed, a pertinent admission – “…we cannot even run the government – and the Republicans had the last eight years to prove it. It’s nice to see a member of the Republican leadership get around to admitting this.
One of the companies asking for a bailout is Chrysler, which is owned by an investment fund known as Cerberus. Some reports indicate Cerberus may have significant asset holdings, into the billions of dollars. But it appears Cerberus has done nothing to infuse any emergency cash into Chrysler to save it. Why should the government bail out Chrysler, when its own parent company seems unwilling to offer any help? This is actually a good question, perhaps one of Cerberus’s owners, former Bush Administration Treasury Secretary John Snow, would care to offer a reply.
Here comes the part wherein Ensign suggests that the resort-casinos of Las Vegas are comparable to the automobile industry: If we bail out the car companies, what does that mean for other struggling industries? The automakers are not the only ones suffering today in this bad economy. Would we have to bail out every large company in every major industry? Tourism is one of America’s biggest industries and has a high employment multiplier, much like the auto industry. Hotel rooms are going empty as consumers cut back on travel. Many state economies, such as in my own State of Nevada, are hurting because of the downturn in consumer travel. Should the hotels receive a bailout? How about the newspaper industry? We know their businesses are hurting too. The Tribune Company filed for Chapter 11. Should we be bailing them out as well? Where do we draw the line? Can we even draw a line once we have given the Big 3 a bailout? We can presume Senator Ensign intends that the answers to his rhetorical questions is “No.” Unfortunately, the domino theory of down hill disintegration kicks in and unless the Treasury Department starts to demand that the banks receiving TARP funds start moving some money out the door there may well be a falling domino effect. This isn’t so much an argument that Detroit is unworthy for assistance as it is an admission that the Bush Administration’s botched handling of TARP funding is miserably obvious.
Here he goes again – the answer to all ills economic is – Another Tax Cut! The proposed automaker bailout is indicative of a big-government approach to dealing with our economy. We are in the midst of a recession, yet we have come back for a late session of Congress to talk about saving just three companies. Why aren’t we considering pro-growth policies to help the larger economy? We should be considering long-term, pro-growth tax cuts rather than searching for ways to spend more of the taxpayers’ money. For instance, lowering the corporate tax rate would put more money back into the hands of companies all across America. This would help companies stay afloat and to avoid cutting jobs during these difficult times. Instead, the Democrats are looking to spend money on bloated, uncompetitive automakers.
If there were ever a Neo-Hooverite statement of principles this would be it. And, there are those pesky taxpayers again, with automobile related employees neatly segregated from all other “taxpayers.”
When all else fails take a very long view. As we debate whether to loan billions of dollars to the automakers, I urge my colleagues to consider all the important questions I have raised today. This issue is not as simple as answering “how many jobs might be lost?” or “how much it will cost the government?” We must also consider questions such as “what is the Government’s proper role during this economic downturn?” “What could be the unintended consequences of our actions?” “Are we setting a dangerous precedent for needless political intervention?” “How might this affect our ballooning deficit?” “Are we taking the best course of action for the long-term health of the U.S. Government?” Judging from the previous remarks, the role of government according to Senator Ensign is to continue to cut taxes, reduce services, and thereby decrease the capacity of government to – govern.
We would do America a disservice by approving any bailout package for the Big 3 before finding at least some consensus on these questions. Furthermore, I believe we must look more closely at Chapter 11 as a viable option for the automakers. Chapter 11 reorganization for any of the Big 3 is far from ideal, but we do not live in an ideal world nor during ideal times. We should not dismiss one of the most powerful tools available to us so readily. I hope my colleagues will think long and hard about the issues I have raised today before making any decisions about the possible bailout. If this bailout package that is before us today fails, we can rewrite the bill and do it in a way that is better for the U.S. auto manufacturing industry. American taxpayers deserve nothing less.
Now that we’ve seen all of Senator Ensign’s remarks, it might be well to do some review: How many times did the Senator use the word “jobs?” (The answer is 1) How many times did Senator Ensign mention “workers?” (The answer is 0)