Bailout Fatigue

The big three automakers returned to Congress, somewhat contrite and with at least marginal explanations for how a bail out will help them, only to find that the audience is more hostile now than it was two weeks ago.

A couple of weeks ago I recommended that the automakers returned to Congress with detailed plans, with apologies for running their businesses into the ground, and with some demonstration that they are serious about not wasting money. They came through all of these points. However, that now appears to be not nearly enough.

One of the key factors is “bailout fatigue.” After all, we’ve been at this for months, to the tune of about $700 billion (which doesn’t actually include the 700 billion for Wall Street) for Citigroup and AIG and Fannie and Freddie. And there has not been a single indication that any of the money which the government has thrown at a private enterprise has succeeded in slowing the kamikaze descent of the economy. Skepticism, to say nothing of outright pessimism, reigns.

The contingent of legislators who have never been comfortable with the idea of the federal government pouring money into private business is now joined by those who have watched money disappear into the hands of companies with no accountability. The automakers have several other groups in opposition, but for now we will focus on the general sense of disgruntlement among the legislators.

Parenthetically, it should be noted that a significant cohort of the skeptics are Democrat. Ever since the election, there has been a concern that a Democratic controlled Congress will legislate the most free-spending and liberal policies possible. This debate gives the lie to those fears. Given the very real evidence that a bankruptcy by one or more of the automakers could toss thousands or hundreds of thousands of workers onto the streets, it would have been easy for the Democratic leadership to urge a blank check over the objections of Republicans in the House, Senate and even the White House. Instead, it is clear that the economic horror show of 2008 has reined in even Nancy Pelosi’s more socialist impulses.

One of the most compelling arguments against proceeding is that it sets the dreadful precedent that every business that is “too big to fail” could come to Washington with an appeal and walk out with another boatload of the taxpayers money. Unfortunately, there is no good retort to this argument. Yes, the auto industry is critical to American commerce. So was the finance sector. So is steel, farming, and energy production. Just because none of these people are currently asking Washington for money doesn’t mean that pretty soon they won’t.

The haste with which a number of brokerage houses and other financial institutions suddenly asked to become banks, in order to score some of the bailout cash, makes it clear any time a business can find a loophole, some CFO will drive his company right through it. If American Express can become a bank, who’s to say that a bicycle company can’t be designated as an automaker?

There are no good answers to the question of whether the country can afford to watch one or more of the major automakers file a Chapter 11. All anyone has is the suspicion that it isn’t going to work, the fear that more money won’t solve Detroit’s problems, and the hope or perhaps merely wish that this will be the money that marks the bottom and fiscal stimulus in the future will get the economy moving the right direction.

But it is clear that anyone coming to Washington needs to have not just a hat in hand, but a business proposal.