The unprecedented government takeover of Fannie Mae and Freddie Mac has ushered in a new era of government intervention in corporate America, and the nation’s struggling automakers want even more: They are now lobbying for $50 billion in low-interest loans, the L.A. Times reports today. There are also whispers on Wall Street of increased federal aid to rescue struggling Lehman Brothers.
Bailout backlash appears to be rising, along with the federal deficit: “Washington’s misguided bailout of the mortgage industry has sparked a run on the federal Treasury, and taxpayers simply can’t afford it,” said U.S. Sen. Jim DeMint (R-S.C.).
Still, there is a good chance the automakers will get what they want: Both presidential candidates support at least $25 billion in loans, and the industry insists that subsidized loans don’t constitute a “bailout. From the L.A. Times:
… auto industry representatives bristled at talk of a “bailout,” noting that the terms of the program are quite specific. The money would take the form of low-interest loans and would have to be used to develop technologies delivering at least a 25% increase in fuel efficiency.
The Wall Street Journal published two columns this week arguing that Detroit is a bad credit risk — the corporate equivalent of a subprime borrower looking for a huge mortgage it can’t afford. Paul Ingrassia warned of a wave of bailouts:
If we bail out Detroit, where do we stop? The newspaper industry is in financial trouble because more readers and advertisers are turning to the Internet. Newspapers are good for democracy — Thomas Jefferson said he would choose newspapers over government, after all — so shouldn’t they get low-interest government loans to help them adjust to the Internet? Of course not, and ditto for Detroit.
…[L]oan subsidies will paint them in the public mind as corporate welfare recipients that can’t compete on their own. That can’t be good for sales.
More fundamentally, the last thing these companies need just now is more debt. They are leveraged to the hilt, and risk climbing into a financial hole from which they’ll never recover.
Holman W. Jenkins Jr. reports that Detroit lobbyists swamped both political conventions in what he predicts will be a successful quest for $50 billion in loans:
Having squandered the domestic auto industry’s capital on millions and millions of cars that lost money, now Congress will squander the taxpayer’s capital. It will lend the auto makers $50 billion to invest in fuel efficiency innovations that, by definition, won’t command from car shoppers a price high enough to cover the cost of making them. Which makes it very unlikely we will get the $50 billion back.
There is also increased speculation that Lehman Brothers may need additional federal aid to survive. With Lehman stock in a free-fall, a Wall Street Journal blogger asked, “is it time for the government to help out Lehman Brothers Holdings?” The third commenter responding to the question wrote, “There is no other option than to have the government intervene with a bailout program if it comes to that.”
.
