Auto Bailout Fails in Senate

Last night, the Senate failed to pass a modified Big 3 Auto bailout that would have provided $14 billion in bridge loans through the first quarter of 2009. The sticking point was the refusal of the unions to cut employee salary to the level of non-union employees at other auto plants in the US. Republican senators wanted an immediate pay-cut and the unions offered to cut salaries once the current contracts expired in 2011. Unless the White House acts in the next week or so, both GM and Chrysler will likely file for bankruptcy by the end of the year.

Hopefully, the White House will do nothing. Both GM and Chrysler need to enter bankruptcy. First, if the US taxpayer keeps bailing out every financial and manufacturing corporation, it will be the US that ends up bankrupt. Second, it is not the Senate’s responsibility to negotiate union contracts on behalf of auto-makers. Third, why is the Senate concentrating on union workers when these companies are bloated with over-paid management. A banckruptcy court will address salary issues across the board. It will also address useless boards of directors. Finally, it will put the risk back on the stockholders where it belongs. Investors–individuals and institutional–will be hurt. But, it’s time to understand that stock investment is not a gambling activity. Buyer beware and buyer be burned.

Finally, if a bank that will invest in a useless sub-prime loan believes that a loan to an auto manufacturer is too risky, why should the US taxpayer be the financial resource of last resort?

Your thoughts?

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