Friday, September 26, 2008

One Bailout Most Congressional Republicans Are Fine With

On Wednesday, the House approved a measure to make $25 billion worth of loans to automakers and suppliers, supposedly for the purpose of helping them retool their plants.  The vote was 370-58.  It appears likely that the Senate will quickly follow suit, and both Obama and (alas) McCain support the plan.

Despite the timing, the plan has nothing to do with the other bailout now under consideration on Capital Hill.  Indeed, the Big Three have been pushing for federal aid at least since 2006, and the initial piece of legislation creating the loan plan scheme was passed last year.  Throughout that time, the Big Three have steadfastly contended that the measure isn’t a bailout to prop up their poorly-run companies, because companies must repay the loans and because foreign-headquartered automakers with plants in the U.S. are also eligible for the funds.

The first argument has always been transparently asinine; under the plan the Big Three will get interest rates and terms far more favorable than anything they could get from private sources (even if the long-term capital markets were functioning, which they aren’t).  Getting financial assistance from government when your credit is too poor to get decent rates from private lenders is surely a paradigm case of what constitutes a government bailout.

And as for the point that foreign companies (Toyota, Honda, etc.) can get low-rate loans too?  Well, the authorizing legislation Congress passed last year mandates that loans can only be issued for plants that are more than twenty years old.  It’s just coincidence, I’m sure, that there are very few foreign-owned auto plants in the U.S. more than twenty years old, but a lot of such plants owned by GM, Ford, and Chrysler.

It’s also just coincidence, I’m sure, that the measure passed the House and will pass the Senate as a rider to a continuing resolution that the President as a practical matter must sign in order for the federal government to keep functioning into next year.

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