Obama arrived. Next he asked a lot of questions about autos, not hiding his skepticism about the idea of a car czar. Why would Obama want to outsource a problem that was his responsibility? Bolten replied that the White House was open to other ideas, but the meeting ended inconclusively after ninety-five minutes. Paulson, ever relentless, called Summers twice the next day, and Hennessey also gave Summers a ring. The clear impression among the Bush team was that the Obama team did not want to say yes or no and was slow-walking them.
This triggered two recalculations. First, the administration decided to back off on TARP: as much as Paulson wanted the extra safety margin of $350 billion, an ugly fight over gaining access to the money could roil the markets as badly as another bank failure. Second, worried about the sufficiency of TARP, it returned to a legislative strategy that involved pushing Congress to make the advanced-technology funding available as a bridge loan to the auto companies.
"Every industry in America is hurting today. Show me one that couldn't be assisted and made more viable and more profitable with an additional $34 billion," demanded Texas Congressman Jeb Hensarling. "So why the folks before us and not other folks?" By Friday, December 5, Detroit's CEOs were back on Capitol Hill for round two.
In two scant weeks, the amount of their bailout request had ballooned from $25 billion to $34 billion. GM, at this point, wanted a $12 billion loan and a $6 billion line of credit, including $4 billion immediately to ensure survival past January 1. Chrysler wanted $7 billion. Ford, breaking ranks, said it needed no immediate cash, just a $9 billion line of credit.
In the midst of what was becoming a predictable circus, some truths emerged. Most compelling was the testimony of Mark Zandi, the chief economist of Moody's Economy.com , who had delved into the automakers' restructuring and restoration costs. According to his analysis, their recovery plans rested on too optimistic assumptions. Just to avoid bankruptcy in the next two years, Zandi testified, the automakers would need not $34 billion but rather $75 billion to $125 billionânumbers that would prove amazingly prescient.
Yet Zandi conceded that, in its battered state, the economy could not stand Detroit's implosion. Like other witnesses, he recommended that Congress provide emergency aid, though not as much as the automakers had asked. More could be offered later if the turnarounds began to work.
The hearings ended with the grudging consensus that the automakers did indeed need help, but no one in Congress knew where the cash would come from, and only a week remained in the legislative year.
A weekend of horse-trading ensued, during which President-elect Obama appeared on
Meet the Press
to reiterate his support for a bailout. "Millions of people, directly or indirectly, are reliant on that industry, and so I don't think it's an option to simply allow it to collapse," he said. By Monday, the congressional Democrats and the Bush White House had outlined an agreement, although it would take another few days to resolve the details of what a commentator called "the smallest Band-Aid that the automakers said they could live with [and] the most onerous conditions House Democrats could bring themselves to impose."
The proposed bill provided $14 billion in loans, to be drawn not from TARP but from the Advanced Technology Vehicles Manufacturing Loan Program, as the White House and other Republicans had been proposing. Also called for was the selection of a presidentially appointed car czar and the imposition of a March 31, 2009, deadline for the Big Three to submit turnaround plans. If these failed to satisfy the car czar, he could demand repayment, which would mean bankruptcy.
Speaker Pelosi had adopted the White House's approach in hopes of winning Republican votes. But by midweek, the gambit was in trouble. Although it appeared that the House would approve
This triggered two recalculations. First, the administration decided to back off on TARP: as much as Paulson wanted the extra safety margin of $350 billion, an ugly fight over gaining access to the money could roil the markets as badly as another bank failure. Second, worried about the sufficiency of TARP, it returned to a legislative strategy that involved pushing Congress to make the advanced-technology funding available as a bridge loan to the auto companies.
"Every industry in America is hurting today. Show me one that couldn't be assisted and made more viable and more profitable with an additional $34 billion," demanded Texas Congressman Jeb Hensarling. "So why the folks before us and not other folks?" By Friday, December 5, Detroit's CEOs were back on Capitol Hill for round two.
In two scant weeks, the amount of their bailout request had ballooned from $25 billion to $34 billion. GM, at this point, wanted a $12 billion loan and a $6 billion line of credit, including $4 billion immediately to ensure survival past January 1. Chrysler wanted $7 billion. Ford, breaking ranks, said it needed no immediate cash, just a $9 billion line of credit.
In the midst of what was becoming a predictable circus, some truths emerged. Most compelling was the testimony of Mark Zandi, the chief economist of Moody's Economy.com , who had delved into the automakers' restructuring and restoration costs. According to his analysis, their recovery plans rested on too optimistic assumptions. Just to avoid bankruptcy in the next two years, Zandi testified, the automakers would need not $34 billion but rather $75 billion to $125 billionânumbers that would prove amazingly prescient.
Yet Zandi conceded that, in its battered state, the economy could not stand Detroit's implosion. Like other witnesses, he recommended that Congress provide emergency aid, though not as much as the automakers had asked. More could be offered later if the turnarounds began to work.
The hearings ended with the grudging consensus that the automakers did indeed need help, but no one in Congress knew where the cash would come from, and only a week remained in the legislative year.
A weekend of horse-trading ensued, during which President-elect Obama appeared on
Meet the Press
to reiterate his support for a bailout. "Millions of people, directly or indirectly, are reliant on that industry, and so I don't think it's an option to simply allow it to collapse," he said. By Monday, the congressional Democrats and the Bush White House had outlined an agreement, although it would take another few days to resolve the details of what a commentator called "the smallest Band-Aid that the automakers said they could live with [and] the most onerous conditions House Democrats could bring themselves to impose."
The proposed bill provided $14 billion in loans, to be drawn not from TARP but from the Advanced Technology Vehicles Manufacturing Loan Program, as the White House and other Republicans had been proposing. Also called for was the selection of a presidentially appointed car czar and the imposition of a March 31, 2009, deadline for the Big Three to submit turnaround plans. If these failed to satisfy the car czar, he could demand repayment, which would mean bankruptcy.
Speaker Pelosi had adopted the White House's approach in hopes of winning Republican votes. But by midweek, the gambit was in trouble. Although it appeared that the House would approve
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