Two ways to interpret this:
Thanks to the White House, the Democrats are now stuck with half of the original $700b rescue plan It's not going to be all on the Bush administration. The Democrats get to decide whom to help and whom to hurt by not helping.
Or: the White House has granted to the Obama administration and the next Congress needed flexibility. Indeed, Democratic leaders had been pushing the White House to do just this, although they've never assumed that taking control of parts of the bailout would sell like a sunburst.
There'll be lots of pin-head dancing about whether program X is part of the first $350b or the second; a lot of entities and people have already laid claim to part of the money, and the White House isn't finished divvying up its half of the piece.
The White House won't use its share of the money to bail out the auto industry, instead preferring to tap billions that were set aside in the 2007 energy bill to help automakers "retool" their operations. Democrats argue that the $700b was passed to stabilize failing sectors of the economy, so $25b with strings attached (i.e., allowing the companies to pay no dividends) would get them through their emergency. They're prefer to keep the retooling money to incentivize the industry into producing more energy efficient cars and streamlining their production processes.
On Wednesday, theatre. Automakers will testify on the Hill. Proponents of the rescue plan hope that they'll convey an urgency that the current debate doesn't really have, or at least, hasn't been palpable enough. Is this a GM problem? A Detroit problem? Or a national problem because of secondary suppliers like Delphi and auto dealers in all 50 states.
If GM is forced to declare Chapter 7 bankrupcy and shut down immediately, its assets could be sold off. How quickly? No one knows. How many jobs would be lost temporarily? 100,000? Unclear. Permanently? More than a million? Three million?
Some conservatives are toying with the idea of using the $25b as a hammer to force the companies to reorganize themselves by declaring bankruptcy; the money would be used to cushion the blow for employees and suppliers. The UAW won't go for this, although Democrats, presumably, would force the companies to remain unionized, which, to many conservatives, would defeat the purpose of reorganization.
Jonathan Cohn in TNR makes a good case that the industry is more likely to reform if Congress, not bankruptcy rules, are holding their tires to the fire.
Critically, neither side has a handle on politics. The country's threshold for economic pain has increased dramatically since the meltdown, and populist instincts have re-asserted themselves quite strongly.
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These are strange times indeed. Sean Hannity is for the bailout. Then again, he's a spokesman for GM...
Posted by Scott | November 17, 2008 5:29 PM