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Saturday, December 06, 2008

Washington to Detroit Loan Deal Done

It’s finally going to be a done deal for the Big Three in Detroit to get some bailout money to save millions of Automaker jobs. Believe it or not it was a loan deal worked out by the White House and Speaker of the House Nancy Pelosi! I’m still in shock that President Bush cleared his house shopping schedule to find a compromise deal with the Speaker of the House. Over at CBS News they have this to say on it…

CBS News correspondent Kimberly Dozier reports that significant progress came Friday night, when Democrats from both the House and Senate agreed to bail out the struggling General Motors, Chrysler and Ford with federal funds.

Several officials say the White House and congressional Democrats have agreed on $15 billion in loans, which is less than half of what the car chiefs were seeking.

They say the breakthrough came after House Speaker Nancy Pelosi bowed to a demand by President Bush that any aid come from a fund that had been intended to help Detroit produce more fuel-efficient cars.

Pelosi said the House would consider legislation next week to provide "short-term and limited assistance" to the U.S. auto industry.
- CBS News

I have to say that I knew that this deal was going to come sooner or later. Matter of fact anyone that follows the automotive industry knew it too. GM, Ford, and Chrysler were going to get a bailout loan, it was just a question as to how much each would actually get that was an unknown fact. The federal government could not let the big three fail or go into bankruptcy because of the ripple effect it would eventually expose. You know that $700 billion they have in bailout cash for the banking industry, that bailout cash would have been just a drop in the bucket if Ford, GM, and Chrysler filed for bankruptcy.

I propose the following hypothetical scenario. All three automakers file bankruptcy protection. If you are a supplier to any of them then you do not get paid for any outstanding invoices and thus you can not keep paying your suppliers for continuing orders so your company is forced to file bankruptcy. Suppliers feel the pinch hard and can not pay their suppliers for raw materials so they are forced to file bankruptcy. And the cycle continues down the food chain. The layoffs from all of the suppliers to the Big Three would dwarf all of the layoffs from the Big Three. Lastly, not all of the suppliers are in Detroit.

I think it is fair to say that this bailout will save more jobs than the $700 billion in bailout cash that the banks received a free pass on. I believe it was the Steel Workers President that summed this controversy up best; “If you shower before work you get a bailout, if you shower after working all day, you don’t.”

In the long haul objective, steps are being taken in the right direction to put the brakes on the economies collapse. Baby steps, but they are still steps.


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