November 16, 2008

World Hustles To Stave Depression

As Detroit automakers teeter on the verge of bankruptcy -- and plead for government bailouts -- those of us with snow on the roof worry about this more than most folks.

Been there. Done that.

Chrysler alone was the bellwether of failure in 1979. It pleaded for a billion dollars of government aid. Today, General Motors and Ford also are begging for unrestricted government cash.

My editorial column of August 1979 – “Why Chrysler Will Be Saved” (click to see) – still gives me the shivers because of its aptness today:

“A company is too big,” said my son the college philosophy major, “when it can’t be allowed to go bankrupt.”

Just so.

Back then; Chrysler was the world’s third largest automobile manufacturer, with just 10 percent of the market. However, it was the tenth largest American manufacturing firm, sole supplier of Army tanks, and provider of livelihoods for a half-million workers.

Chrysler board chairman John Riccardo, said his company’s troubles stemmed from unreasonably stiff safety and emission standards imposed by government planners.

Thomas Murphy, board chairman of General Motors, opposed a bailout for its competitor. He declared: “The proposal undermines the disciplines of the Market and presents a basic challenge to the philosophy of America.”

DEJA-VU

Here it is 29 years later and -- as the baseball philosopher Yoga Berra might say – “It is deja-vu all over again.”

This time, General Motors, Ford and Chrysler -- in unison -- are begging for handouts.

One in 10 American jobs is related to auto manufacturing. It is the largest user of locally manufactured steel, aluminum, iron, copper, plastics and rubber.

GM is half the American auto industry. It employs 2.5 million workers earning $125 billion a year, according to the Center For Automotive Research. Ford Motor is a close second.

General Motors earlier considered buying Chrysler but backed off when its own financial obligations mounted alarmingly. Chrysler looks like a goner as world sales of automobiles nose-dived.

GM seeks several billion rescue-dollars for a couple of years to carry it until the multi-billion yearly cost for 479,000 pension and health benefits shift to an independent trust fund.

Washington politicos today prefer government loan guarantees that would load the Big Three automakers with more debt and give the government some say-so for terms. It’s like putting Dracula in charge of the Blood Bank.

A TARP FOR CONSUMERS

The financial difficulties of American automobile plants are only the tip of an economic iceberg. The housing market is of more immediate concern.

U.S. Treasury Secretary Henry Paulson has officially curtailed the $700 billion Troubled Asset Relief Program (TARP) that bought defaulted home loans from banks and other loan companies.

He says he now will focus on helping struggling consumers through aid for credit cards, auto loans and student college expenses.

“The market supporting consumer finance is currently in distress. Costs of funding have skyrocketed, and new issue activity has come to a halt.”

Economy gurus attribute most of the wild fluctuations in the stock market to “juggling the rules in the middle of the game.”

Who knows? Any one who claims to foretell the stock market will lie about other things also.

Paulson says he has not set a timeline for asking Congress for a second TARP installment. Also, he indicates he would “move cautiously” before President-elect Barack Obama is inaugurated.

WORLD LEADERS SUMMIT

As this column is being written on Saturday night, 20 world leaders have just concluded a Summit On Financial Markets And The World Economy.

The aim was to trade ideas about “the global financial crisis.” The summit was organized by French President Nicholas Sarkozy, but hosted by U.S. President Bush.

Mr. Bush started the group discussion: “The crisis is not a failure of the free-market system. The answer is not to try and re-invent that system.”

President-elect Barack Obama was not included in the event reserved for reigning leaders. However, two Obama emissaries were seated to take notes.

Most reports of the gathering were courteous and constructive. However, Russia President Dmitri Medvdev took a swipe at the United States:

“They let this currency-bubble grow in the interests of stimulating domestic growth. However, they did not listen to the numerous warnings from their partners, including from us. As a result, they have caused damage to themselves and to others.”

The gathering concluded by advocating broad principles to be followed in the next four and a half months to “reform” financial institutions -- such as the International Monetary Fund – to reflect changing economic weights in the world economy.”

Oh, yes. The world leaders vowed to be more careful.

Feel better?

By Lindsey Wilger Williams, retired newspaper publisher and syndicated columnist