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December 19th, 2008

(Update1) Bush Announces Federal Loans for American Automakers

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Moments ago President Bush announced that his administration would in fact provide struggling U.S. automakers with federal funds to put together sustaining plans of viability. The President said Chapter 11 bankruptcy would not work at this time. The automakers will have until March 31, 2009 to prove they can once again become viable and profitable. (Ford said it wouldn’t need the short-term funding, which lets GM and Chrysler split it.)

Without going into details, President Bush made it clear that strict conditions of adherence will be a part of the deal. With bipartisan support from both houses of Congress, the White House said their plan is quite similar to Congress’ rescue plan which failed in the Senate.

The government will issue $13.4 billion from the TARP funds, with an addition $4 billion available in February if conditions allow. If the automakers prove they cannot return to sustainability by March 31, 2009, President Bush said it will be time for the automakers to begin legal and financial proceedings to prepare themselves for Chapter 11. “The only option will be bankruptcy,” said Bush.

The President addressed the need for retirement plans, bond holders, and worker compensation to change in order to fit the conditions of the loan. “The conditions send a clear message,” said Bush. The President ended his address by instilling confidence in American autoworkers, who he believes can work their way out of this mess.

The fact that a federal loan to rescue a non-financial company will be drawn from the TARP funds, is likely to open up a “can of worms” for both the Bush and the upcoming Obama administrations. Expect other private, non-financial companies and industries to lobby in order to take advantage of government assistance. The President defended his administration’s actions by saying they were both “shielding the American people,” and the next president from dire economic circumstances.

READERS: Was this the right thing to do? Do American automakers deserve the loans?

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HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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