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December 16th, 2008

Detroit: Still Forced to Motor Along, Alone for Now

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As of yesterday, there were no announcements of any planned action by the Treasury Department to provide financial aid to the Big Three despite the president’s ongoing assurance (hat tip: Calc Risk):

“An abrupt bankruptcy for autos could be devastating for the economy,” Mr. Bush told reporters aboard Air Force One during his trip to Iraq and Afghanistan. “We’re now in the process of working with the stakeholders on a way forward. We’re not quite ready to announce that yet.”

“We continue to assess and review the information we have received from the auto makers, and we are providing regular briefings to the White House on our thinking,” she [Treasury spokesman Brookly McLaughlin] said. “No decisions have been made.”

Moodys.com published a report breaking down the likelihood of three possible scenarios that may lie ahead for American automakers. Moody’s predicted the likelihood of an abrupt bankruptcy by the Big Three as having only a five percent chance due to the economic ramifications. Prepackaged bankruptcy combined with federal assistance was the most likely and the “best approach”, according to the research firm from a press release issued today. In the middle of those two scenarios was a 25% chance that a bailout package would be passed requiring no bankruptcy filings in 2009.

The percentage of each possibility was no doubt weighed heavily upon the disapproval of lawmakers — many of whom are members of the president’s own party. Republican Governor Mark Sanford of South Carolina asked President Bush in a letter not to aid American automakers through TARP funds:

“I believe this would be a very great mistake,” Sanford said in a letter written to the President on Monday. “It would open the floodgates of federal monies for every distressed industry across this country–and there will be many in this economic slowdown.”

“I believe we are at a tipping point in moving from a market-based economy to a politically-based economy, wherein one’s success can be determined not by good decisions and good work, but by the size of one’s voice and connection to Washington,” Sanford wrote. “The real economic stimulus of this country lies in the daily work and effort of millions you have seen across this land.  These bailouts not only represent an enormous cost they are left to carry, but a shattering of the rights and responsibilities that have historically been linked to achieving the American Dream.”

In your opinion, what’s best for the Big Three, and what’s best for taxpayers?

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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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