Wednesday, November 19, 2008

Auto Bailout: An Open Letter to Congress

November 19, 2008, 10:15 a.m.

An Onion That Will Make You Laugh as Well as Cry
Followed by an Open Letter To My Senators and Congressman
Brought to You by

[Credit: The Onion; Source: In The Know: Should The Government Stop Dumping Money Into A Giant Hole?]

Open Letter to My Senators and Congressman
Regarding the Big Three Auto Bailout

[Note: This letter has been sent by mail as well as published here. Such responses as I may receive from these three officials -- or the fact that I get no response from one or more -- will be reported here.]

Dear Senators Grassley, Harkin and Congressman Loebsack:

Thank you for your willingness to address one of the toughest sets of economic challenges any Congress has ever confronted, and to search for governmental responses that will produce more good than harm.

I do not believe the proposed auto bailout is such a response.

Press reports indicate you intend to support it anyway. See, e.g., Thomas Beaumont, "Grassley tells auto execs: Cut your pay to $1," Des Moines Register, November 17, 2008.

So I have some questions for you that I hope you will be good enough to answer -- as well as providing me with sources on the Internet where I can find the reports and data you have relied on in coming to your position.

1. Overview. All data I know of suggests that major indicators -- manufacturing output, consumer confidence and purchasing, unemployment, mortgage foreclosures -- are all going to continue to get worse, and probably at an accelerating rate, for the foreseeable future. Indeed, I know of no scenarios indicating how, when or why things will turn around.

Questions: Under these circumstances, don't you think it would make more sense for Congress in general, and you in particular, to be examining, and proposing solutions for, the entire economy rather than the industry-by-industry approach currently in vogue? If you, or others, have in fact already done this please refer me to sources on the Internet I could also examine.

2. Costs. Keynesian economics, and many of today's economists, urge the benefits of government spending in times of economic recession. But benefits are usually accompanied with costs, which is why we have benefit-cost analysis. It's one thing to ramp up government spending when national debt is low and budgets are nearly in balance. But we currently have $55 trillion in unfunded future obligations, a $12 trillion debt, and an annual budget deficit currently adding $1 trillion a year (or more) to that national debt.

Questions: Accepting that there may be benefits from government bailouts, what are the short and long term costs -- perhaps in runaway inflation, deflation, third-world-style national bankruptcy, or other comparable economic calamities, and where on the Internet might I find the independent reports and analyses that you and others have access to regarding these risks? My three great grandchildren -- whom you and I are asking to pay the debts we've run up -- have asked me to find out from you.

3. Consumers. We currently have 10 million unemployed -- with monthly increases, and even increases in the rate of increase. Two-thirds of our economy is driven by consumer spending. I have written of my problems with the $700 billion bailout you supported (problems which even Secretary Paulson now acknowledges) as well as the auto industry bailout (and the $25 billion you earlier provided the Big Three). We have yet to see any economic turnaround from those unprecedented massive expenditures.

Questions: Why do you believe that "trickle down" -- giving money to corporate CEOs, with or without conditions, to operate their companies -- is more effective than "trickle up" -- a jobs program and prevention of mortgage foreclosures, putting money in the hands of consumers?

4. Infrastructure. The New York Times reports that the Chinese "government said [its $586 billion] stimulus would cover . . . low-income housing, electricity, water, rural infrastructure . . . environmental protection and technological innovation — [to] incite consumer spending and bolster the economy." David Barboza, “China Unveils Sweeping Plan for Economy,” New York Times, November 9, 2008. Including roads, bridges, schools, hospitals, flood prevention, disaster recovery -- our own list of priority public projects is seemingly endless.

Questions: Why, to the limited extent that you and your fellow members of Congress have concerned yourselves with the needs of individual American people (as distinguished from our corporations), have you focused on unemployment insurance and food stamps rather than a massive jobs program that would not only put money into the hands of the only people who can improve the economy, but would buy us a rebuilt America as well?

5. Problem. The multi-million-dollar-a-year auto executives who profess to be concerned about the "three million unemployed" if you don't bail them out are very wide of the mark. In an economic depression with no end in sight, 10 million unemployed with more every passing day, automobile sales are down and will undoubtedly decline further. And many to most of such automobiles as will be sold will not be sold by the Big Three anyway.

This depression has produced pain for those who work in automobile manufacturing, dealerships and suppliers -- already 500,000 lost jobs in Michigan alone -- as well as in every other major sector of our economy, including retail. It is going to produce more pain in the months and years to come. Whether you provide the $25 billion bailout, or not; or the companies go through Chapter 11, or not, consumers are not going to buy more cars and layoffs will continue.

As we've recently seen with CitiBank, you gave them $25 billion and what did they do -- they laid off nearly 100,000 workers. Whatever else you may call it, clearly your approach to the auto industry is highly unlikely to end up being a jobs program.

GM has gone through $185 billion in cash over the last few years; its stock has declined 90%. A full year ago it reported losing $39 billion in one quarter ("the second largest quarterly loss in U.S. history. . . . GM is hemorrhaging money . . . and the outlook for 2008 and beyond is bleak." Associated Press, "GM posts huge $39 billion net loss," MSNBC, November 7, 2007.) Its problem is not a temporary "cash flow" problem that will be resolved by next January or February; and it cannot be solved with a temporary loan that will be repaid by January or February.

Although even Secretary Paulson now agrees that you were wrong to vote for the plan he put before you, I am giving you the benefit of the doubt: I assume you are applying the wisdom of "fool me once, shame on you; fool me twice, shame on me," and that you have had access to, studied, and been persuaded by a detailed business plan for the auto industry bailout you apparently support.

Questions: Where on the Internet can I find the business plan that you are presumably relying upon that documents, precisely, how this $25 billion is to be used, and how, why and when it will solve these three companies' problems, revive the industry, and why it will eliminate any need for them to regularly return to you for more taxpayer money?

Thank you for your assistance and for working on our behalf.


Nicholas Johnson
Constituent and Taxpayer

# # #


Brian said...

Nick - thanks for the post. I hope that you really sent that off, and I hope that the response is more than the typical "touch-and-turn" that we've been hearing on this issue for months. Just once, I would like a congress person to respond with an honest..."I don't know, but I'll make sure to ask these questions of those that do before I vote."

Also, in regard to the debt issue, I think you raise an issue that everyone knows about but no one wants to address. Our debt and spending has now reached a point where it is now a moral issue of shackling future generations with huge amounts of debt, not just an economic one.

L. John said...

I share your feelings to a 'T'. I'm also fairly surprised that either party would support a 3 company bailout. I would think Dems would want to spend the cash on something good for everyone, like education, and the Repubs would want to let the free market sink poor performing companies.
It's hard to believe that both parties would go against what they say they stand for in order to help keep their doners alive. I'd be interested to see a report on how much the big 3 have donated to political compaigns, then see senators and congressmen get nailed for conflicts of interest.
That would be the day.