Bush's Auto Bailout Contains Lame Duck Demands
President Bush announced this morning that the White House is digging into TARP funds to aid struggling auto makers, laying out several conditions to accompany the $13.4 billion of immediate loans. However, with just 32 days remaining for the administration, enforcement of those terms will be left to the incoming president’s team.
The loans have conditions including warrants, limits on executive compensation and perks, and a suspension of dividends. The Obama administration is unlikely to change any of that.
The deal includes a provision to call back the loans if the firms aren’t deemed viable by March 31, 2009. That call will probably be made by Timothy Geithner, Obama’s nominee for Treasury secretary, and his incoming team.
It also requires a number of “targets” that are similar to earlier conditions requested by Congress in a plan scuttled last month. For example, firms must reduce debts by two-thirds via a debt for equity exchange; make half of VEBA payments in the form of stock; and eliminate the jobs bank. Other targets are for work rules that are competitive with transplant auto manufacturers by Dec. 31, 2009, and wages that are competitive with those of transplant auto manufacturers by Dec. 31, 2009. However, since these targets weren’t passed by Congress they lack the rule of law and can be altered more easily. Since it will control TARP funds, the incoming Treasury department can change them at will. –Phil Izzo