Mounting evidence shows that the auto bailouts weren’t worth it. They have been far more costly, and less successful, than claimed, as even liberal commentators now have admitted. The Washington Post fact-checker criticizes President Obama’s phony accounting on the auto industry bailout: “What we found is one of the most misleading collections of assertions we have seen in a short presidential speech. Virtually every claim by the president regarding the auto industry needs an asterisk, just like the fine print in that too-good-to-be-true car loan.”

Obama cites various figures of jobs allegedly saved through the bailout. But he’s playing deceptive numbers games that take credit for jobs actually created by foreign car manufacturers that didn’t participate in the bailout. As the Washington Post’s Charles Lane earlier noted, Obama’s jobs figures cite jobs created by the foreign competitors of GM and Chrysler, and their competitors’ auto dealers, including “not only the Detroit 3, but also all of the plants operated by foreign car makers in the U.S., the entire supply chain and all car dealerships around the country!

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“Only 16 percent of executives in the auto industry” support the Chrysler bailout, according to the Washington Post’s editorial today. I think the bailout was a bad idea, for the reasons I list in my own commentary at this link, where I also chronicle how the Obama administration has deceived the public about the cost and consequences of the bailouts, and disseminated misleading claims by GM about allegedly repaying taxpayers.

As the Washington Post editorial board, which has not endorsed a Republican for president since 1952, noted, the bailout sent a harmful “message” that the automakers are “too big to fail.” And the bailouts might not have been necessary to save most auto jobs, since even “If GM and Chrysler had failed, their profitable parts would, eventually, have been bought up and put to work by others … expanding production and hiring workers in the process. Government dollars spent propping up the two automakers might have created jobs elsewhere.”

Even if a bailout had been a good idea, the Obama administration did not handle its execution well. As the Post notes, it is questionable whether having “decided to aid the industry, the administration chose the best way of doing so. The administration … did not press the United Auto Workers, its political ally, for even deeper labor cost reductions” needed to maximize the automakers’ long-run chances of survival. Moreover, bailing out Chrysler was harmful to GM, since “propping up Chrysler would saddle GM with additional competition, thus complicating survival for the larger, stronger company.”

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Columnist Shikha Dalmia explains how the auto bailouts are a huge money loser for taxpayers and the economy as a whole, despite recent earnings by General Motors. She pegs the cost for the “total bailout at up to $105 billion” for General Motors alone, factoring in less publicized costs commonly overlooked in calculating the cost of the federal government’s bailout, such as billions in special tax preferences GM received due to its quasi-governmental status. The Washington Examiner‘s Conn Carroll explains how Chrysler’s recent alleged “payback” of its bailout is phony and how taxpayers still have lost billions on its bailout. Chrysler is effectively using one taxpayer loan to pay off another.

If this massive amount of money had been left in the private sector, and thus spent elsewhere in the economy (rather than used for an auto bailout), it would have preserved far more jobs. There are far fewer jobs now relative to the beginning of the recession than in past “recoveries” — even compared with the massive recession that ended in 1975, which was a bigger worldwide recession in percentage terms.

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Climate policymaking in our Nation’s capital often resembles the heavy-handed dialogue of old-time mobster films.

“Are you gonna come along quietly, or do I have let the California Air Resources Board (CARB) muss ya up?” That was pretty much the line White House Environment Czarina Carol Browner took to obtain the auto industry’s support for the joint EPA/National Highway Traffic Safety Administration (NTSHA) greenhouse gas (GHG) emission/fuel economy standards rule. EPA is now in a position both to determine the stringency of fuel economy standards for the auto industry and to set climate policy for the nation. Yet the Clean Air Act provides no authority to regulate fuel economy and says nothing about greenhouse gases or global climate change. ”Badges? We don’t need no stinking badges.”  

Modus Operandi: Threaten in Order to Remove the Threat — for a Price

Here’s how the regulatory mugging went down. 

In February 2009, EPA Administrator Lisa Jackson commenced a rulemaking to reconsider Bush EPA Administrator Stephen Johnson’s denial of California’s request for a waiver to establish its own greenhouse gas emission standards program. Because the waiver would also allow other states to adopt the California program, because GHG emission standards are mainly fuel economy standards by another name, and because automakers would have to reshuffle the mix of vehicles delivered for sale in each “California” state to achieve the same average fuel economy in those states, Jackson’s proceeding threatened to subject automakers to inefficient, consumer-thwarting, regulatory patchwork.

In May 2009, Czarina Browner conducted secret negotiations with automakers, CARB Chairman Mary Nichols, and major environmental groups. Browner required participants to take a vow of silence and forbade anyone to take notes, violating the Presidential Records Act. The closed-door negotiations produced an “historic agreement” whereby automakers would support the EPA/NHTSA GHG/fuel economy standards rule and California and other states would deem compliance with the federal standards as compliance with their own.

In addition, observes Rep. Darrel Issa (R-Calif.), at the same time the Browner-led negotiations were taking place, ”the government was also engaged in bailout talks with General Motors (GM) and Chrysler,” resulting in “an ownership stake for the federal government of 61% of GM and 8% of Chrysler, respectively.” Whether Browner literally made the auto industry an offer it could not refuse, with the sweetener of financial assistance also contingent on the industry’s embrace of GHG regulation, we may never know.

This much is clear. By granting California’s request for a waiver, EPA created the threat of a regulatory patchwork, enabling the White  House to offer ”protection” in the form of the joint GHG/fuel economy standards rule. The protection “fee” was the auto industry’s unquestioning support for the joint rule and its prerequisite, EPA’s endangerment rule.

Thus, the Auto Alliance became the key industry lobby opposing Sen. Lisa Murkowski’s resolution to overturn EPA’s endangerment rule. The Alliance warned that if the endangerment finding were overturned, the “historic agreement” would unravel, confronting automakers with “the alarming possibility of having to comply with multiple sets of conflicting fuel economy standards.” 

That is correct, but only because EPA Administrator Jackson, reversing her predecessor’s decision, granted California a waiver to establish GHG emission standards for new motor vehicles. An obvious solution would be to overturn the waiver. After all, the Energy Policy and Conservation Act clearly prohibits states from adopting laws or regulations ”related to fuel economy,” and the California motor vehicle emissions program is basically a de facto fuel economy program. The waiver effectively repeals federal law, violating the separation of powers. Not that you’ll ever hear about that from Government Motors. Mum’s da woid.

Mirage of Regulatory Certainty

The auto industry is not the only target of the greenhouse protection racket. For years, the greenhouse gang has been saying that only cap-and-trade can end the intolerable ”regulatory uncertainty” facing the electric power sector, energy-intensive manufacture, and other CO2 emitters. But who created the uncertainty in first place if not the self-same advocates of cap-and-trade? If they were serious about relieving uncertainty, they would disavow the regulatory schemes for which they have been campaigning.

Businesses lobbying for cap-and-trade in the name of certainty should read the fine print. The Waxman-Markey and Kerry-Boxer bills, for example, have multiple escalater clauses setting the stage for dramatic increases in regulatory stringency well beyond the bills’ explicit emission reduction targets.  Similarly, the bills’ “findings” presenting the “scientific” rationale for cap-and-trade are not mere rhetorical fluff but precedents for litigation targeting emission sources considerably smaller than those explicitly identified as “covered entities.” Enact such legislation, and the only certainty is that regulatory burdens will grow unpredictably.

Too Clever by Half

Last but not least, cap-and-taxers sell their policy as protection from litigation-driven greenhouse gas regulation under the Clean Air Act.  The sales pitch goes something like this: “Pretty nice company you got deah, shame if sumpin’ bad waz to happen to it. Everybody needs protection. You need protection. It’s called Kerry-Lieberman.” Note the familiar pattern. The gang pushing cap-and-trade as protection from EPA are the same folks who sued EPA to regulate greenhouse gases and who vilified Sen. Murkowski and others for attempting to stop EPA.

This is all too clever by half. If cap-and-trade dies in the 111th Congress, which seems increasingly likely, the Obama administration and its allies on the Hill will take sole ownership of the compliance costs, job and GDP losses, and “absurd results“ arising from EPA regulation of greenhouse gases under the Clean Air Act. 

Democratic leaders may not recognize it yet, but they have painted themselves into a corner. They have become the Party of Endangerment — the party endangering the U.S. economy by championing the endangerment rule, with all its cascading regulatory effects.

Eliot Spitzer, who was forced out as Governor of New York after paying prostitutes tens of thousands of dollars and then violating federal finance laws in trying to cover it up, is now apparently going to replace respected journalist Campbell Brown in a prime slot on CNN.  Earlier, the leading liberal website Slate hired him as one of its financial commentators.

As attorney general of New York,  Spitzer was an overbearing, hypocritical bully who used the threat of prosecution and lawsuits to force profitable companies to dump their highly-competent CEOs, resulting in declining profits and losses to shareholders at companies like AIG, which the taxpayers later bailed out at a cost of $170 billion.

Spitzer is just the latest liberal crook given a soapbox by the liberal media.  The Washington Post just gave former auto czar Steve Rattner space to boast about the supposed success of the auto bailouts, even as the SEC was moving to ban him from Wall Street for three years because of his unethical conduct.  (Rattner whined about how critics of the bailout like Senator Charles Grassley, who exposed how General Motors was using taxpayer money to make a phony “repayment” of part of what taxpayers gave GM, were “elasticizing the facts,” even though the government’s own inspector general for the TARP bailout program confirmed what Senator Grassley was saying.)

And the Washington Post earlier gave former Fannie Mae head Franklin Raines a soapbox to lecture Fannie Mae’s critics, after he was fined for massive accounting fraud at Fannie Mae, which had to be bailed out by taxpayers shortly afterwards thanks to the risky practices he promoted.

As I noted at the time in a letter to the editor, “Mr. Raines stepped down as Fannie Mae’s CEO after a ‘$6.3 billion accounting scandal’ that rivaled Enron’s; in a settlement with the government, he and other Fannie Mae executives agreed to pay fines and forgo millions in stock, pension and other benefits. . .Yet The Post gave Mr. Raines a soapbox to make the same arguments against reforming Fannie Mae that he and Fannie’s lobbyists have made for years. Mr. Raines, a liberal power broker, derided “ideologues in the Bush administration” who, he said, tried to “undermine” Fannie Mae. Those officials were in truth warning about Fannie Mae’s risky practices.”

The Obama administration earlier lifted a $400 billion limit on bailouts for Fannie Mae and Freddie Mac, two mortgage giants known as the Government-Sponsored Enterprises (GSEs).  “Late last year, the Obama administration pledged to cover unlimited losses through 2012 for Freddie and Fannie,” reports The New York Times.

Fannie and Freddie helped spawn the mortgage crisis by buying up risky mortgages and repackaging them as prime mortgages, thus creating an artificial market for junk. ”From the time Fannie and Freddie began buying risky loans as early as 1993, they routinely misrepresented the mortgages they were acquiring, reporting them as prime when they had characteristics that made them clearly subprime.” They paid their CEOs millions, and engaged in massive accounting fraud–$6.3 billion at Fannie Mae alone–to increase the size of their managers’ bonuses. As Government-Sponsored Enterprises, they were exempt from the capital requirements that apply to private banks, so they did not have enough reserves to cover their losses when their mortgages started defaulting.

The Obama administration refuses to reform these mortgage giants, saying it is “too hard” to do. Earlier, Senate Democrats blocked reform of the mortgage giants in a party-line vote.

(Obama received $125,000 in contributions from these mortgage giants as a Senator, second only to the corrupt Senator Chris Dodd, who is retiring this year due to his financial scandals. Dodd is the chief drafter of the financial “reform” bill.)

At the direction of the Obama administration, Freddie Mac recently ran up more than $30 billion in losses to bail out mortgage borrowers, some of whom have high incomes. Federal regulators sought to make Freddie Mac hide the resulting losses from the SEC and the public.

The federal government has sunk over $50 billion into General Motors itself, $17 billion more into its finance arm GMAC, $15 billion into Chrysler, and spent billions more on the wasteful cash-for-clunkers program and pension bailouts for GM spin-offs.  Even if GM manages to recover, taxpayers will never get most of this money back.   (Taxpayers may get back some of the money sunk directly into GM itself, in an IPO, if all goes according to plan; but the remaining money sunk into related entities, and indirectly used to prop up GM, will never be repaid, even if GM recovers.)

Even if GM recovers, it will not be because of its ability to fairly compete (the Obama administration used the bailout to protect excessive union wages), but rather because of good luck (Toyota’s recent safety issues have driven car-buyers away from it to GM and Ford) and special favors from the government (the Obama administration artificially reduced GM’s costs by ripping off bondholders who had loaned the company money, and dumping costly pension obligations of GM spin-offs onto taxpayers).

Taxpayers will pay billions more due to an executive order signed by President Obama that effectively restricts federal construction contracts to the minority of construction firms whose workers are unionized.  That will encourage them to jack up their prices, by shielding them from having to compete with lower bids from non-union construction firms.

As the Examiner notes, “President Obama signed Executive Order 13502 directing federal agencies taking bids for government construction projects to accept only those from contractors who agree in advance to a project labor agreement that requires a union work force. Obama’s new order applies to all federal construction projects with price tags of $25 million or more, and it means all such contracts will only be awarded to companies with unionized work forces.”

This will exclude the vast majority of contractors from bidding on government contracts: “Barely 15 percent of all construction-industry workers in the United States are union members, while the remaining 85 percent are nonunion.”

Obama’s $800 billion stimulus package also contains pay-offs for Big Labor, like prevailing wage regulations.  Obama claimed the stimulus package was needed to prevent the economy from suffering from “irreversible decline,” but the Congressional Budget Office admitted that the stimulus package would shrink the economy “in the long run.” The stimulus package has since destroyed thousands of jobs in America’s export sector, and subsidized countless examples of government waste and corruption.  The Obama Administration also pandered to Big Labor by giving ownership of Chrysler to the United Auto Workers Union at the expense of employee pension funds, taxpayers, and banks, in a maneuver that circumvented federal bankruptcy laws.

The Obama administration wants to increase taxes on productive banks that are self-supporting, while exempting the mortgage giants and other companies that got massive taxpayer bailouts.  For more details, click on this graph, “Bank-robbing tax lets ‘bad guys’ go free,” courtesy of a Washington think-tank, the Heritage Foundation.  It shows that the mortgage giants Fannie Mae and Freddie Mac are exempt and will never have to pay a dime, despite being bailed out by taxpayers at a cost of more than $200 billion, while Bank of America and Wells Fargo, which are solvent and returned all their TARP money, would be forced to pay billions under the administration’s proposed tax.

General Motors and Chrysler won’t have to pay a dime, either, even though the government claimed they were “financial institutions” just like banks in order to use bank bailout money to bail them out at a cost of at least $70 billion (a bailout that would not even have been needed to save the companies if they had simply been reformed to make them competitive, and received relief from burdensome red tape, like poorly-drafted CAFE and global-warming regulations that may backfire.  Instead, the Obama administration effectively gave the companies, at taxpayer expense, to the UAW, a powerful union opposed to much-needed reforms).

In other news, economists and real estate experts say that a mortgage bailout program the Obama administration spent $75 billion on has backfired and harmed the real estate market.

Obama recently expanded the bailout of mortgage giants Fannie Mae and Freddie Mac and lavished money ($42 million) on their CEOs.

Under the Bush administration, federal regulators took over Fannie and Freddie in the name of stopping their risky practices. But the Obama administration has increased their purchases of risky mortgages in a vain attempt to inflate the economy. Worse, it forced them to run up to tens of billions in losses to bail out deadbeat and at-risk mortgage borrowers, and then tried to conceal those losses, in conduct reminiscent of Enron.  But their management hasn’t objected, because the costly requirements are accompanied by massive taxpayer bailouts and lavish pay for the mortgage giants’ CEOs.

Fannie and Freddie helped spawn the mortgage crisis by acting as loan toilets, buying up risky mortgages and thus creating an artificial market for junk.  “From the time Fannie and Freddie began buying risky loans as early as 1993, they routinely misrepresented the mortgages they were acquiring, reporting them as prime when they had characteristics that made them clearly subprime.”

Why did they buy these risky loans?  They put up with Clinton-era affordable-housing regulations that required them to buy up lots of risky loans, in order to curry favor on Capitol Hill and thus retain their annual $10 billion in tax and other special privileges (which they possessed owing to their status as “Government-Sponsored Enterprises” or GSEs). They paid their CEOs millions in the process, and engaged in massive accounting fraud — $6.3 billion at Fannie Mae alone — to increase the size of their managers’ bonuses.  As GSEs, they were exempt from the capital requirements that apply to private banks, so they did not have enough reserves to cover their losses when their mortgages started defaulting.

At the direction of the Obama administration, Freddie Mac is now running up $30 billion in losses to bail out mortgage borrowers, some of whom have high incomes.  Federal regulators sought to make Freddie Mac hide the resulting losses from the SEC and the public.

Under Obama’s proposed financial “reforms,” banks will be pressured to make even more risky, low-income loans. Obama has sent to Congress his proposal to create a politically correct entity called the Consumer Financial Protection Agency, tasked with enforcing the Community Reinvestment Act. Government pressure on banks to make low-income loans was a key reason for the mortgage meltdown and the financial crisis. Yet Obama’s proposals would empower the new agency to enforce the Community Reinvestment Act, which was a key contributor to the financial crisiswithout regard for banks’ financial safety and soundness.

Moreover, Obama’s proposed financial rules do absolutely nothing to reform Fannie Mae and Freddie Mac, admits Treasury Secretary Timothy Geithner, even though he admits that “Fannie and Freddie were a core part of what went wrong in our system.”

Meanwhile, a new law backed by the Obama administration, the CARD Act of 2009, has effectively forced responsible credit-cardholders to subsidize irresponsible people, leading to the return of annual fees on many credit cards, and the elimination of many cash-back and rewards programs.  My wife, who has an excellent credit rating, was recently informed that one of her cards will now have an annual fee — of $60!  (She promptly canceled the card.)

The federal government has no problem paying exorbitant sums of money to people who head failed government agencies like Freddie Mac. Its CEO will receive compensation estimated at $5.5 million. The Federal Housing Finance Agency took direct control over Freddie Mac, a government-sponsored enterprise, after it ran up tens of billions of dollars in red ink buying risky mortgages, without adequate capital reserves. At the direction of the Obama administration, Freddie Mac is now running up $30 billion in losses to bail out mortgage borrowers, some of whom have high incomes. (Federal regulators sought to make Freddie Mac hide the resulting losses from the SEC and the public).

The federal government does, however, have a problem with big compensation packages at private banks like Bank of America and Citigroup, even for new executives and talented managers who had nothing to do with any financial mismanagement.  Obama’s pay czar, Ken Feinberg, a major donor to liberal politicians like Senator Chris Dodd (who recommended Feinberg for the job after he gave Dodd more than $9000), is now chopping compensation more at basically self-supporting institutions like Bank of America than at completely-bailed out entities like Chrysler.  (Many expect Chrysler to go under despite a $70 billion auto bailout.  Even the recently departed car czar, Rattner, admits Chrysler should perhaps have been allowed to go under, from a coldly economic point of view, given its gross mismanagement and dim prospects. Bank of America’s recently departed ex-CEO was a moderate Republican; by contrast, Chrysler is owned mostly by the left-wing United Auto Workers Union, which received majority ownership from the Obama administration at taxpayer expense, through a politicized bankruptcy process).

Some of the “bailed-out” banks subject to the pay czar weren’t really bailed out: they gave the federal government preferred stock in exchange for federal bailout money only under duress, after they were told that for them not to take federal bailout money would stigmatize the banks that truly needed it, and that if they failed to take the money, bank regulators would make their lives hell. As the Treasury Secretary told the banks, “if a capital infusion is not appealing, you should be aware your regulator will require it in any circumstance.” Regulators also forced Bank of America to take over failing investment bank Merrill Lynch, and pressured it to hide the resulting losses from its shareholders.

Feinberg’s actions have already left taxpayers worse off by forcing Citigroup to get rid of a profitable subsidiary. As finance professor Roy C. Smith noted in Sunday’s Washington Post, “Feinberg’s actions . . . are not going to improve either the government’s chances of getting its money back or the prospects of repairing these damaged companies. Because of his recommendations, Citigroup agreed to sell its profitable Phibro unit at an extremely low price of only one or two times earnings in order to avoid having to pay a talented trader a $100 million contractual share of the profits he had earned. The most successful of the remaining employees of Citigroup, AIG and Bank of America have been given an incentive to leave their posts, and the firms will be constrained in hiring replacements.”

Many competent executives whose pay is threatened by the pay czar are now leaving for other firms that (for the moment) are beyond his reach. The result is lousier management at banks that the FDIC insures, and that the federal government now owns stock in.

The pay czar’s political patron, Senator Dodd, received sweetheart loans from the reckless, bankrupt subprime lender Countrywide, and a massive gift from Edward Downe, in the form of a luxurious “cottage” in Ireland he received in a “cut rate real estate deal” for hundreds of thousands of dollars less than fair market value.

Banks will now be pressured to make even more risky, low-income loans. Obama has sent to Congress his proposal to create a politically correct entity called the Consumer Financial Protection Agency. “The agency would be in charge of enforcing the Community Reinvestment Act, a law that prods banks to make loans in low-income communities.”

Government pressure on banks to make low-income loans was a key reason for the mortgage meltdown and the financial crisis. Yet Obama’s disturbing proposal would empower the new agency to enforce the Community Reinvestment Act without regard for banks’ financial safety and soundness.  The Community Reinvestment Act was a key contributor to the financial crisis.

The mortgage crisis was also caused by the reckless government-sponsored mortgage giants (“GSEs”) Fannie Mae and Freddie Mac, and by federal affordable-housing mandates.

But Obama’s proposed financial rules overhaul does absolutely nothing about Fannie Mae and Freddie Mac, admits Obama’s Treasury Secretary, Timothy Geithner, even though he admits that “Fannie and Freddie were a core part of what went wrong in our system.” (The government-sponsored mortgage giants Fannie Mae and Freddie Mac went broke, costing taxpayers perhaps $200 billion.  Fannie Mae apparently has engaged in massive accounting fraud, and has used intimidation to fight reform).

Worse, Obama’s plan is “largely the product of extensive conversations” with two lawmakers responsible for the corrupt status quo, Chris Dodd and Barney Frank, and it expands the reach of regulations that have been used by left-wing groups to extort payoffs from banks.

Detractors of capitalism decry that it caters to special interests. The opposite is actually true. Just look at what’s happened in the last year.

Most of Wall Street came to government asking for a bailout when the government-created housing bubble popped.

The Big Three automakers also went to Washington for largesse when their customers came to prefer Toyotas and Hondas.

Health insurance companies stand to make a killing if Obamacare passes.

T. Boone Pickens and Al Gore would make millions from environmental legislation.

Ludwig von Mises explained the reason for all of this corrupt behavior with a single sentence back in 1949: “It is precisely the fact that the market does not respect vested interests that makes the people concerned ask for government interference.”
-Human Action, 4th Edition, p. 337.

Considering the enormous amounts of cash that the federal government has hurled at the auto industry since the start of the financial crisis, recipients of government largess in Detroit should at least have the common courtesy of telling taxpayers what they’re doing with their money. Unfortunately, United Auto Workers boss Ron Gettelfinger doesn’t seem to think that applies to him or his union. So kudos are in order to Rep. Jeb Hensarling for calling out Gettelfinger and the UAW on this:

The lone member of Congress on an oversight panel reviewing the use of the $700 billion Troubled Asset Relief Program criticized the decision of the United Auto Workers union not to testify at today’s hearing in Detroit on the auto industry bailout.

Rep. Jeb Hensarling, R-Texas, who is member of the Congressional Oversight Panel, said the UAW refused to testify at today’s hearing at Wayne State University.

The panel confirmed that it sought the testimony of the UAW. Alan Reuther, the UAW’s legislative director, didn’t immediately return a call seeking comment.

Hensarling said he was “disappointed” that UAW President Ron Gettelfinger did not accept invitation to testify.

“He was able to rearrange his schedule to come and ask for TARP money,” he noted.


“The UAW came before Congress and pleaded for billions of taxpayer assistance. Their ownership stakes in Chrysler and GM look suspicious at best and like sweetheart deals at worst. It’s outrageous they would benefit from the taxpayers’ money and then refuse to testify about it,” Hensarling said in a statement before the opening of today’s hearing.

It’s beyond outrageous; it’s disgraceful — especially in light of the preferential treatment the union has gotten from the government vis-a-vis other bondholders. Even more disgraceful is the fact that the White House and Congress are unlikely to do anything about it. At least now we know what the UAW thinks of the rest of us.