Are automakers too big to fail?
Published 9:24 pm Thursday, November 20, 2008
Has a glimmer of common sense infected members of Congress? Is that why it recently rejected a plan to give $25 billion to the Big Three automakers?
After all, the motto in Washington since September has been: “(Fill in blank) is too big to fail.”
That sentiment drove the White House, the Federal Reserve and Congress into bailing out quasi-government mortgage lenders Fannie Mae and Freddie Mac in September.
This bailout is open-ended and could end up costing $5 trillion!?!
This sentiment also supposedly led to the $100 billion bailout of insurance giant AIG, investment house Bear, Stearns and bank after big bank.
With that record, it’s no wonder Ford, GM and Chrysler went to Washington, hat in hand.
But Washington didn’t “rescue” investment bank Lehman Bros or investment house Merrill Lynch.
Lehman instead filed for Ch. 11 bankruptcy protection and Merrill Lynch sold itself to Bank of America.
And to date, Washington has resisted helping Detroit.
All of which raises the question: Are companies are too big to fail or are they too politically connected to fail?
A review of campaign donation records for this election cycle suggest that political money had a bigger influence on the decision to bail out rather than the size of the organization.
Washington orchestrated the bailout of investment adviser Bear, Stearns with a sale to J.P. Morgan.
Interestingly, the price per share that Washington had first set was $2. But after some back-and-forth, that price magically rose to $10 — that after being effectively worth nothing before the rescue.
And by the way, Bear, Stearns gave more than $4.5 million to federal candidates in 2008, with $3.3 million going to Democrats.
A similar tale can be told about insurance giant AIG. It got about $85 billion in tax dollars.
But it did find the spare cash to give more than $1.6 million to federal candidates this year, with almost $1.2 million lining Democrats’ war chests.
But Lehman Brothers only gave $79,000 to federal candidates. And they didn’t get any help from Washington.
“Hmmph. Chump change,” you can hear Democrats saying. .
And surprisingly enough, Democrats also balking at a bailout for the Big 3 automakers.
After all, their entire work force is made up of UAW union members and the bailout would have benefited them directly.
But two things came together to give the Democrats second thoughts.
One, UAW and its affiliates only gave about $170,000 to federal candidates this year, with all but $300 of that going to Democrats.
Again, more chump change.
Two, and this is the kicker, Democrats began to realize that yet another bailout of a buddy would be a just bit much — rather like Casanova bedding yet another lady of the evening.
It’s too bad the media don’t expose this dispensing of favors — worth trillions of dollars of our money — in exchange for campaign cash.
We might not be facing the economic mess before us today if they had.
Chris Warden is an assistant professor at Troy University’s Hall School of Journalism and Communication. He was formerly editorial page editor of Investor’s Business Daily.