Boom Lowered on Big Auto
USA Today reports on new WH demands for an auto rescue plan:
President Obama will announce Monday that his auto task force does not believe the plans General Motors (GM) and Chrysler delivered in February can result in viable companies and that he is giving them more time, along with an aggressive set of conditions. One of the conditions was the resignation of GM CEO Rick Wagoner ... While they're working on improving their plans, the two car companies will receive just enough money to keep operations going.
Chrysler, which the task force does not believe can stand alone, has 30 days to work out its proposed partnership with Fiat or find a new partner. It could get an additional $6 billion to make the Fiat deal work, but it then would require them to build new engines and cars in the U.S. and to pay back taxpayers before Fiat could increase its initial 35% stake.
GM has 60 days to force greater concessions out of its debt holders and other parties and to find new ways to deal with its shrinking market share.
Fuel-efficency must be a priority, reports Bloomberg: "GM will also replace most of its board and must increase reliance on producing more fuel-efficient vehicles, under findings to be announced today at the White House by President Barack Obama."
Though WSJ reports the WH task force not betting on the electric-powered Chevy Volt: "The government body also took aim squarely at the Chevy Volt – GM's heavily hyped electric car of the future – saying it will likely be too expensive to be commercially successful in the short-term."
NYT on the bankruptcy option: "two senior [WH] officials, offering a preview on condition of anonymity, made clear that some form of bankruptcy — a quick, court-supervised restructuring, as they described it — could still be an option for one or both companies ... The plan Mr. Obama is to announce on Monday will also include government backing of warranties for G.M. and Chrysler cars and trucks, to give consumers enough confidence to buy them, even if one or both are forced into bankruptcy."
W. Post on remaining points on contention:
Their plan has "got to be one that's realistically designed to weather this storm and to emerge at the other end much more lean, mean, and competitive than it currently is," [President Obama] said
He may have been alluding to the fact that the companies have yet to win required concessions from their creditors. Under the terms of the original $17.4 billion in federal loans, GM General Motors bondholders and the companies' retiree health plans were supposed to give up their claims to billions in debt in exchange for an equity stake in the companies. But those concessions, which are due tomorrow, have not been announced. yet.
But Obama may also have been alluding to a disagreement over how much smaller GM General Motors and Chrysler should shrink. One of the key points of contention between the companies and the Obama administration is just how large the U.S. auto market will be in the future. General Motors has offered a more optimistic scenario and shaped its business plan accordingly.
Members of the president's autos task force have questioned those projections, however, and some industry analysts argue that the companies may need to downsize their operations even more than planned.
AP reports WH expects more auto job losses, plans to deliver help to communities: "Obama's aides, aware of the outrage the White House faces if thousands more Americans lose their jobs, appointed a former deputy labor secretary, Ed Montgomery, to lead assistance efforts to cities and towns that depend on the auto industry. The move signaled the White House already was looking to a time when assembly plants may need to operate with far smaller staffs or shut down completely."
Naked Capitalism's Yves Smith worries about bankruptcy: "...we are of the school that putting the big automakers into bankruptcy, despite its attractions (being able to restructure debt and dealer networks; the UAW contracts are far less significant economically than the media makes them out to be) misses out on one crucial element: you don't have a business if you don't have customers. And a GM bankruptcy would be a protracted affair. Even if consumers believe the company will make it, what about their local dealer? If they worry they might have to schlepp to get their car serviced, is it worth it?"
OurFuture.org's David Sirota questions if there is a double standard: "...how is it that the White House is requesting the resignation of GM's CEO while not doing the same of, say, Bank of America's CEO? In fact, not only is the president not demanding the resignation of bank CEOs, he's actually hosting them for photo ops at the White House. Sure, I know some bank CEOs resigned a few months ago under shareholder pressure, but the Obama administration has never publicly demanded such resignations of the current management that is making the problems worse, nor the resignation of management at the biggest firms (Goldman Sachs, BofA, etc.) that are still in place."
Ian Welsh also concerned: "...long run the US needs its industrial sector healthy and strong more than it needs an overpriced, overpaid financial sector ... Tough love isn’t necessarily a bad idea, but I hope Obama is playing chicken and isn’t entirely serious. Because if the Big 3 go under, well, this economic downturn will get a lot, lot worse."
Talking Point Memo's Josh Marshall asks why Wagoner not sacked sooner: "Why is Rick Wagoner getting the boot while the management of the big banks remains in place? Whatever resonance the question has on first blush, it gets more complicated on further inspection. Citi does not have the same CEO it did at the start of the crisis. And the government installed a new CEO at AIG after the initial bailout. ... So perhaps we should be asking why it is that something like this hasn't happened sooner. All that said, though, after that meeting of the major bank CEOs at the White House last week, it's hard for me not to think that, for all that has happened, their clout in Washington is just on a scale where they are accepted as peers of the realm. And simply immune to certain sorts of treatment."
TNR's Jonathan Cohn suggests directing stimulus money to hard-hit areas: "What can the administration do to minimize the short-term pain? And what can it do to help displaced workers find well-paying, stable employment in the future? There's still a lot of recovery money to be spent. Maybe that's the place to start."
President Prepares for G-20, And Vice-Versa
President Obama interviewed by Financial Times. FT reports: 'In comments that appear to diverge from recent remarks by [German Chancellor Angela] Merkel, who has all but ruled out more deficit spending in Germany, Mr Obama said: 'With respect to the stimulus, there is going to be an accord that G20 countries will do what is necessary to promote trade and growth.' ... However, Mr Obama hinted leaders would stop short of pledging to carry this year’s spending measures into 2010 – as the International Monetary Fund has urged. 'There is legitimate concern that most countries already having initiated significant stimulus packages that we need to [first] see how they work,' he said."
And Merkel interviewed by NYT: "Mrs. Merkel made clear that she was not wavering in her response to the economic crisis, by loosening the German checkbook or encouraging the European Central Bank to follow the Federal Reserve in pumping money into the system. She also said she expected Mr. Obama to keep his word to gradually rein in imbalances that would cause American indebtedness to grow sharply as a result of his domestic stimulus plans."
USA Today suggests a low bar is being set for global stimulus: "'I think it highly unlikely that countries will press for or agree on a numerical figure for stimulus,' says Dan Price, senior partner for global issues at Sidley Austin and former assistant to the president for international economic affairs in the Bush administration. Rather than risk being turned down, Obama won't seek more stimulus now. 'Nobody is asking any country to come to London to commit to do more right now,' says Michael Froman, Price's successor [in the Obama administration]. 'There isn't any single number that is sacrosanct.' That could leave a boost in lending capacity for the International Monetary Fund as the summit's most concrete achievement. An increase of as much as $500 billion, as suggested by the Obama administration, would be used to help developing nations."
European leaders, led by Germany's chancellor, Angela Merkel [believe] they are winning or have won the argument about how to tackle casino capitalism. The case pushed by Merkel repeatedly in recent weeks, and echoed by France and the European commission, is that there is no point now in more tax cuts and deficit spending to boost demand since it is not yet clear whether the huge fiscal stimuli packages already launched are actually going to work. Rather, the Europeans argue, the focus should be on fixing a European and global system that is broke – through a new supervisory and regulatory regime...
...Michael Froman, a senior White House official dealing with the G20, continued to insist on fiscal stimulus, although the timing of countries' spending plans was left vague. "First is putting in place significant stimulus to get growth going again," he told journalists at the weekend. "Secondly, fixing each of our financial systems to get lending flowing; third, avoiding protectionism; and fourth, taking steps to minimise the spread of the crisis to emerging markets and developing countries."
For the Europeans, the emphasis and the sequencing of policy moves here is troublesome, because there is a level of mistrust among the various leaders, and because the Europeans believe they will never have a better opportunity to get the sceptical US and Britain to deliver on tougher market rules.
W. Post on what US and Europe will agree on, new regulations and tax haven crackdown: "Nations, for instance, are set to agree on reforms to the global financial system. There is a growing consensus, officials say, for reforms laid out by Treasury Secretary Timothy F. Geithner last week that would, among other things, impose new regulations on hedge funds. Nations are also set to create codes of conduct for offshore tax havens. The push toward establishing those codes this week led nations including Switzerland to pledge changes to their banking secrecy laws to avoid being blacklisted by others in the Group of 20. Administration officials said nations are also set to agree on coordinated oversight of the global financial sector, bringing regulators from major countries together to consult about the risk level of the world's 25 largest banks. 'This kind of coordination is a real achievement,' a European diplomatic source said. "If you think it is easy to get 20 countries to agree to such changes, you are wrong.'"
IPS' Lucy Komisar on whether there will really be a tax haven crackdown: "This could be the moment when a fatal blow is delivered to the world's tax havens. Or it could be another largely cosmetic change that allows offshore financial centres such as Switzerland, the Cayman Islands and Liechtenstein to deflect attacks on the system by sacrificing the few tax miscreants that governments catch in their nets."
Krugman chastises Europe: "...one thing that stands out from the history of the early 1930s is the extent to which the world’s response to crisis was crippled by the inability of the world’s major economies to cooperate. ... President Obama got it exactly right last week when he declared: “All of us are going to have to take steps in order to lift the economy. We don’t want a situation in which some countries are making extraordinary efforts and other countries aren’t.” Yet that is exactly the situation we’re in. I don’t believe that even America’s economic efforts are adequate, but they’re far more than most other wealthy countries have been willing to undertake."
Baseline Scenario's Simon Johnson: "The draft G20 communique, as published on the FT’s website, is not encouraging ... On the real substance, the G20 punts on most of the big issues - as predicted, the language on monetary policy and fiscal policy is completely vacuous (paragraphs 3 and 4; the Europeans won big and the US lost on these issues), and the “regulatory reform” initiative amounts to building more ornate structures (we’re to get a new Financial Stability Board?!?) on the same weak foundations that got us into trouble. There is simply nothing substantive here that would not have happened without the G20 process; under current dire circumstances, window dressing is not a good reason to hold a summit."
Friction On Trade Remains
The Guardian sees Doha global trade talks stalled: "A commitment to free trade will feature strongly in Thursday's communique. [But d]espite a call at the inaugural G20 summit, in Washington last November, for the WTO to conclude the Doha round of trade liberalisation talks by the end of 2008, it proved impossible to reconcile more than seven years of acrimonious negotiations. Differences between China and the US Congress were too acute. The G20 now accepts that an early end to the Doha round is not possible; it will be considered a success if Thursday's summit agrees to measures that stop member states from exploiting existing WTO rules to increase trade barriers. Brown is also urging a $100bn fund that would provide export credit guarantees so that trade can be unblocked."
President Obama attacks protectionism, defends recent US acts, to FT:
FT: You mentioned the risks and dangers of protectionism. 73 separate measures have been identified by the World Bank since the last G20 summit so what again in practical terms can your administration do at the G20 to stop this - and I'm thinking to whether there are real risks that people worry in Europe a lot about what is going on, on Capitol Hill, with "Buy American" provisions.
Obama: Well first of all I think it's important to note that here in the United States, despite some protectionist rhetoric and very real economic frustration growing out of the collapse of the financial markets and the huge rise in unemployment that the "Buy American" provision that was in the stimulus package was specifically written that had to be consistent with WTO [World Trade Organization]. That the Mexican trucking provision is now subject to negotiations to ensure that we don't see an escalating trade war.
I have sent a very clear signal that now is not that time to offer hints of protectionism and I will continue to discourage efforts to close off the US market. I think that in a democracy, there are always going to be some loose ends out there. That's true here, that's true around the world but overall I don't think that we've seen a huge rush to protectionism that that isn't the rhetoric that is emanating from the leaders that will be gathering in London.
And to the extent that the American people or Europeans or Asians, Africans, Latin Americans all feel confident that their leaders are doing everything that they can to encourage and promote economic [..] and that they have their populations interests at heart, I think we are going to be able to hold the line on any significant slippage.
Treasury Willing Put More In Banks
Bloomberg: "After allocating about 80 percent of $700 billion in aid approved by Congress, administration officials want to keep open the option of seeking more. Geithner said the Treasury has about $135 billion left in a financial-stability fund while declining to say whether he will request additional money. 'If we get to that point, we’ll go to the Congress and make the strongest case possible and help them understand why this will be cheaper over the long run to move aggressively,' he told ABC News."
HuffPost's Kuttner rips lack of transparency: "...the administration is now using the Federal Reserve as an unlegislated, all-purpose slush fund. Because the Fed's operations are largely beyond the reach of Congressional appropriations or scrutiny, the Fed can do whatever it wishes with its money. The Geithner plan was negotiated behind closed doors, the main players being the Fed, the FDIC, the Treasury, and power-brokers on Wall Street. What we have is something perilously close to a dictatorship of the Fed and the Treasury, acting in the interests of Wall Street ... before the Fed is turned into an even more potent all-purpose regulator, Congress should turn it into a true public institution--a reform project that has been deferred since Roosevelt's day."
WSJ reports banks know their compensation systems are awful: "Banks almost unanimously agree that their compensation packages contributed to the global financial crisis but still are struggling to correct some of the flaws in their pay structures, according to a survey of financial institutions due for publication Monday ... The Institute of International Finance set out seven principles of conduct last July aimed at better aligning pay with shareholder interests and long-term profitability, discouraging excessive risk-taking and making sure pay wasn't out of line with overall bank profitability ... The survey said 60% of banks expected to be following these principles once all their plans had been implemented. But 83% said they were still working out how to phase compensation to make sure it reflected the risk being taken over a long period. Without that, bankers are encouraged to take big bets for short-term profits that entail significant long-term risks."
NYT on banks walking away from foreclosed homes: "Banks are quietly declining to take possession of properties at the end of the foreclosure process, most often because the cost of the ordeal — from legal fees to maintenance — exceeds the diminishing value of the real estate. The so-called bank walkaways rarely mean relief for the property owners, caught unaware months after the fact, and often mean additional financial burdens and bureaucratic headaches."
EFCA Efforts Don't Stop, Despite Specter Flip-Flop
W. Post details attempts to draft compromise Employee Free Choice language:
[Labor professor Joel] Rogers supports card check but said there may be other ways to limit intimidation by employers, such as exceedingly high penalties. "The problem is not secret ballot versus card check, it's the fear that workers have," he said. But Robert Bruno, a labor relations professor at the University of Illinois at Chicago, doubts reforms short of card check can work. It is unrealistic, he said, to create neutral, civic-style elections in workplaces dominated by employers. Employers "would have to agree to an environment where they give up a lot of control, a lot of prerogative," he said.
An equivalent debate is underway on the business side. Although some warn against any compromise, others say that if Congress does not take up limited reforms, card check could get a second wind. Specter himself warned of this, saying in an interview that if he loses in his primary to his conservative rival, the Democrats will definitely win his seat and gain a 60th vote...
...Union leaders say they can still get 60 senators by amending the bill in committee but without undermining its fundamentals. Business groups warn against this and say the debate will not advance until union supporters scrap the bill and start over.
In These Times' Art Levine reports AFL-CIO is stepping up grassroots campaign: "[AFL-CIO's Stewart] Acuff said in an interview, 'We‘re going to escalate our grass-roots campaign, and there’s no doubt that our campaign has overwhelmed the [local grass-roots] campaign of Big Business. I think the number of contacts between workers and workers allies with members of the Senate far exceeds theirs.'"
How the Private Health Industry Rolls
Those health insurers oh-so-willing to accept new regulations? Miami Herald reports on how they "secretly blacklist those with certain ailments.": "...material available on the Web shows that people who have specific illnesses or use certain drugs can't buy coverage ... A 50-year-old Broward County man, with two long-standing medical conditions, saw the harshness for himself when surfing the Web trying to learn why insurers kept denying him coverage. He was shocked to find several insurers' instructions to sales personnel, usually called the Guide to Medical Underwriting and often marked `'confidential and proprietary' ... [Insurance seller Susan] Foertsch said she was surprised that any of the guides could be found on the Web. 'I'd guess someone made a mistake.' ... The Miami Herald asked several other major Florida insurers -- Aetna, Humana and Blue Cross Blue Shield of Florida -- for copies of their underwriting guides. All refused, saying they contained propriety information and were confidential." (via Jack and Jill Politics)
Prominent lobbying firm founded by former Clinton WH officials flacking for Big Pharma. W. Post: "One of Glover Park's new clients is the Pharmaceutical Research and Manufacturers Association, which over the years has struggled with an industry image of profiteering at the expense of consumer health. It hired Glover Park to do strategic counseling, including polling and research, so it knows before talking to lawmakers what seniors are thinking. 'Not only do they help us with messaging, in some cases they help us deliver the message,' said Ken Johnson, PhRMA's senior vice president for communications. PhRMA is bracing for a momentous year, as health-care reform is high on Obama's agenda."
Enviro Update
Todd Stern ... said at a U.N. conference in Bonn, Germany, that despite high expectations, Obama did not have a magic solution for fashioning a global climate-change treaty by the end of the year. "We all have to do this together. We don't have a magic wand," he told reporters on the sidelines of the conference. "I don't think anybody should be thinking that the U.S. can ride in on a white horse and make it all work." ...
... Many U.N. delegates are pushing for major cuts in greenhouse gas production -- 25 to 40 percent below 1990 levels -- by 2020. Those cuts would be deeper than Obama's recently announced goal of reducing U.S. carbon dioxide emissions during that time frame by 16 percent from present levels. But Stern said more ambitious targets might not be politically or economically feasible. "Let me speak frankly here: It is in no one's interest to repeat the experience of Kyoto by delivering an agreement that won't gain sufficient support at home," Stern told the delegates.
Stern also said that any global treaty would require deeper concessions from rising economic powers such as China, Brazil and India. ... "If you do the math, you simply cannot be anywhere near where science tells us we need to be if you don't have China involved, as well as other major developing countries," Stern said. "How that is captured, understood, expressed and quantified is going to be extremely important."
W. Post on the newly invigorated EPA: "Drawing on earlier spadework, the administration has issued a proposal to create a national greenhouse gas registry; filed a lawsuit accusing a coal-fired power plant in New Roads, La., of violating the Clean Air Act; and put electric utilities on notice that they may have to account for their greenhouse gas pollution. Political appointees have also asked career employees for background material on how to regulate pollution from cement kilns; whether refineries have done enough to curb their harmful emissions; and whether the federal government should grant California and more than a dozen other states the power to curb greenhouse gas emissions from vehicles."
Breakfast Sides
UN Dispatch on staggering hunger numbers: "The World's Hungry Exceed One Billion for the First Time"
CNN/Money.com finds conservative governors quietly accepting stimulus funds: "Several governors who initially voiced concerns about expanding state unemployment benefits to qualify for federal stimulus funds have decided to accept the money. Some were feeling the heat from jobless constituents, while others took comfort in learning recently from the federal Department of Labor that they could curtail eligibility later on."
Terrance Heath contributed to the making of this Breakfast
