Wall St. Bailout cash to Detroit? On the table, sez news.

[SirNitram]

Link

WASHINGTON (CNN) -- The proposal to loan $14 billion to Detroit's struggling automakers collapsed late Thursday night but the Big Three may get some money anyway.

Bush officials warned wavering GOP senators that if they didn't support the legislation, the White House will likely be forced to tap the Wall Street bailout to lend them money, two Republican congressional officials told CNN earlier.

This is a noteworthy change since the White House and Treasury Secretary Henry Paulson have previously refused to use bank bailout funds to help General Motors (GM, Fortune 500), Ford Motor (F, Fortune 500) and Chrysler LLC.

The sources asked not to be named because of the sensitivities of private conversations.

The White House negotiated a deal with Democrats to give Detroit a short term $14 billion loan with strings attached, including a so-called "car czar" charged with helping the companies draw up restructuring plans.

Most Senate Republicans opposed the plan as too weak in terms of focusing long-term viability for the U.S. auto industry.

As part of their full-court press to urge skeptical Republicans to back it, they made clear that if Congress didn't act, the White House would have to step in to save Detroit from collapse with funds from the $700 billion Troubled Asset Relief Program (TARP), according to the sources familiar with the conversations.

"I would only hope that the president, who has worked so well with us for the past several weeks, would now use consider using the TARP money," said Senate Majority Leader Harry Reid, D-Nev., after the vote.

One of the sources said the a White House official made clear to a GOP Senator that would be the worst option, because the loan could go to the auto companies with few or no requirements along with it.

Democrats had pressed the White House from the start to help Detroit by using some of the $700 billion for the financial sector, but the White House had refused.

So here's the deal. A few GOP Senators of southern states whose only auto-plants are foreign ones they bribed into the state with hefty subsidies, decided to filibuster. The attempt to invoke 'cloture'(That is, end filibuster and have a real vote) died at 53 votes, seven votes short, meaning some other GOPers decided that if they couldn't literally dismantle the UAW, they were going to do such to the manufacturing economy that wasn't foreign-born.

The White House, not wanting this on their watch, and perhaps under pressure from Obama, has apparently floated the idea of using the massive 700B, or at least part of it, to rescue the Auto companies. 350B of this is literally beyond the hands of Paulson to continue his Race To Negative until it's authorized, and this might simply be not done in favor of Detroit.

If anyone wonders what I mean by race to negative, I can explain that, but it's a bit off-topic.

[rhoenix]

If anyone wonders what I mean by race to negative, I can explain that, but it's a bit off-topic.

By all means, yes. It may be a bit off-topic, but I'd say it still falls under the heading of "weird shit about the transition," so it's not wholly off-topic.

[The Minx]

The article says that the GOP opposed it since it was too weak in terms of focusing on the long term viability of the auto industry. Where did you get the info regarding their motive being foreign-auto-plant-obtained-through-subsidy? Was it raised previously or am I having a Captain Obvious moment?

And I am curious about what the "race to the negative" means.

[SirNitram]

If anyone wonders what I mean by race to negative, I can explain that, but it's a bit off-topic.

By all means, yes. It may be a bit off-topic, but I'd say it still falls under the heading of "weird shit about the transition," so it's not wholly off-topic.

The Treasury, using both the Bailout funds and pre-existing methods, have been basically pumping cash into the banks, bank-holding-companies, and Entities Which Were Neither But Now Call Themselves Bank Holding Companies, in a desperate play to stop the crash to reality. The goal is, as Paulson said bluntly, to get them lending, especially to consumers.(Side note: GMAC, GM's financing arm, went through most of the motions to go Bank Holding, but failed to gain enough capital, or so says the Fed. I declare Shennanigans, personally.)

What has not happened is that lending has happened, IE, credit has not 'thawed'. This isn't terribly illuminating; it just means the money is not going where everyone said it should.

If you go to, say, Yahoo Finance and look up '13-week Treasury Bill', you will notice the yield(Percent you get back) holds at around 0.001%, up and down a tiny bit but rarely doubling. Yes, that's a fraction of a percent. If you use the graph and zoom out to six months, you can see it offering 2% yield in 3 months, now it offers basically your money back, minus inflation. Earlier this week, it went negative(Link for a story on this.), meaning that losing $9.69 out of every thousand you invested was a better investment than the market.

The reason becomes clear as we play with the graph. The money being pumped into the banks is going to 3 month treasuries, dropping their value to zero yield, which are then held.

The Masters Of The Universe that run Wallstreet, which Paulson is a member of, are in a race for negative. Because a little negative guaranteed is safer than the chance of a huge negative.