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Bush is bailing out the bailout plan
The lifeboat is coming - we just have to keep rowing," is how one Chrysler boss describes his company's predicament. But after failing for a third time to secure a congressional bailout General Motors is taking on water and listing badly.
- Financial Times
- Published: 23:17 December 14, 2008
The lifeboat is coming - we just have to keep rowing," is how one Chrysler boss describes his company's predicament. But after failing for a third time to secure a congressional bailout General Motors is taking on water and listing badly.
No fear - the unsinkable USS George W. Bush is embarking on one last rescue mission before sailing off into the sunset.
The failure of the latest rescue plan in the Senate and the White House's reversal of its decision not to tap funds meant for banks should make anyone cynical about the ability of the US government to do a better job of sorting out Detroit's problems than the bankruptcy courts.
A last-minute counterproposal by Senate Republicans that would have had conditions not dissimilar to a Chapter 11 reorganisation was rejected as too onerous.
It called for creditors to take a 70 per cent haircut, employees to accept the same wages and benefits as those at non-unionised, foreign-owned carmakers and for the United Auto Workers to accept payment partially in shares for the billions GM pledged to their health fund.
If the original idea of a "car tsar" had been adopted, these might have been his suggestions too, but the lack of power vested in such a position would probably have yielded the same rejection.
The White House's change of tune on a bailout is all about saving Bush's legacy from another Hurricane Katrina-type failure while leaving the incoming administration with the political headache of fixing Detroit.
But it should now be obvious that doling out cash to tide companies over until a more Detroit-friendly team takes over in Congress is unlikely to lead to the hard decisions that an impartial bankruptcy judge would impose. Instead, it looks likely that carmakers are well on their way to becoming wards of the state.
Asian summitry
As a metaphor for the global state of affairs, Saturday's trilateral meeting between Japan, South Korea and China could not be bettered.
Japan's Taro Aso and South Korea's Lee Myung-bak, whose approval levels skirt 20 per cent, and Wen Jiabao of China - who has no need to fret about such matters - will pursue two strands of talks in the southern Japanese city of Fukuoka.
One is how Asia's richest powers can help their less well-off brethren; the second is how they can help themselves.
Korea, the most beleaguered of the three, has stolen a head start by securing an expanded $50 billion (Dh183,65 billion) worth of currency swap commitments from Japan and China.
That nicely sums up the dynamics between the three. Japan is in recession, South Korea on the brink, while China - on conventional definitions - should manage to avoid it. But Japan and China have stronger banking systems and, between them, $3 trillion in foreign exchange reserves. South Korea, meanwhile, is ripping through its $200 billion pile to defend the won.
Regional aid focuses on beefing up the so-called Chiang Mai initiative of multilateral currency swap agreements, set up in 1997 during the last Asian crisis. In essence, that means expanding the $80billion-odd of existing bilateral swaps.
Swap agreements are a workable sticking plaster band-aid for the poorest countries, as they effectively boost tappable reserves; potential access sent Indonesian assets soaring last week.
But Asia still has to tackle the larger issue of why the world's biggest surplus countries cannot hold on to their own savings. The Asian Development Bank calculates that 90 per cent of Asian investment goes overseas.
A regional bond market, long mooted, would stem the flows but the hurdles are mile-high in a region without a common currency.
No matter. Short-term solutions catch the global zeitgeist perfectly, too.
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