Economy -- Make Detroit Change Its Ways

November 18, 2008

by Faiz Shakir, Amanda Terkel, Satyam Khanna, Matt Corley, Benjamin Armbruster, Ali Frick, and Ryan Powers

ECONOMY

Make Detroit Change Its Ways

Last month, Congress approved $25 billion in low-interest loans for automobile manufacturers and suppliers to retool their plants to build more fuel-efficient vehicles. However, slumping sales, frozen credit markets, and the current global economic crisis has prompted the Big Three automakers -- General Motors, Ford, and Chrysler -- to ask Congress for an additional $25 billion in aid. House and Senate Democrats, led by Rep. Barney Frank (D-MA) and Sen. Carl Levin (D-MI), are pushing legislation that would dole out the emergency funds from the $700 billion Congress previously allocated to stabilize the financial markets. Both House and Senate plans are accompanied with varying degrees of conditions, including strict oversight and limits on executive compensation. Levin even argued that, in order to receive the cash, the Big Three's CEOs would have to resign. The White House agrees that the auto industry should receive the aid but claims that those funds should not come from the $700 billion allocated for struggling financial institutions. The White House argues that Congress should instead fast-track the $25 billion loan approved last month and drop the loan condition that Detroit build more fuel efficient cars. Despite agreement between the Bush administration and some in Congress that some form of auto bailout is necessary, many conservatives are staunchly opposed -- arguing that free market capitalism should reign and the troubled auto giants should be allowed to fail. Given the opposition, prospects for passing auto industry bailout legislation remain dim. Failure to act would not only have a catastrophic effect on America's auto industry but also on a U.S. economy already in tatters.

MISPLACED BLAME: Part of conservatives' efforts to curb any talk of rescuing car makers has involved placing blame for the crisis on labor unions. Sen. Jim DeMint (R-SC) claimed that "some auto manufacturers are struggling because of a bad business structure with high unionized labor costs," while Sen. Jon Kyl (R-AZ) said on Sunday that the auto industry has "been sick" for years because of a "bad business model" with "contracts negotiated with the United Auto Workers that impose huge costs." But unions have repeatedly made concessions to auto executives over recent years. Bad executive leadership is more likely the catalyst for the Big Three's woes. GM Vice Chairman Bob Lutz has dismissed global warming as "a total crock of sh*t." Such sentiments from Detroit's leadership has contributed to the Big Three basing their business model on a future of cheap oil while fighting fuel efficiency standards despite repeated warnings against pursuing such a strategy. Indeed, as The New Republic's Jonathan Cohn noted, Lutz "should be the first to go."

WHY A RESCUE PACKAGE: Many rescue measure critics also argue that the Big Three should instead file for Chapter 11 bankruptcy protection. But because the auto industry depends heavily on credit -- and the credit markets are frozen -- the Big Three would likely soon be forced to file Chapter 7 bankruptcy, "which would entail total liquidation." As Princeton economist and New York Times columnist Paul Krugman noted, "If the economy as a whole were in reasonably good shape and the credit markets were functioning, Chapter 11 would be the way to go." But because of the current economic crisis, a wide ranging default in Detroit "would probably mean loss of ability to pay suppliers, which would mean liquidation -- and that, in turn, would mean wiping out probably well over a million jobs at the worst possible moment." Indeed, the Center for Automotive Research predicts that "the impact on the U.S. economy would be substantial were all -- or even half -- of the three Detroit-based automotive manufacturers' U.S. facilities to cease operations. ... Nearly 3 million jobs would be lost in the first year if there is a 100 percent reduction in Detroit Three U.S. operations." "Every auto plant job generates another five jobs among suppliers and the surrounding community," writes auto industry representative Dave McCurdy. "By comparison, a Wall Street job generates two additional jobs." Moreover, one in 10 American jobs is related to auto manufacturing.

AID WITH CONDITIONS: In a letter urging Treasury Secretary Henry Paulson to give assistance to America's auto industry, Senate Majority Leader Harry Reid (D-NV) and House Speaker Nancy Pelosi (D-CA) argued that any federal aid should come with "strong conditions" such as requirements that automakers manufacture more fuel efficient vehicles. Oversight of the bailout must also be stronger than the bank bailout, as "reports continue to circulate about the banks potentially hoarding portions of the $250 billion Treasury has offered to invest in exchange for senior preferred stock, or using the money for purposes other than lending." In a letter urging support for the auto rescue, Center for American Progress Action Fund experts Winnie Stachelberg and Daniel J. Weiss argue, "To ensure that the managers who helped create this mess are not unduly rewarded, the loans must disallow excessive executive compensation." They add that auto companies "must fulfill their commitments to provide both health care and retirement security for their employees and retirees" and "should assure Congress that they will cease their legal and lobbying opposition to the imminent new fuel economy standards."

CONGRESS -- LIEBERMAN LIKELY TO KEEP COMMITTEE CHAIRMANSHIP AFTER TODAY'S SECRET VOTE: Roll Call reported yesterday that when Senate Democrats meet today to discuss Sen. Joe Lieberman's (I-CT) future, the party's leadership is "expected to propose that he keep his gavel at the Homeland Security and Governmental Affairs Committee but lose his Environment and Public Works subcommittee chairmanship." The paper describes the proposal as only a "slap on the wrist" for Lieberman since he "may not lose much" if only his subcommittee chairmanship is stripped. CNN’s Dana Bash reported yesterday that Lieberman "is not happy about" the plan, but will accept it and is likely to keep his chairmanship. Sens. Chris Dodd (D-CT.) and Ken Salazar (D-CO) also reportedly will present a compromise plan at the caucus meeting doing exactly that -- stripping Lieberman of a low-profile subcommittee chairmanship giving him the gavel of the Homeland Security Committee. Salazar said Lieberman enjoys "significant support" within the caucus. "I think he will be a force of good in supporting an Obama administration," Salazar said.

IRAQ -- BUSH ADMINISTRATION PLAYS DOWN SIGNIFICANCE OF IRAQ WITHDRAWAL DEADLINE: Over the weekend, Iraq's cabinet "overwhelmingly approved a proposed security agreement that calls for a full withdrawal of American forces from the country by the end of 2011." Yesterday, however, the Bush administration attempted to play down the significance of the agreement. Press Secretary Dana Perino claimed that the deadline for withdrawal of U.S. forces from Iraq included in the security agreement is only "aspirational". Similarly, Chairman of the Joint Chiefs Adm. Mike Mullen said in a press conference yesterday that he still supports "conditions-based" withdrawal only, and suggested that the agreement might change long before 2011. "Three years is a long time. Conditions could change in that period of time," Mullen said. In reality, there is nothing "aspirational" or "conditions-based" about the withdrawal deadline. Members of the Iraqi government are referring to the pact as a "withdrawal agreement." A spokesperson for the Iraqi government explained that "total withdrawal will be completed by December 31, 2011. This is not governed by circumstances on the ground." In negotiating the agreement, the Iraqi government required that the U.S. "scrap the language that would have allowed the American troops to stay beyond 2011 if Iraq requested."

FOCUS ON THE FAMILY FORCED TO MAKE LAYOFFS AFTER SPENDING $600,000 TO DEFEAT MARRIAGE EQUALITY: The Colorado Independent reported yesterday that James Dobson's Focus on the Family will be cutting 202 jobs, laying off an estimated 20 percent of its workforce. The layoffs come just weeks after the right-wing group spent more than $600,000 to defeat marriage equality in California. The Focus on the Family empire invested $539,000 in cash and another $83,000 worth of non-monetary support into passing Prop. 8, praising the initiative as one that would "help protect millions of children from radical indoctrination in the homosexual lifestyle." The group also touted its involvement collecting signatures and gathering donations for Prop. 8, patting itself on the back for being "integrally involved" in the fight against marriage equality. As the Independent reported, "Critics are holding up the layoffs, which come just two months after the organization's last round of dismissals, as a sad commentary on the true priorities of the ministry."

The Bush administration is pushing a last-minute proposal to "grant sweeping new protections to health care providers who oppose abortion and other procedures on religious or moral grounds." Three officials from the Equal Employment Opportunity Commission "said the proposal would overturn 40 years of civil rights law prohibiting job discrimination based on religion."

"Just weeks before leaving office, the Interior Department’s top lawyer has shifted half a dozen key deputies -- including two former political appointees who have been involved in controversial environmental decisions -- into senior civil service posts." The move will “deprive the incoming Obama administration of the chance to install its preferred appointees in some key jobs."

"The Pentagon spent about $600 million on more than 1,200 Iraq reconstruction contracts that were eventually canceled," reports the Special Inspector General for Iraq Reconstruction, adding that "42% of canceled contracts were terminated because the contractor either failed to deliver or performed poorly."

The "triple-whammy of injury, unemployment and waiting for disability claims to be processed has forced many veterans into foreclosure, or sent them teetering on its edge, according to veterans' organizations." Veterans' housing troubles are particularly hard to measure because there are no foreclosure statistics "singling out veterans and service members." More »

Sen. Ted Kennedy (D-MA) announced yesterday that "he would advance a bill early next year calling for universal health care." Kennedy, who was making his second appearance on Capitol Hill since he began treatment for a malignant brain tumor in June, said that "the president-elect has indicated that this is going to be a priority, and I certainly hope it will."

Americans are divided on whether the federal government should give "financial assistance to the Big Three U.S. automotive companies," according to a new Gallup poll. Forty-seven percent of respondents said they favor providing aid while 49 percent oppose it. A slight majority would favor assistance if one or more of the "Big Three" were certain to fail without it.

House Majority Leader Steny Hoyer (D-MD) is "challenging the idea that the expanded Democratic majority and its leaders will make a hard left turn," the Hill reports. According to the prepared remarks for a speech at the National Press Club, Hoyer will argue today, "For the first time in decades, we are a true national majority party -- and if we want to stay that way, we must govern like one."

Two advisers to President-elect Barack Obama say his administration is "unlikely to bring criminal charges against government officials who authorized or engaged in harsh interrogations of suspected terrorists" during the Bush administration. As the Washington Independent's Spencer Ackerman notes, the 2005 Detainee Treatment Act preemptively barred nearly all such prosecutions.

The government of Iraqi Prime Minister Nouri al-Maliki "is systematically dismissing Iraqi oversight officials, who were installed to fight corruption in Iraqi ministries by order of the American occupation administration." Officials estimate that anywhere from "a handful to as many as 17" of the 30 ministry inspectors general have been ousted, while several "agreed that seven to nine...had already been dismissed or forced into retirement."

And finally: Former Arkansas governor Mike Huckabee is ready to settle old scores. His book, "Do the Right Thing: Inside the Movement That's Bringing Common Sense Back to America," hits shelves today and is "filled with sharp words for his fellow Republicans who frustrated his bid for the party's nomination." For example, Huckabee writes that former Massachusetts governor Mitt Romney’s record was "anything but conservative until he changed the light bulbs in his chandelier in time to run for president."

"More than 100 retired generals and admirals called Monday for repeal of the military's 'don't ask, don't tell' policy on gays so they can serve openly."

THINK PROGRESS: Vindictive President Bush gives Australian Prime Minister a "frosty reception" at G20 summit.

WONK ROOM: CNN's Michael Ware on the status of forces agreement negotiations: "Tehran was in the room."

YGLESIAS: Should newspapers hire more right wingers?

MEDIA MATTERS: Newt Gingrich: "There is a gay and secular fascism in this country that wants to impose its will on the rest of us."

CALIFORNIA: Gov. Arnold Schwarzenegger (R) signs executive order calling on utilities to provide one-third of their power from renewable resources by 2020, calling it "the most aggressive target in the nation."

EDUCATION: "The economic crisis has hit the classroom, and public schools and colleges are taking extreme measures to cope."

IMMIGRATION: Surging Hispanic voter turnout may spur an overhaul of the nation's immigration policies.

"The total withdrawal will be completed by December 31, 2011. This is not governed by circumstances on the ground."
-- Iraqi government spokesperson Ali al-Dabbagh, 11/17/08, on a new status of forces agreement

VERSUS

"I'm in a position that is still conditions-based."
-- Chairman of the Joint Chiefs of Staff Michael Mullen, 11/17/08

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