The pigs line up at the trough

When I said a bailout should hurt the bailees, this is exactly the sort of thing I hoped we could prevent:

With Congress preoccupied with the massive, $700 billion bailout plan for the financial industry, General Motors, Ford, and Chrysler have finally secured Part One of their own federal rescue plan. A bill set to be passed by Congress and signed by President Bush as early as this weekend--separate from the controversial Wall Street bailout plan--includes $25 billion in loans for the beleaguered Detroit automakers and several of their suppliers. "It seemed like a lot when we first started pushing this," says Democratic Sen. Debbie Stabenow of Michigan, one of the bill's sponsors. "Suddenly, it seems so small."

But please don't call it a "bailout"--Detroit is too proud for that. Exact details will come later, but the loans would probably amount to at least $5 billion for each of the Detroit 3, plus smaller amounts for suppliers. That would allow them to borrow money at interest rates as low as 4 percent--a steep discount compared with the double-digit rates they're paying now. Over several years, the automakers could save hundreds of millions in financing costs. Plus, they'll have five years before they have to start repaying the loans.

It might seem like a stealth rescue, but the plan has been in the works for at least 18 months. Approval for the loans was first included in last year's Energy Independence Act. Earlier this year, the automakers sought a first installment of loans totaling about $6 billion. But the nationwide credit crunch severely crimped their ability to borrow, and besides, next to bailouts like $200 billion for Fannie Mae and Freddie Mac, a mere $6 billion started to seem unduly modest. So Detroit raised the ante to $25 billion, the most allowed under current law.

Shame on the Bush administration for considering this.  And shame on Debbie Stabenow, though I know she's just pulling as much pork as possible for her constituents.

Yes, I favor intervention when it looks like there's a risk of a really severe recession.  But there is no such rationale here, not even arguably.  It's pure pork, with a soupcon of economic nationalism thrown in.  If the Big Three can't make autos people want to buy, then they should liquidate and open up the market to those who can.


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Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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