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ANALYSIS
March 2, 2009
Sagging Index no longer reflects what’s going on in the market, some say, Replacements? Google it, to start.
March 2, 2009
Downward price spiral will actually boost the cost of capital for most companies. CFOS, take note.
March 2, 2009
The latest bailout at AIG could be a preview of how the president will deal with Wall Street.
March 2, 2009
No corporate defaults. Big debt offerings. Percolating CP issuance. Things may be looking up in the capital markets.
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September 8, 2008 4:48 PM ET
While the government takeover of Fannie Mae and Freddie Mac may seem to make it easier for Detroit’s automakers to get a subsidy from Washington, the two situations are so different that one has little bearing on the other, observers said. “This certainly seems to be the season for bailouts, but in reality they are two different animals,” said Jeff Werling, who heads a University of Maryland economic research center. Treasury Secretary Henry Paulson announced plans yesterday to seize control of the two mortgage giants and replace their chief executives, just months after the Federal Reserve Board helped arrange for Bear Stearns’ rescue by J.P. Morgan Chase. Some commentators have suggested that these precedents, especially under a Republican administration, will make the next large federal bailout easier to justify. “The more government intervention you get, and we’ve had a lot lately, the more likely the next intervention becomes,” said Alex Pollock, a resident fellow at the American Enterprise Institute, a conservative Washington think tank, and former CEO of the Federal Home Loan Bank of Chicago. Congress has authorized $25 billion in low-interest loans to retool automakers’ factories for fuel-efficient vehicles, though it hasn’t approved funding. Both presidential candidates have endorsed the plan. Meanwhile, Detroit is lobbying for a doubling of these prospective loans, to $50 billion over three years, arguing that the government has an obligation for imposing fuel-economy standards. While the legislation would ostensibly make the automakers more environmentally friendly, it really aims “to provide a helping hand to financially-strapped Detroit” at a time when Michigan’s electoral votes are in play, J.P. Morgan analyst Himanshu Patel wrote in a report today. “The potential dollars involved could materially reduce near-term bankruptcy risk at some/all of the” automakers, Mr. Patel’s report said. One key difference between the mortgage company and automaker interventions is the potential severity of harm to the U.S. and world economies should there be no bailout, experts said. “The failure of Fannie Mae and Freddie Mac could have a monstrous effect on financial markets,” said Peter Wallison, an AEI fellow who was both a White House counsel and general counsel to the Treasury Department under President Ronald Reagan. On the other hand, there are many foreign automakers in the U.S. who could take up the slack if any domestic manufacturers failed, he said. In addition, in the case of an automaker’s bankruptcy, the factories and machines could be sold to another company that would still operate them to make cars, said Mr. Werling, an economist. Timing is critical for the Big Three if they are to have their way. With both presidential candidates vying for Michigan’s votes, the automakers have the most leverage they are ever going to have over Sens. Obama and McCain, Wallison said. If legislation is delayed till next year, Congress may be more focused on the U.S. economy and the yawning federal deficit. “Whoever is president will confront a fiscal disaster, so a lot of comments they’re making now about energy will have to be looked at in an entirely new light,” Mr. Werling said.
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