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White House Moves Toward Auto Bailout
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"The Fed could conclude that the systemic effects of letting GM go under are too great," said one person familiar with negotiations over the fate of GM and Chrysler.
A Fed loan, however, would have its own issues. Unlike Treasury funds, it would have to be made against sound collateral. GM said it has more than $20 billion in unattached assets, including trademarks, U.S. real estate, intellectual property and ownership stakes in foreign subsidiaries. But placing a value on GM assets at this point would be a difficult and somewhat arbitrary exercise, conceded the source familiar with the negotiations. The person spoke on the condition of anonymity because the negotiations are not public.
In a letter to Dodd last week, Fed Chairman Ben S. Bernanke said the central bank is reluctant to get involved in industrial policy, or in deciding which industries win and lose. Bernanke wrote that the Fed "would be extremely reluctant to extend credit where Congress has actively considered providing assistance but, after due consideration, has decided not to act."
Treasury Secretary Henry M. Paulson Jr. spoke with White House officials and senior executives from the auto companies yesterday as negotiations got underway.
In a letter to Bush, House Speaker Nancy Pelosi (D-Calif.) said Paulson should focus on imposing the concessions from the House-passed bill. On a mostly party-line vote, that legislation would have created a "car czar" position to oversee the loans and required the companies to submit massive restructuring plans to be approved by March 31 or risk the loans being called, potentially sending the firms into bankruptcy.
The House bill, which was supported by the White House, did not include any of the wage-reduction provisions that were being considered in the Senate as an amendment to the House bill before talks collapsed Thursday night.
Staff writers Binyamin Appelbaum, Neil Irwin, Kendra Marr, Ellen Nakashima and Paul Kane and staff researcher Rob Thomason contributed to this report.
