As Bear Stearns was collapsing in March, executives there wondered if threatening a bankruptcy filing would save the securities firm from its creditors. Wall Street bankers derided the move as pointing a gun at your own head and threatening to shoot.
Who knew so many industries would see that as a tactic worth trying? The Federal bailout of Bear Stearns in March has been followed, in due course, by a ban on naked short-selling in 19 big financial stocks and worries that the U.S. will have to nationalize Fannie Mae and Freddie Mac. Now Detroit’s Big Three auto makers–General Motors, Chrysler and Ford Motor–are asking the federal government to double the amount of government-backed loans they will get to build more fuel-efficient vehicles. The three, once promised $25 billion, now want Federal loans in the neighborhood of $50 billion with special interest rates that are about half of the going market rate.
“There’s a real urgency in that all of the progress we have made on these new vehicles could come to a standstill if we can’t get capital at reasonable rates,” GM spokesman Greg Martin told our colleagues.
Times are tight, of course, and in one sense it isn’t surprising the auto makers are making bold demands on the federal government. They are, after all, finding little succor from Wall Street. Chrysler Financial had a dismal time in trying to renew $30 billion of its short-term debt recently, selling only only $24 billion to investors. Ford Motor Credit, on its own, needs to raise about $32 billion through securitizations this year. Meantime, the nine largest investment banks still hold about $161 billion in hung bridge loans and other leveraged-buyout -related commitments, according to Banc of America Securities analyst Michael Hecht.
Of course, the automakers have been trying to manage their books–selling assets and cutting costs. GM, for instance, has said it will cut $15 billion. They say the amount they need far outpaces the amount they can raise–without federal help.
Still, there is a certain escaladio inherent in asking the Federal government for $50 billion in loans in order to fulfill what are essentially operational business goals–time to build cars people want to buy. The real threat is that one of the Big Three collapses: J.P. Morgan analysts revealed recently that federal officials have been inquiring about what would happen if an auto maker went out of business.
Now the rescue of Bear Stearns was to protect the entire U.S. financial system. Any nationalization of Fannie or Freddie would be intended to protect the entire U.S. housing market. Bailing out a company because it is a large employer? A lot of jobs depend on Microsoft, or Yahoo or Cisco Systems. Wal-Mart Stores? Dow Chemical? Sprint Nextel? Would all of them theoretically be able to receive a government bailout?
At some point, expect taxpayers to ask at what point a company isn’t too big to fail, or why some companies that don’t make economical products aren’t allowed to go out of business. After all, the airline industry received a $15 billion bailout after Sept. 11, 2001. Seven years later, the industry still is limping along.