When we began polling HartfordBusiness.com readers last week on whether they thought the federal government should invest in the auto industry, the responses during the first several days broke about even, with about 60 percent casting “no” votes to roughly 40 percent in favor of the bailout.
Then, as the week went on and executives of the automobile industry began testifying on Capitol Hill, suddenly a surge of “Yes” votes appeared and swamped the “Nos” by a margin of more than 10-1.
Obviously, there are people around Hartford who are passionately in favor of a federal rescue of the auto industry. Maybe they are union members or employees of auto suppliers.
Whoever they are, they were backing the arguments the Big Three automakers made to Congress last week, claiming the industry is “too big to fail.” A decision to allow GM, Ford and Chrysler to slip into bankruptcy would cause so much widespread pain that it’s not a responsible option, they said.
It’s obviously true that an auto industry bankruptcy would devastate the economy of Michigan. And that pain would spread nationwide — and to Greater Hartford — as suppliers and others tied to the industry in more subtle ways saw their markets shrivel.
The Bush administration is likely to balk at acting. If the automakers have not filed for bankruptcy by Jan. 20, it’s likely that the Obama administration, as one of its first acts, will extend loans to the industry. Those credits may have stringent conditions, but they would give the companies a chance to sidestep bankruptcy. Supporters of the industry will applaud Obama for understanding their plight.
But then what? Further federal rescues month after month?
First it was the investment banks. Then it was the commercial banks and the auto companies. Now the insurers and the governors stand in line. All have roughly the same argument: “We’re too big to fail.”
Each bailout that is granted invites more groups to line up, cup in hand. Who’s next? The hedge funds? The computer chipmakers?
The clock is running out on the Bush administration, so it will not need to make any wrenching decisions.
Obama will have to. The No. 1 challenge for his administration will be to determine where exactly to draw its line in the sand on bailouts. Because as sure as a bankrupt auto industry would cause real pain nationwide, continued bailouts cannot work indefinitely.
There is not enough money to treat all the supplicants the way the Bush Treasury Department has treated American International Group. If Obama continues to apply that easy-going standard broadly, the federal government will not be able to maintain its position in the world as a borrower with a credible ability to repay.
Loss of that credibility is not an option.
Much of the money the federal government has spent so far has been thrown at problems that it did not thoroughly understand. It has already backed away from its initial plan to buy toxic assets. Then it impulsively followed the British model of investing directly in commercial banks. Now that that strategy is having limited success (the banks aren’t lending enough), Treasury Secretary Paulson is sitting on his hands, waiting to dump the problem in Obama’s lap.
Obama won’t be able to pass the buck.
He will have to make decisions that cause economic pain. That may mean disappointing key supporters, such as union groups or other constituencies that supported his campaign. He would do well to choose a practical, tough-minded economic team that establishes objective criteria and makes decisions based on them, even extremely unpopular decisions if that’s what it takes to preserve our global credit standing. It’s our best chance as a country to get out of this mess.
