The WSJ reports that talks to save the automakers have broken down in the Senate, and that there will be no bailout.
Once again, Congressional Republicans have killed an intiative backed by both the White House and the Democrats — and I can’t imagine that the stock market will take any more kindly to this news than it did to the news that the House Republicans had voted down the first attempt at TARP.
The problem here is that there really doesn’t seem to be a Plan B: there isn’t any indication that the government is even willing to provide debtor-in-possession financing within Chapter 11. And if such financing is not forthcoming, the worst-case scenario is looking increasingly probable: an outright Chapter 7 liquidation, which would cost millions of jobs and would probably have a devastating effect — thanks to the inevitable supplier bankrupcies — on the big Japanese automakers with plants in the South. In other words, everybody loses.
Can Congress really be so pig-headed as to let this happen? Evidently, yes. Expect serious excoriation from the media: I think that most journalists have a gut-level understanding that Detroit’s massive adspend was one of the few things keeping them in a job these days. And maybe in coming days some kind of Chapter 11 solution might be cobbled together, or at least a package which helps out the suppliers and the remaining US carmakers (including Toyota, Honda, and other foreign firms with a US presence).
Up until recently, bankers have been Villain Number One in the story of this crisis. But given Washington’s astonishing ability to screw up just about everything it’s attempted to make things better, maybe politicians will find their way back to the top of the list. Certainly, this is not representative democracy’s finest hour.