The chief executives of our big automakers are on their way to Washington, DC by plane, train and automobile to ask lawmakers to authorise their own personal bailouts. This time they’re coming armed with promises to use taxpayer money to make private profits (if this is a confusing requirement, you haven’t been paying attention) and to forego all sorts of perks. One executive even agreed to work for a dollar.
Why have these executives become so docile? Well, they’re desperate. If they don’t get the bailout, the markets may kill them by denying credit and selling their equity down to zero.
But there may also be another reason. If they’ve been paying attention to the financial industry bailouts, they’ve probably noticed that whatever restrictions the government puts on them are unlikely to stick.The main lesson from the bailout of, say, AIG is that they should take the money now and not worry about the strings attached or the costs: those can always be cut later.
The original $85 billion bridge loan facility to AIG was officially intended as allowing for an orderly sale of AIG assets. It’s been recut once already to eliminate the need for liquidation, and now one of its biggest investors is arguing for an even more generous bailout. It only took AIG two months to rework the deal into a long term loan with a relatively low interest rate. And a month later, they’re back asking for more.
What are the lessons for automakers asking bailout bucks?
First of all, don’t worry about the promsies you’ve made to the government about paying back the meony. When the going gets rough, just explain to the government that you can’t afford to pay them back yet. Repeat this forever.
Second, don’t worry about restrictions on bonuses or compensation. You’ll be able to recut this deal later. Just tell the Treasury you’ll lose your key people if you can’t pay them well enough. Make it sound worse by saying your executives will flee to those dreaded Japanese car companies.
Third, don’t worry about limits on dividends to shareholders. Simply claim that those restrictions are preventing you from raising necessary private capital.
Fourth, don’t worry about restrictions on what you can do with the money. Don’t invest in ridiculous alternate fuel driven cars. Don’t increase fuel effeciency. Don’t protect American jobs. Go ahead and off-shore whatever operations you can. These government guys are spineless. They’ll never stop you. What’s more, government officials have no upside incentive to police you. This is basically unencumbered cash.
Fifth, there’s always more money. Once the government has invested billions in your business, the dminishing marginal cost of adding additional dollars compared to the loss from your failure guarantees that you’ll always be able to get more money from the goverment.
Congratulations to everyone on your future ability to recut the deal with the government. And when we say “everyone” we mean everyone except the taxpayers. You’re out of luck.