After hedging bets with talk about “controlled bankruptcy,” the Bush administration has decided to give the Big 3 loan guarantees that could not pass the Senate.
The White House has decided to come to the rescue of General Motors and Chrysler by providing them with $17.4 billion in low-interest loans to keep them afloat, ABC News has learned. The money for the loans will come from the Troubled Asset Relief Program fund, signed into law this fall to bail out the financial industry. The president will provide $13.4 billion in short-term financing in December and January and plans to make another $4 billion available in February, provided it can reach into the second half of the $700 billion TARP fund to do so.
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Bush and other administration officials publicly worried in recent days about the need to avoid an uncontrolled bankruptcy by the two car companies. “This is a difficult time for a free-market person,” Bush said Thursday. “Under ordinary circumstances, failed entities, failing entities should be allowed to fail. I have concluded these are not ordinary circumstances, for a lot of reasons… We got to the point where if a major institution were to fail, there is great likelihood that there’d be a ripple effect throughout the world, and the average person would be really hurt.”
Treasury Secretary Henry Paulson told a business forum in New York Thursday night it was too risky to simply let the automakers fail. “When you look at the size of this industry and look at all those that it touches in terms of suppliers and dealers& it would seem to be an imprudent risk to take,” he said.
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Treasury Secretary Paulson will administer the plan until Jan. 20, at which point there will be another “presidential designee” to oversee the loans under the new administration. If the companies cannot prove they are financially “viable” by March 31, the loans will be recalled and the money returned to the Treasury. The White House is also calling for no dividends for stockholders until the money is paid back, and stipulating that the government can block transactions over $100 million.
The facts that this is overwhelmingly opposed by the American people, was killed in the legislature, and that the TARP funds were allocated for an entirely different purpose were apparently not major factors in this decision.
