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Bush's string-driven assistance

Editorial Staff

Almost in the face of some of his own cabinet, President Bush has announced that, in the dying days of his presidency, he will authorise support for the automotive industry - as little as ten days before GM is thought likely to run out of money. But it's not a grant or a gift. And it's a message to the financial sector: use the TARP money wisely or we'll take it back.

The first people to notice that the President's decision did not amount to a blank cheque were the unions. USD13.4 milliard is, in the great scheme of things, not a lot of money. Indeed, it is only a small part of the deficits being run by the three major US automotive manufacturers. And the announcement was couched in - by Bush's standards - clear terms: pay and conditions must be renegotiated and labour must cost less. He said "The auto-makers and unions must understand what is at stake and make hard decisions necessary to reform. These conditions send a clear message to everyone involved in the future of American auto-makers."

The second person to notice that the offer was double edged was President Elect Obama. Bush has left him a poison pill: the announcement has, in fact, deferred making a real decision. Bush said "If a company fails to come up with a viable plan by 31 March , it will be required to repay its federal loans."

That means, simply, that Obama's team will be in the hot-seat and will have to decide what is viable. And will have to decide whether to be tough on the unions. Obama has already revealed his plan: the Unions are off the hook. He said "The auto companies must not squander this chance to reform bad management practices and begin the long term restructuring that is absolutely necessary to save this critical industry and the millions of American jobs that depend on it."

The other president involved in all of this, that of the Union of Auto Workers (UAW) Ron Gettinger, told Fox News "While we appreciate that President Bush has taken the emergency action needed to help America's auto companies weather the current financial crisis, we are disappointed that he has added unfair conditions singling out workers.We will work with the Obama administration and the new congress to ensure that these unfair conditions are removed."

Bush's decision flies in the face of Treasury Secretary Paulson's stated preference - to put the companies into administration and rescue them through a managed and orderly process. But, of course, one thing comes into play with that plan: it is managed by Judges and in the USA judges are political appointments. And their independence is open to question. Would a Judge ever make the hard choices that need to be made? Actually, looking at the restructuring of the aviation industry over the past three years or so, the answer would appear to be that yes, Judges have done exactly that.

So why has Bush chosen this plan? With one month to go to the handover to Obama, he is stage managing his image: at the same time as this plan is announced, he has also "revealed" hundreds of previously secret meetings with and thousands of previously secret letters personally written to families of troops killed or injured on active duty. Clearly, those families were told to keep quiet about this or news would have leaked out as to what the President was doing when his diary said he was doing nothing.

The offer to the car makers, to keep them afloat over Christmas and New Year may be nothing more than a cynical bid to protect his reputation, whilst putting his successor in a difficult position.

But there has been a major shift in policy: the funding for the auto industry is not new money. It's a directive that part of the money already authorised for the financial sector be ring-fenced for the support of the auto-industry. In short, it's micro-managing the banking sector and saying "you've failed to use the money you've been allocated to provide industrial support, so we are removing your discretion over part of it and doing it for you, and managing those loans directly."

The money coming out of TARP is a drop in the ocean of USD350 milliard that has been held back and is due for release in the early part of next year. But it sends a powerful message to the banking sector: the money has been allocated in significant part for them to manage to provide a soft-landing for the economy. And if they play hard-ball with industry, as is happening in the UK, then the government will step in. It will not guarantee loans, it will take the money out of TARP and lend it directly.