Barney Frank Picks a Winner

Barney Frank is beginning to remind me of a nearsighted, uncoordinated child who just can't figure out how to hit a baseball off a tee. He keeps swinging and swinging, and each swing is an embarrassment. First his cap falls off, then his glasses, then he hits himself in the rear end with the bat, breaks the t, and now the the bat is about to fly out of his hands and really hurt someone. Undeterred by the fact that he can't hit worth a damn, and smiling like a fool, he's swinging again..

In July Barney told us that FNMA was a sound long-term investment. Not satisfied with contributing to the wreckage in the mortgage industry, Barney is now leading the charge in Congress to siphon off $25B of the $700B approved to deal with the financial crisis to purchase a stake in the "ailing auto industry". From the AP today:

The legislation being drafted by Democratic Rep. Barney Frank, chairman of the Financial Services Committee, would dip into the $700 billion Wall Street rescue money approved by Congress last month for the auto aid. President Bush is cool to that idea, although the White House says he is open to helping the troubled industry... [The bill] would send $25 billion in emergency loans to the beleaguered auto industry in exchange for a government ownership stake in the Big Three car companies.

Congress is demonstrating the behavior that has so outraged the public that its approval ratings have been consistently below George Bush's. First they charge the taxpayers $700B for a bailout that is justified, they say, by extraordinary circumstances in the credit markets.

Then, with the ink not even dry on that agreement, they are finding other uses for the money.

Coupled with this, Paulson publicly questions how best to use the $700B. Our saviors in Washington spent two months convincing us of the necessity to draw this money, and now they don't know what to do with it? Is it any wonder why the equity markets are in a state of confusion and panic?

Right in front of our eyes, we're seeing the complete lack of discipline -- no, an impulsive fiduciary recklessness -- that is simply in the DNA of this institution, with the executive branch its slavish accomplice.

If anyone in my business were caught pulling such a bait-and-switch, they would be summarily dismissed, or depending on the scale of the malfeasance, prosecuted. Barney himself would haul the villains before a Congressional hearing, and howl about corruption and "corporate greed."

All of this doom-saying about the auto makers, but not a mention about fixing the business; all this talk about getting GM to build "green cars," but not a word about bringing the UAW to the table, nothing even about securing the funds with loan guarantees, as was done with Chrysler three decades ago. Aside from Cal Thomas' piece in our Must Reading section, can you find anything in the mainstream media that speaks to the real problem with the big three, apparent to anyone willing to look at its balance sheet?

I'm now convinced of the suspicions in my previous post: This looks like a post-election payoff to the unions, straight out of the pockets of US taxpayers. The evidence is purely circumstantial, but if you're the UAW hoping to avoid a Chapter 11 situation which would nullify your lucrative contracts, there's serious upside to this deal. Without a host, the parasite will die. And harsh as it sounds, labor agreements that make a business unprofitable are, in fact, parasitic.

Making the US government a shareholder in GM will not increase GM's sales or its profit margin, lower its cost of goods sold, sell off its long-term debt, or anything else that will make a difference in its bottom line. And if the bottom line does not improve, then the US government will lose its "investment" in this dinosaur of a company, along with the few remaining shareholders stuck with this stock. Most shareholders, of course, have run from big three stock this year. Only Barney & friends want to buy.

But what about helping those auto workers who stand to lose their jobs? They will do no better in this deal than the low income homeowners who bought homes with Barney's FNMA-backed, CRA-inspired teaser rate loans.

Unless, of course, they agree to negotiate new contracts and benefits that are competitive with Honda, Toyota, and the big three's other major competitors. As we've seen with other over-unionized, ossified businesses like the newspaper industry, textiles, etc., no amount of investment can turn around a broken business model. The model, itself, must be changed first.