But there are still a few lone bears roaming the commons. Of note is Charles Biderman, CEO of TrimTabs Investment Research. His latest analysis of daily income tax deposits to the U.S. Treasury projects 358,000 U.S. jobs lost in September, almost double the consensus estimate.

A TrimTabs study concludes job losses “are contributing to record mortgage delinquencies, which will be a drag on economic growth for several years. In addition, defaults have spread to commercial real estate loans, credit cards, and commercial and industrial loans.”

Mr. Biderman adds: “Consumers are in terrible financial shape despite the trillions of dollars the government has spent on bailouts and stimulus programs. When investors realize how weak the economy truly is, stock prices are going to plunge.”

I hate to post another downbeat entry after yesterdays’ post but I just came across some publications from the Bank for International Settlements, an organization that serves as a bank to central banks. I assume they have a little more substance than the usual lot of permabears and professional doomsters, so when their staff issue documents (Annual Report and working papers) with a tone that reminds one of the bearish sentiments of David Rosenberg, it seems worth noting for active investors (less so for passive).

What concerns BIS? They worry that the bank bailouts have left behind some unfinished business, and a failure to deal with it endangers the economic recovery. As the Annual Report notes:

“The policy response did succeed in averting the collapse of the financial system and in calming the markets. It was less successful, however, in convincingly addressing the impaired assets on banks’ balance sheets …. A significant risk is therefore that the current stimulus will lead only to a temporary pickup in growth, followed by protracted stagnation.”

The BIS says banks around the world were bailed out with no rigorous conditions for booking losses, disposing of bad assets, and eliminating excess capacity. As a result, “doubts about the long-term health of major global banks remain, with uncertainty about the potential losses from loan books and other credit exposures” adversely affecting the banks’ ability to raise capital.

Asset purchase plans were announced but little action seems to have been taken in most countries. One exception was the Swiss National Bank, which bought mortgage-related assets from UBS and placed them in a special investment vehicle. In the U.S. and Germany, things are on the quiet side.

“The lack of progress on removing troubled assets from the banks’ balance sheets and recognizing the associated losses is illustrated by the US experience. Rather than buy impaired assets directly, the US Treasury outlined a plan in March, the Public-Private Investment Program (PPIP), to value these assets and to remove them through an auction mechanism …. Despite the favourable terms … the outlook for the PPIP [remains] uncertain [recent Chinese interest notwithstanding]”

According to BIS:

“The steps taken so far have focused largely on providing guarantees and subsidized capital. At the same time, government guarantees and asset insurance have exposed taxpayers to potentially large losses. Progress on problem assets has been slowed by the complexity of the securities affected, legal constraints and, above all, the limited political will to commit public funds to the clean-up effort. The lack of progress threatens to prolong the crisis and delay the recovery because a dysfunctional financial system reduces the ability of monetary and fiscal actions to stimulate the economy.”

Continues BIS:

“What seems clear is that the deterioration in credit quality will generate more losses on banks’ loan books and other credit exposures. Banks may therefore have an incentive to delay recognizing losses, aided by accounting rules that provide management more discretion over when to write down assets. Taxpayers will not want to be exposed to greater potential losses, but key financial institutions are likely to require more government support in order to facilitate the required adjustments, to restore confidence in the financial system and to restart lending on a sustainable basis.”

Governments could have made a timely clean-up of balance sheets a condition of injecting funds but they lost some of their leverage when most decided to purchase hybrid securities such as preferred shares instead of common shares. Preferred shares limit the risk of loss to the taxpayer while providing a more attractive dividend stream than common shares. These benefits come at a cost because preferred shareholders typically cannot vote at shareholder meetings, which constrain their ability to influence management.

As a consequence, BIS worries that the massive fiscal stimulus packages may lead only to a transitory uptick. “Short-term actions that delay adjustment and prop up aggregate demand may not be compatible with the medium-term need for banks to de-leverage their balance sheets so as to lay the basis for a healthy financial system and a self-sustaining recovery.”

Two other things about the banks bailouts are disconcerting to BIS. First, the rescue of banks deemed too big to fail has heightened the moral hazard problem, i.e. aggressive risk taking is encouraged because bankers assume the government will always step in to save them. Second, “the rescue packages and government-directed sales of failed banks may unwittingly increase systemic risk by creating larger financial institutions.”

_______________

ORIGINAL POST

Something must be wrong with me, which probably isn’t news to everybody. Nevertheless, I am appalled by the $14-plus-billion (and counting) cost of the Canadian auto company bailouts. I don’t think it is worth spending this huge amount of public money to try to save maybe five thousand jobs, especially not at companies that failed to address many obvious issues because executives and union leaders alike knew they could squeeze taxpayers when the poop hit the fan.

When it comes to GM and Chrysler, I think the money being tossed around in Canada is nothing more than a cynical vote acquisition spree by a Conservative government running wild thanks to the Great Recession, which has freed the Harper administration from seriously pretending it prefers to govern with balanced books.

I am not proposing this, but if the bailouts are really about the big economic picture, or even saving the Canadian auto sector, I actually think it might be better to give the money to Honda and Toyota, so they could strengthen local operations. Or maybe even Toronto-based electric carmaker Zenn. Its ownership rights to potentially game-changing energy storage technology is still a long-shot (for more on this, see my new market column in the Tech 100 issue of Canadian Business magazine), but unlike GM or Chrysler, you can at least see the pin.

I am not supposed to think this way. Indeed, I have a young daughter, who, according to current academic thinking, is supposed to have me singing socialist ditties as I bake cupcakes for dollhouse tea parties or dance around the house in frilly princess outfits. I know this thanks to a recent Guardian article, which noted that having little girls makes even the most masculine man “learn to love pink, take part in endless games of dressing up, and even bake fairy cakes if that’s what his little princess desires.”

According to the British newspaper, the simple existence of my daughter is supposed to make me support increased public spending. The article in question was based on two studies that suggest the political views of parents are heavily influenced by the sex of their children. One examined voting records of U.S. congressmen before and after they had children. It reportedly found support for gender equity policies is greater among male politicians with daughters.

The second study claims British voting behavior provides “evidence that daughters make people more left wing, while having sons, by contrast, makes them more right wing.” After men father females, Brit academics claim, they “gradually shift their political stance” and become more sympathetic to raising taxes and the “female desire” for a larger amount of people employed to look after the “public good.” A mother with sons, on the other hand, becomes sympathetic to the “male case” for lower taxes and smaller government.

As a father, of course, I’d argue that these conclusions smell like the puffy clouds generated by Walter the Farting Dog after he eats a brick of very old cheese.

My political beliefs are not fixed. I used to call myself a Platonic Marxist. But that was back in my graduate school days. I never even thought about what the term was supposed to mean. I simply thought it would sound cool to the numerous females in my classes. Back then, I argued with people who misunderstood socialism. But I also took a lot of heat for a poster in my student office that pictured the back-end of expensive cars sticking out of a five-car garage. It had a caption that said: “Justification for higher education.”

Some folks thought that meant I was a member of the young PCs. I wasn’t. They were geeks. I bought the poster because I was a kid with crappy tastes, except in cars.

Over the years, I have learned a few things, and not just that male students should not use the word “platonic” in any self description, unless they actually want to study on study dates. But my political views are still a mess. I enjoy the company of labour leaders and billionaires alike. I believe in capitalism, but know it is far from fair. I support free trade, but don’t really think losing jobs to countries that oppress individuals is a good thing. And I don’t have a huge issue with Buy American spending in the States, at least not in the short term, since the U.S. economy is more important to a global recovery than our own (these ideas are my own, not the stand of the CB editorial board that I serve).

I understand how politics works. In fact, I often think about entering the game, which makes me try to imagine policies that could get a guy like me elected. My best is a real whopper from the left, which looks more and more plausible every day. Since governments are getting into business in a big way, and since banks are being blamed for the financial meltdown, I say why not steal some of their profits by offering a Bank of Canada credit card, which could use personal debt to help pay down national debt by allowing anyone with a private sector card to transfer outstanding balances and pay interest of just a few points above inflation.

When being serious, of course, I think Canada should hang tough and stop justifying more and more deficit spending by claiming it will help us fight a global downturn that we can’t really influence. In global monetary affairs, we are a spectator nation. So maybe we should try to keep our fiscal heads, which was our competitive advantage when the world economy was firing on all pistons.

For the record, however, I absolutely love Tea Virginia Reed Watson, my wonderful kid, who came into this world in my living room-where I catered to the needs of four midwives (one for my wife, one for my daughter and two students) before fighting them all for a ringside seat at the birthing tub. I took parental leave and was happy doing it. In fact, since helping deliver my child, I have shared the caregiver role equally with my equally loving wife. I have played My Little Pony for hours on end in the local public pool and I have watched The Little Mermaid at least once for every dollar being tossed at GM.

I get behind my daughter’s causes. Indeed, I am Twiller Baby aware, so I fully supported Thumbelina’s campaign against urban developers. I worry about my child’s interests. In fact, I could write a graduate thesis on the negative gender stereotypes projected by the Berenstain Bears. Simply put, I’ll do anything for my daughter, which is why I didn’t care about the shocked looks I got on Toronto Island two summers ago when doing what it takes to deal with a seriously bad case of childhood constipation.

But, hey, I still want lower taxes. Maybe it is because I also play dad to Oscar Snow Mittens Reed Watson, a semi-evil male cat, who would be a lot safer with fewer cars on the road. Whatever the reason, I think the market should have a lot more say in what automakers survive this downturn, not to mention how GM and Chrysler restructure. In my humble opinion, spending $2.5 million per job to save positions at companies losing money in an industry with overcapacity and demand issues is just nuts. It isn’t even fair to the real working class.

I try to imagine how liberal capitalism will shake out for my daughter. Free nations around the world are relying on Red Capitalism to bail them out of this crisis. And to buy time, the States is doing some pretty large-scale social planning that doesn’t seem to care much for creditor rights. Since nobody seems to want to allow failing companies to fail, I can’t imagine what will happen with inflation or during the next major downturn (or the one after that).

Any way you slice it, the future looks pretty depressing, especially for parents who don’t like taxes. And so, for Father’s Day, I hope to help someone, right or left, escape current events with a giveaway package of reading material worth about $200. To try to win, just post a comment on this blog, making an argument for or against the auto sector bailouts. I’ll pick the best of the bunch and send the poster a free subscription to Canadian Business magazine, along with the following package of books from Simon & Schuster Canada: Old City Hall, a Robert Rotenberg legal thriller set in Toronto; John Connolly’s The Reapers; Bryan Gruley’s Starvation Lake; The Last Patriot by New York Times best-selling author Brad Thor; Roadside Crosses, the third in Jeffrey Deaver’s high-tech thriller trilogy; and Fool’s Gold, a market meltdown tale by award-winning Financial Times journalist Gillian Tett.
____________________________

DOUBLE TAKE: Aside from trying to promote myself while generating Web traffic that helps put bread and butter on my table, this blog aims to stir debate by taking a harder look at current news and events. I obviously enjoy voicing my own opinions, but I am a big boy and I welcome all comments that don’t require R ratings. So let me have it via this blog or send me an email at tom.watson@canadianbusiness.rogers.com. I reserve the right to post email comments without disclosing the sender’s name. If you don’t think I am a total twit, follow my DOUBLE TAKE posts via my NotSOCRATES Twitter site.

THOMAS WATSON is a senior writer, market columnist and editorial board member at Canadian Business magazine. Since winning a community journalism award as a cub reporter with the Hamilton Spectator in the early ’90s, he has covered business, finance, politics and technology for various news outlets. Prior to joining CB in 2001, he reported on the steel and automotive sectors for the Financial Post. Watson received two National Magazine Award nominations for business feature writing in 2008, winning a silver award for his coverage of Canada’s ABCP fiasco. He landed his first NatMag nomination for exposing a stock manipulation plot aimed at Waterloo, Ont.-based Open Text during the dot-com boom, when he headed investor relations for an international venture capital outfit in the City of London. Watson holds graduate degrees in journalism, international relations and public finance and undergraduate degrees in history and politics.

When it comes to GM and Chrysler, I think the money being tossed around in Canada is nothing more than a cynical vote acquisition spree by a Conservative government running wild thanks to the Great Recession, which has freed the Harper administration from seriously pretending it prefers to govern with balanced books.

I am not proposing this, but if the bailouts are really about the big economic picture, or even saving the Canadian auto sector, I actually think it might be better to give the money to Honda and Toyota, so they could strengthen local operations. Or maybe even Toronto-based electric carmaker Zenn. Its ownership rights to potentially game-changing energy storage technology is still a long-shot (for more on this, see my new market column in the Tech 100 issue of Canadian Business magazine), but unlike GM or Chrysler, you can at least see the pin.

I am not supposed to think this way. Indeed, I have a young daughter, who, according to current academic thinking, is supposed to have me singing socialist ditties as I bake cupcakes for dollhouse tea parties or dance around the house in frilly princess outfits. I know this thanks to a recent Guardian article, which noted that having little girls makes even the most masculine man “learn to love pink, take part in endless games of dressing up, and even bake fairy cakes if that’s what his little princess desires.”

According to the British newspaper, the simple existence of my daughter is supposed to make me support increased public spending. The article in question was based on two studies that suggest the political views of parents are heavily influenced by the sex of their children. One examined voting records of U.S. congressmen before and after they had children. It reportedly found support for gender equity policies is greater among male politicians with daughters.

The second study claims British voting behavior provides “evidence that daughters make people more left wing, while having sons, by contrast, makes them more right wing.” After men father females, Brit academics claim, they “gradually shift their political stance” and become more sympathetic to raising taxes and the “female desire” for a larger amount of people employed to look after the “public good.” A mother with sons, on the other hand, becomes sympathetic to the “male case” for lower taxes and smaller government.

As a father, of course, I’d argue that these conclusions smell like the puffy clouds generated by Walter the Farting Dog after he eats a brick of very old cheese.

My political beliefs are not fixed. I used to call myself a Platonic Marxist. But that was back in my graduate school days. I never even thought about what the term was supposed to mean. I simply thought it would sound cool to the numerous females in my classes. Back then, I argued with people who misunderstood socialism. But I also took a lot of heat for a poster in my student office that pictured the back-end of expensive cars sticking out of a five-car garage. It had a caption that said: “Justification for higher education.”

Some folks thought that meant I was a member of the young PCs. I wasn’t. They were geeks. I bought the poster because I was a kid with crappy tastes, except in cars.

Over the years, I have learned a few things, and not just that male students should not use the word “platonic” in any self description, unless they actually want to study on study dates. But my political views are still a mess. I enjoy the company of labour leaders and billionaires alike. I believe in capitalism, but know it is far from fair. I support free trade, but don’t really think losing jobs to countries that oppress individuals is a good thing. And I don’t have a huge issue with Buy American spending in the States, at least not in the short term, since the U.S. economy is more important to a global recovery than our own (these ideas are my own, not the stand of the CB editorial board that I serve).

I understand how politics works. In fact, I often think about entering the game, which makes me try to imagine policies that could get a guy like me elected. My best is a real whopper from the left, which looks more and more plausible every day. Since governments are getting into business in a big way, and since banks are being blamed for the financial meltdown, I say why not steal some of their profits by offering a Bank of Canada credit card, which could use personal debt to help pay down national debt by allowing anyone with a private sector card to transfer outstanding balances and pay interest of just a few points above inflation.

When being serious, of course, I think Canada should hang tough and stop justifying more and more deficit spending by claiming it will help us fight a global downturn that we can’t really influence. In global monetary affairs, we are a spectator nation. So maybe we should try to keep our fiscal heads, which was our competitive advantage when the world economy was firing on all pistons.

For the record, however, I absolutely love Tea Virginia Reed Watson, my wonderful kid, who came into this world in my living room-where I catered to the needs of four midwives (one for my wife, one for my daughter and two students) before fighting them all for a ringside seat at the birthing tub. I took parental leave and was happy doing it. In fact, since helping deliver my child, I have shared the caregiver role equally with my equally loving wife. I have played My Little Pony for hours on end in the local public pool and I have watched The Little Mermaid at least once for every dollar being tossed at GM.

I get behind my daughter’s causes. Indeed, I am Twiller Baby aware, so I fully supported Thumbelina’s campaign against urban developers. I worry about my child’s interests. In fact, I could write a graduate thesis on the negative gender stereotypes projected by the Berenstain Bears. Simply put, I’ll do anything for my daughter, which is why I didn’t care about the shocked looks I got on Toronto Island two summers ago when doing what it takes to deal with a seriously bad case of childhood constipation.

But, hey, I still want lower taxes. Maybe it is because I also play dad to Oscar Snow Mittens Reed Watson, a semi-evil male cat, who would be a lot safer with fewer cars on the road. Whatever the reason, I think the market should have a lot more say in what automakers survive this downturn, not to mention how GM and Chrysler restructure. In my humble opinion, spending $2.5 million per job to save positions at companies losing money in an industry with overcapacity and demand issues is just nuts. It isn’t even fair to the real working class.

I try to imagine how liberal capitalism will shake out for my daughter. Free nations around the world are relying on Red Capitalism to bail them out of this crisis. And to buy time, the States is doing some pretty large-scale social planning that doesn’t seem to care much for creditor rights. Since nobody seems to want to allow failing companies to fail, I can’t imagine what will happen with inflation or during the next major downturn (or the one after that).

Any way you slice it, the future looks pretty depressing, especially for parents who don’t like taxes. And so, for Father’s Day, I hope to help someone, right or left, escape current events with a giveaway package of reading material worth about $200. To try to win, just post a comment on this blog, making an argument for or against the auto sector bailouts. I’ll pick the best of the bunch and send the poster a free subscription to Canadian Business magazine, along with the following package of books from Simon & Schuster Canada: Old City Hall, a Robert Rotenberg legal thriller set in Toronto; John Connolly’s The Reapers; Bryan Gruley’s Starvation Lake; The Last Patriot by New York Times best-selling author Brad Thor; Roadside Crosses, the third in Jeffrey Deaver’s high-tech thriller trilogy; and Fool’s Gold, a market meltdown tale by award-winning Financial Times journalist Gillian Tett.
____________________________

DOUBLE TAKE: Aside from trying to promote myself while generating Web traffic that helps put bread and butter on my table, this blog aims to stir debate by taking a harder look at current news and events. I obviously enjoy voicing my own opinions, but I am a big boy and I welcome all comments that don’t require R ratings. So let me have it via this blog or send me an email at tom.watson@canadianbusiness.rogers.com. I reserve the right to post email comments without disclosing the sender’s name. If you don’t think I am a total twit, follow my DOUBLE TAKE posts via my NotSOCRATES Twitter site.

THOMAS WATSON is a senior writer, market columnist and editorial board member at Canadian Business magazine. Since winning a community journalism award as a cub reporter with the Hamilton Spectator in the early ’90s, he has covered business, finance, politics and technology for various news outlets. Prior to joining CB in 2001, he reported on the steel and automotive sectors for the Financial Post. Watson received two National Magazine Award nominations for business feature writing in 2008, winning a silver award for his coverage of Canada’s ABCP fiasco. He landed his first NatMag nomination for exposing a stock manipulation plot aimed at Waterloo, Ont.-based Open Text during the dot-com boom, when he headed investor relations for an international venture capital outfit in the City of London. Watson holds graduate degrees in journalism, international relations and public finance and undergraduate degrees in history and politics.

Obama Administration New Path to Viability for GM & Chrysler
In accordance with the March 31, 2009 deadline in the U.S. Treasury’s loan agreements with General Motors and Chrysler, the Obama Administration is announcing its determination of the viability of the companies, pursuant to their February 17, 2009 submissions, and is laying out a new finite path forward for both companies to restructure and succeed. These findings and new framework for success are consistent with the President’s commitment to support an American auto industry that can help revive modern manufacturing and support our nation’s effort to move toward energy independence, but only in the context of a fundamental restructuring that will allow these companies to prosper without taxpayer support.

Key Findings
• Viability of Existing Plans: The plans submitted by GM and Chrysler on February 17, 2009 did not establish a credible path to viability. In their current form, they are not sufficient to justify a substantial new investment of taxpayer resources. Each will have a set period of time and an adequate amount of working capital to establish a new strategy for long-term economic viability.

• General Motors: While GM’s current plan is not viable, the Administration is confident that with a more fundamental restructuring, GM will emerge from this process as a stronger more competitive business. This process will include leadership changes at GM and an increased effort by the U.S. Treasury and outside advisors to assist with the company’s restructuring effort. Rick Wagoner is stepping aside as Chairman and CEO. In this context, the Administration will provide GM with working capital for 60 days to develop a more aggressive restructuring plan and a credible strategy to implement such a plan. The Administration will stand behind GM’s restructuring effort.

• Chrysler: After extensive consultation with financial and industry experts, the Administration has reluctantly concluded that Chrysler is not viable as a stand-alone company. However, Chrysler has reached an understanding with Fiat that could be the basis of a path to viability. Fiat is prepared to transfer valuable technology to Chrysler and, after extensive consultation with the Administration, has committed to building new fuel efficient cars and engines in U.S. factories. At the same time, however, there are substantial hurdles to overcome before this deal can become a reality. Therefore, the Administration will provide Chrysler with working capital for 30 days to conclude a definitive agreement with Fiat and secure the support of necessary stakeholders. If successful, the government will consider investing up to the additional $6 billion requested by Chrysler to help this partnership succeed. If an agreement is not reached, the government will not invest any additional taxpayer funds in Chrysler.

• A Fresh Start to Implement Aggressive Restructurings: While Chrysler and GM are different companies with different paths forward, both have unsustainable liabilities and both need a fresh start. Their best chance at success may well require utilizing the bankruptcy code in a quick and surgical way. Unlike a liquidation, where a company is broken up and sold off, or a conventional bankruptcy, where a company can get mired in litigation for several years, a structured bankruptcy process – if needed here – would be a tool to make it easier for General Motors and Chrysler to clear away old liabilities so they can get on a path to success while they keep making cars and providing jobs in our economy.

• A Commitment to Consumer Warrantees: The Administration will stand behind new cars purchased from GM or Chrysler during this period through an innovative warrantee commitment program.

• Appointment of a Director of Auto Recovery: The Administration also announced that Edward Montgomery, a top labor economist and former Deputy Secretary of Labor, will serve as Director of Recovery for Auto Workers and Communities. Dr. Montgomery will work to leverage all resources of government to support the workers, communities and regions that rely on the American auto industry.

Detailed Findings on GM and Chrysler Plans

GENERAL MOTORS
Viability Determination: Based on extensive analysis and the advice of a range of financial and industry advisors, the Administration has determined that GM has not presented a viable plan that would succeed, even in an improved economic environment. While GM has made progress in its turnaround to date, GM’s current plan will not result in a healthy company that is meaningfully cash flow positive in a normalized business environment and thus able to support its operations and obligations without continued government support. (A summary of the Administration’s findings is provided separately). The Administration does believe that there is a path to a viable GM and is confident that the company can emerge from this crisis as a strong, competitive business. However, this will require a more aggressive strategy to transform the company’s operations than the current management has designed and deeper stakeholder concessions than those specified in the initial loan agreement.

New Framework for a Fresh Start Restructuring: Today, GM is announcing that Rick Wagoner is stepping aside as Chairman and CEO. Kent Kresa will serve as interim Chairman and current President Fritz Henderson will serve as CEO. GM is embarking on a process with the goal of replacing a majority of the board over the coming months. When complete, these changes will bring fresh thinking and new vision to the Company while maintaining a degree of continuity in the current challenging environment.
In this context, the Administration is willing to provide GM with adequate working capital for a finite period of 60 days to develop and implement a more aggressive plan. During this period, the Administration team, consisting of Treasury officials as well as private sector auto industry and restructuring experts retained by the Administration, will work closely with the company. These industry and restructuring experts will help focus this process on:
• Sustainable profitability: A viable GM should be able to generate meaningful positive free cash flow in a normalized business environment, generate net free cash flow over the course of a business cycle and invest capital in research and development and capital expenditures sufficient to maintain or enhance its competitive position while also earning an adequate return on its capital.
• A healthy balance sheet: The restructuring must substantially reduce GM’s outstanding debt and existing liabilities to a level where they are consistent with both its normalized cash flow and the cyclical nature of its business. Given the deterioration in the auto market since late last year, this will require substantially greater balance sheet concessions than those called for in the existing loan agreements.
• More aggressive operational restructuring: The restructuring plan must rapidly achieve full competitiveness with foreign transplants and more aggressively implement significant manufacturing, headcount, brand, nameplate and retail network restructurings.
• Technology leadership: The new GM will have a significant focus on developing high fuel-efficiency cars that have broad consumer appeal because they are cost-effective, have good performance and are reliable, durable and safe. In order to execute a new, more aggressive restructuring plan within 60 days, we will work with GM to use all available tools to implement this plan. The best path to achieve this may well be an expedited, court-supervised process to extinguish unsustainable liabilities, should an out-of-court restructuring not be possible. The Administration is prepared to stand by GM throughout this process to ensure that GM emerges with a fresh start and a promising future. Consumers thinking about buying a GM car and workers and communities that depend on this iconic American company should have confidence that GM can and will come out of this crisis as a stronger, leaner and more competitive car company.

CHRYSLER
Viability Determination: After extensive consultation, the Administration has determined that Chrysler has not demonstrated that it can achieve long-term viability as a stand-alone company. In particular, Chrysler’s plan contains a number of assumptions that are unrealistic or overly optimistic. (A summary of the Administration’s findings is provided separately). Independent financial analysts and industry experts are nearly unanimous in their views that, to be competitive in the decades to come, auto companies will need to transform their processes and products to improve efficiency, reduce costs and offer a higher-quality, more fuel-efficient fleet. These transformations will require substantial investment that Chrysler – according to its own plan – is not capable of making. Therefore, the Administration does not believe that on its own, Chrysler can achieve
the scale or depth of product mix necessary to compete in the 21sst century global auto market.
Chrysler/Fiat Partnership: Chrysler has also proposed a partnership with Fiat, which has the potential to address some of these problems and provide Chrysler with a path to viability. A Chrysler/Fiat alliance could lead to Chrysler manufacturing fuel-efficient vehicles using Fiat’s technology while benefiting from the managerial expertise of the Fiat senior leadership that successfully led a turnaround in Fiat over the past five years. In addition, the product mix and geographic reach of both companies is very complementary. The original partnership was unacceptable for several reasons, including the fact that Fiat could have gained majority ownership of Chrysler before American taxpayers had their investment in the company paid back. After consulting with the President’s Auto Task Force, Chrysler and Fiat have agreed to important changes to their original agreement that would provide greater protections for U.S. taxpayers and would help ensure that new, fuel efficient Chrysler cars and engines are built in the U.S.
Finite Period to Pursue a Deal: However, while the Administration sees promise in this deal, substantially more needs to be accomplished to make this plan viable. In this context, the Administration is willing to provide Chrysler with 30 days of working capital to execute an acceptable partnership. The Administration believes Chrysler is being given a reasonable opportunity to finalize the agreement but is unwilling, in the absence of a long-term solution, to continue to invest taxpayer dollars in this company. If a definitive agreement is reached, the Administration is willing to consider lending up to the additional
$6 billion requested by Chrysler to help the plan succeed. If the Chrysler/Fiat partnership has not been successfully concluded within 30 days, and in the absence of another viable partnership, the government will not invest any additional money in the company.

Requirements for Additional Government Support: Fiat, Chrysler and all of Chrysler’s stakeholders must clearly understand that for this deal to succeed, significant hurdles must be cleared:
• First, Chrysler must restructure its balance sheet so that it has a sustainable debt burden. This at a minimum will require extinguishing the vast majority of Chrysler’s outstanding secured debt and all of its unsecured debt and equity, other than trade creditors providing normal trade terms.
• Second, Chrysler, Fiat and the UAW need to reach an agreement that entails greater concessions than those outlined in the existing loan agreements.
• Third, Chrysler and Fiat need to demonstrate with a greater degree of detail an operating plan that is truly viable, that can generate meaningful positive cash flow in a normal business environment and that can demonstrate credibly that taxpayer loans will be repaid on a timely basis.
• Fourth, the final plan agreed by Chrysler, Fiat and their stakeholders must not, under appropriately conservative operating assumptions, require than $6 billion of post-restructuring loans from the U.S Treasury.
• Fifth, Chrysler must have a viable, adequately capitalized mechanism to finance the purchase of Chrysler cars by its dealers and customers.
• Finally, Chrysler needs a credible plan to execute this restructuring. Given the magnitude of the concessions needed, the most effective way for Chrysler to emerge from this restructuring with a fresh start may be by using an expedited bankruptcy process as a tool to extinguish liabilities.

SUPPORT FOR CONSUMERS AND THE AUTO INDUSTRY
The Administration is committed to standing behind a tough but necessary industry restructuring that will result in stronger, more viable American car companies. During this process, the Administration wants to ensure that consumers have confidence in the cars they buy and suppliers that depend on viable auto companies have some support to weather this storm. Our actions are not intended to slow the necessary consolidation and rationalization of key elements of the auto industry, but will help stabilize the industry during this period of transition.

Protection of consumer warrantees: Consumers who are considering new car purchases should have the confidence that even in this difficult period, their warrantees will be honored. That is why the Administration is launching an innovative new program that will provide government-funded protection for warrantees issued by participating domestic auto manufacturers. The program will be available for all new warranties on new vehicles purchased from participating auto manufacturers during the period in
which those manufacturers are restructuring. Both General Motors and Chrysler have already indicated their intention to participate. Details on this program are provided HERE.

Supplier support program: Trade creditor support will be essential to the success of the effort to restructure GM and Chrysler. The vast majority of the trade at GM and, as part of the Fiat deal, at Chrysler, will carry through the process and be fully paid. In addition, the Administration recently announced a new $5 billion Supplier Support Program. This program is already providing suppliers with the confidence they need to continue shipping their parts and the support they need to help access loans to pay their employees and continue their operations. The Administration will work closely with the car companies to implement this program in the weeks ahead and monitor closely the state of the automotive supply base.

Unlocking the Flow of Credit for Consumers and Dealers: A healthy automotive industry requires consumers who want to buy cars and are creditworthy to have access to credit. Unfortunately, in the current financing environment, even consumers with excellent credit histories have difficulty gaining access to credit. The Administration remains committed to improving access to credit in general and with respect to automotive purchases specifically. The launch of the Term Asset-Backed Securities Loan
Facility (TALF) has expanded the funding available for retail auto loans, thereby directly helping consumers. And the Administration remains committed to facilitating the access to funding for the automotive finance companies that provide credit to these consumers. These efforts will be continued and expanded upon to ensure that consumers have the financing they need to purchase vehicles going forward.

AUTO TASK FORCE INITIATIVE TO SUPPORT AND REVITALIZE AUTO INDUSTRY WORKERS AND COMMUNITIES
The President is fully committed to standing behind the American auto industry, which is the backbone of our manufacturing base. To this purpose, the President’s Task Force on Autos is launching a new initiative to support and help revitalize American auto communities. The Administration’s goal is to both help revitalize the American auto industry and to help manufacturing communities in Michigan create new businesses, new jobs and bring in new industries for a stronger economic future. And when despite all of our best efforts, individuals and communities are hard hit — we will take all possible steps to ensure we are working as swiftly and in as coordinated a fashion as possible to provide relief and paths to reemployment. This government-wide effort will require substantial leadership and coordination. Today, the President appointed Ed Montgomery, former Deputy Secretary of the Labor Department and current Dean at the University of Maryland, to become Director of Recovery for Auto Communities and Workers. Dr. Montgomery has more than 25 years experience working on issues related to worker training and local economic development and has worked first hand with State and local government agencies and nonprofits in Michigan and Ohio on strategies to revitalizing areas hit by job loss. In his new role, Dr. Montgomery will bring all parties – workers, firms, unions, other private sector employers, community-based organizations, state and local governments, and foundations – to the table to maximize communication and cooperation and to develop innovative strategies for relief and recovery. He will ensure that communities and workers can take full advantage of all available resources and to ensure that the funds are distributed quickly, efficiently and equitably. He will work with the Administration, relevant Governors and Congressional leaders to launch new executive and legislative initiatives to support these distressed communities and help them retool and revitalize their economies. He will identify and pursue all possible opportunities, including for example, initiatives to:
• Maximize the effectiveness of Recovery Act funds for new and more diverse economic
development for new jobs, business and industry through various means including local
infrastructure, housing, education and new industry.
• Deploy rapid response unit to communities facing plant closings to both meet immediate needs and to develop strategies for new job growth.
• Extend Trade-Adjustment-Assistance (TAA) to the auto industry, including retraining, healthcare extensions, income support and wage insurance.
• Attract major defense, research, green industry and other project to the region. Channel Workforce Investment Act (WIA) and other emergency grant funds to the region.
• Work with stakeholders to develop new legislative efforts to direct emergency support to affected communities and regions, and bring new jobs and economic opportunities to these areas

DOUBLE TAKE: Aside from trying to promote myself while generating Web traffic that helps put bread and butter on my table, this blog aims to stir debate by taking a harder look at current news and events. I obviously enjoy voicing my own opinions, but I am a big boy and I welcome all comments that don’t require R ratings. So let me have it via this blog or send me an email at tom.watson@canadianbusiness.rogers.com. I reserve the right to post email comments without disclosing the sender’s name. If you don’t think I am a total twit, follow my DOUBLE TAKE posts via my NotSOCRATES Twitter site at http://twitter.com/NotSocrates

THOMAS WATSON is a Senior Writer and editorial board member at Canadian Business magazine. Since winning a community journalism award as a cub reporter with the Hamilton Spectator in the early ’90s, he has covered business, finance, politics and technology for various news outlets. Prior to joining CB in 2001, he reported on the steel and automotive sectors for the Financial Post. Watson received his first magazine award nomination for exposing a stock manipulation plot aimed at Waterloo, Ont.-based Open Text in 2000, when he was head of investor relations for an international venture capital outfit in the City of London. Watson holds graduate degrees in journalism, international relations and public finance and undergraduate degrees in history and politics.

That missed my point, which is that the bonus money in question was negotiated before the crash and should not be taxed back by politicians (especially ones simply out to pander to mob mentality). I didn’t argue anyone should feel good about the AIG payouts. I said legal contracts should be respected.

For the record, I think the company should have been put into bankruptcy. And while it is on public life support, I don’t think new contracts at the U.S. giant should be anything close to what was OK during the good ol’ days. Then again, as far as I can tell, AIG employees are not bold enough to publicly demand that no real sacrifices are made as the company moves forward. And that’s why I think the attitude at the Canadian Auto Workers union is actually worse than that at AIG.

You can read Ken Lewenza’s take on the matter in the current print issue of Canadian Business magazine, which also has an editorial that points out the ridiculous nature of maintaining CAW perks. In this blog, I’ll just note that a lot of taxpayers in this country see unionized autoworkers as the guys and gals with the pay and benefits to beat, and not just amongst the blue-collar crowd.

I have a lot of respect for unions, but I am no leftie. I respect some hedge fund managers, too. Let’s just say, I am right-handed, but my mind is wide open. Anyway, in this case, my argument is not political.

I have no problem with anyone taking what was negotiated with any corporation as a going concern. But the not-so-big-anymore Big Three are broke and the CAW still insists its members deserve perks and pensions that most Canadians can only dream about. And that includes workers who do exactly the same job at Toyota and Honda.

The latter automotive plants are not asking for handouts. But they are just as Canadian as any operations run by the Detroit trio. The jobs they create go to citizens who work just as hard as any CAW member—for less. These folks, of course, are being asked to support bailouts that put their jobs at risk by keeping overcapacity in the system.

You could argue that supporting the Big Three is required for the greater good in this economic climate. Still, tax dollars are being demanded by workers who think they deserve more than less demanding people on the hook for the bailout bill, which is why I think CAW members should think twice before blasting anyone at AIG.
DOUBLE TAKE: Aside from trying to promote myself while generating Web traffic that helps put bread and butter on my table, this blog aims to stir debate by taking a harder look at current news and events. I obviously enjoy voicing my own opinions, but I am a big boy and I welcome all comments that don’t require R ratings. So let me have it via this blog or send me an email at tom.watson@canadianbusiness.rogers.com. I reserve the right to post email comments without disclosing the sender’s name.

THOMAS WATSON is a Senior Writer and editorial board member at Canadian Business magazine. Since winning a community journalism award as a cub reporter with the Hamilton Spectator in the early ’90s, he has covered business, finance, politics and technology for various news outlets. Prior to joining CB in 2001, he reported on the steel and automotive sectors for the Financial Post. Watson received his first magazine award nomination for exposing a stock manipulation plot aimed at Waterloo, Ont.-based Open Text in 2000, when he was head of investor relations for an international venture capital outfit in the City of London. Watson holds graduate degrees in journalism, international relations and public finance and undergraduate degrees in history and politics.

The banks perhaps made sense since the whole economy collapses if there is no lending. But the auto companies? Sure, they have received government support before. But it’s mostly been about politics, hasn’t it? The fear of big unions at election time?

The problem with using taxpayers’ money to bail out the auto companies — as they are presently structured — is that their high costs of production will be left in tact and North American cars will remain uncompetitive. In short, it’s not a long-term solution. Foreign manufacturers will continue to eat their lunch and there will be a need for more bailouts down the road.

The real solution is to get costs down and productivity up. The best thing then for the auto industry, taxpayers, and consumers – indeed, just about anybody not working on an auto assembly line — would be to let the car makers file for bankruptcy protection. Then they can be released from the crushing weight of their labor costs to start over in a more competitive position.

Of course, this is not good politics. Well, let’s try a more pragmatic solution then. Allow the bailout but make it conditional on changes that lead to a more competitive industry. In essence, the unions should accept a reduction of their monopoly power in the labor market.

The required adjustments will not easy. So part of the bailout could be allocated to helping workers and retirees adjust to the new realities of the global economy. From the way the economy is going now, it looks like we all will need to tighten our belts. Why should auto workers be exempt?