American International Group, which posted a whopping $25B loss during the third-quarter, pulled in another $150B in bailout money from Washington in an attempt to stop its hemorrhaging. For those keeping score, taxpayers are now more than $300B on the hook for AIG.
Non-basket case American Express, meanwhile, wins lightning fast approval to convert to a commercial bank so the credit card company can get its paws on bailout money. Who can blame AmexCo for wanting a piece of the pie that is ready for the eating? CEO Ken Chenault assured the world that his company wasnít really in dire straits. AmexCo just wanted to be ďbest positioned to take advantage of the various programs the federal government has introduced or may introduce,Ē he said in a statement that implies more gravy is on the way. The bailout cash was an offer that Chenault could not refuse.
Meanwhile, the Big Three Detroit companies make no bones about their desperation for cash. Yet, they must go hat-in-hand to beg the federals for money to cushion against the financial meltdown. General Motors, Ford and Chrysler deserve every bit of blame for making cars and SUVs that nobody wanted. It is the financial meltdown, however, that has driven them to the brink in a blink.
The collapse of the auto company would be a disaster far greater then the cost of an economic lifeline from Uncle Sam. The Center for Automotive Research, which is funded by the car companies, says the nation would lose 3M jobs next year if the Big Three goes belly-up. That represents a loss of $150B in personal income and $60B in tax receipts. The `10 numbers are just as frightening: another 2.5M jobs, $138B in income and $54B in taxes would vanish. Those numbers are enough to drive the country deep into a recession and turn a broad swath of America into a dead zone. And then there are national security issues to consider. Where are the planes, trucks and tanks going to be made if things donít work out with Russia or China? You can be sure they won't be made in either AIG's or AmexCo's Manhattan headquarters.
Barack Obama supports buttressing the auto industry in return for a commitment from it to produce energy-efficient battery-powered cars of the future. He sees the U.S. bailout as an investment in jobs and energy security. Detroit may balk at government mandates, but times are a-changing real fast these days.
President Bush, for his part, is reportedly ready to make a deal as long as the Democrats support a free trade pact with Colombia. Huh? Not to be too harsh on the President, but the demand for a controversial trade agreement at a time when the U.S. economy is at risk is like a spoiled kid throwing a tantrum. The Democrats have long opposed a trade deal with Colombia, and will rough it out until Obama takes office to help Detroit. Itís hard to imagine that depression and senseless war is what President Bush wants to be remembered for. If he is remembered, at all.