Auto Bailout Dies in Senate

Financial Reform Watch

For those interested in the financial services rescue and reform mission on which the US government has embarked who may have been only casually observing the auto industry rescue process, now would be a very good time to pay attention.

The failure last night of the United States Senate to pass a loan package for the "Big Three" now puts the ball squarely—and quite uncomfortably—in the court of the Bush Administration. Throughout this crisis, Democratic leaders on Capitol Hill have urged the Treasury Department to step in with TARP funds to assist the auto manufacturers. Treasury has resisted saying that was not the intent of the legislation that created TARP. They have never said, however, that the legislation does not allow it.

While it is true that the auto industry does not have the same systemic importance as the financial sector, the ripple effects of a collapse of GM, for example, would be substantial. In some ways then this is Lehman redux. Only now we have a President-elect taking office in five weeks who has said bankruptcy is unacceptable for any one of the Big Three.

If the Treasury Department does not act, that amounts to a decision by the outgoing President to allow GM to go bankrupt. That would be one of the most momentous decisions made by a President at the end of his term in memory. It will also deepen the already daunting challenges facing the new President.

We will be watching for hybrid Malibus with Michigan manufacturer plates pulling into the White House driveway. Stay tuned.

Notice: The purpose of this newsletter is to identify select developments that may be of interest to readers. The information contained herein is abridged and summarized from various sources, the accuracy and completeness of which cannot be assured. This alert should not be construed as legal advice or opinion, and is not a substitute for the advice of counsel.