White House (CNSNews.com) - Vice President Joe Biden's top economic adviser told CNSNews.com yesterday that securing specific congressional authorization for President Obama's move to provide $30 billion more to General Motors and have the government take 60 percent ownership in the company was "not a concern" for the administration.
President Obama formally announced on Monday the steps being taken by GM to go into an orderly bankruptcy--and, with the help of the federal government, to restructure. The move was an expansion of the auto bailout that began under the Bush administration in December.
CNSNews.com asked Jared Bernstein, chief economist and economic adviser to Vice President Joe Biden, if the administration can proceed with its plans for GM without specific congressional approval.
“Everything we have done has been consistent with bankruptcy law and with any relevant legislation,” Bernstein told CNSNews.com.
“By the way, remember early on we actually worked closely with Congress around the parameters that were set out around this agreement,” Bernstein said. “Again, I think that's not a concern. The steps that have been taken thus far are completely legitimate in the context of negotiations. Unusual, yes. I grant you that. But it is very much in keeping with this kind of a process.”
Last December, the Bush administration provided a $13.4 billion bridge loan to GM and a $4 billion loan to Chrysler after Congress rejected auto bailout legislation. The Bush administration used money from the Troubled Assets Relief Program (TARP), which Congress authorized only for financial institutions such as banks, insurance firms and credit unions.
In March, President Obama expanded the bailout to also include a government guarantee on the warranties for new cars sold by the two companies. He also forced the removal of GM CEO Rick Wagoner.
Legal critics from both the right and left have questioned whether it was lawful to apply TARP money to the auto companies because Congress had authorized that the $700 billion in the TARP package be spent speficically on "financial institutions" such as banks, savings and loans, credit union and insurance companies.
Analysts James Gattuso and Andrew Grossman of the Heritage Foundation, a conservative group, argued at the time that this was “legally wrong” to use the TARP money to bailout manufacturing firms such as auto makers.
Former Clinton Labor Secretary Robert Reich said it would be unconstitutional for Bush to spend money bailing out the auto makers when Congress had not appropriated money for that purpose.
Congress did consider legislation to bailout the auto industry. But the bill failed in the Senate and did not become law.
The Obama administration is committing another $30.1 billion to GM as it enters the bankruptcy.
The federal government will own a 60 percent share in the company and have a role in selecting members of GM’s board of directors. The Canadian government kicked in $9.5 billion, gaining a 12 percent stake.
The auto workers' health care and pension fund will have a 17.5 percent stake in GM, while bond holders will have 10 percent. As part of the agreement, GM will reduce its goal of 16 million in annual sales to 10 million. It also will close 11 facilities.
The agreement also restricts GM’s ability to import smaller vehicles it already makes overseas. GM is selling its Opel operation in Europe as part of the restructuring deal, and part of the sales deal reportedly stated that Opel’s new owners must stay out of the United States and out of China.
That’s a case of market manipulation and protectionism, said Thomas Donohue, president of the U.S. Chamber of Commerce.
“Our biggest concern with the restructuring plan expected to be announced later today is the potential for governments and unions to influence production, product, work force, and management decisions in ways that could jeopardize the automakers’ chances for survival, put politics and special interests above sound business strategy, and disrupt our nation’s trading relationships across the world,” said Donohue.
Bernstein, however, told CNSNews.com that was not the case and that the plan required sacrifice from labor and management.
“Those that make statements like that haven’t looked carefully enough at the plan to understand the sacrifices made by all the stakeholders,” Bernstein told CNSNews.com.
“You’ve got more than half of the bond holders agreeing to an exchange for equity that ultimately, as they exercise the warrants that may come their way, would have a larger share in the company than the union,” he added.