Regulators Get Heat; Automakers Get BailoutIn naming some of the final key positions in his cabinet on Thursday, President-elect Barack Obama says he blames much of the nation's economic woes on government regulators who "dropped the ball," and called for a tougher enforcement stance and a return to ethical business practices. He gave as an example the scandal surrounding the alleged $50 billion fraud of investment manager Bernard Madoff, who is currently under investigation by federal law enforcement.
Obama plans to name Hilda Solis, a representative from California, as his labor secretary. The second selection of Republican representative Ray LaHood of Illinois as transportation secretary was followed by his naming of veteran regulator Mary Shapiro to head the Securities and Exchange Commission. She formerly was a commissioner of the agency. Obama also named former Treasury official Gary Gensler to head the Commodity Futures Trading Commission and law professor Daniel Tarullo to the Federal Reserve Board. There are unfilled senior intelligence positions and the Office of U.S. Trade Representative that are expected to be announced before the end of the year.
Automakers Get $17.4 Billion Loan
The Bush administration says it will provide $17.4 billion in loans to automakers GM and Chrysler. The announcement was made by President Bush on Friday. "Allowing the U.S. auto industry to collapse is not a responsible course of action," he says.
The terms and conditions of the loans from the Treasury department will allow the automakers to avoid bankruptcy and will also protect taxpayers. The first part of the loan, $13.4 billion would be made available before the end of the month. An additional $4 billion would be made available in February, if needed. The loans are to help stabilize the automakers through March 2009 and they must show they are financially viable by then. The loans will come from the $700 billion troubled Asset Relief Program, or TARP.
Ford had said earlier it would not need a loan or help and has enough funds to last through the end of 2009.
On Thursday the administration had mulled the idea of an "orderly" bankruptcy as a possibly solution to handle the way to deal with the submerging U.S. auto industry. Chrysler and Ford announced plant closures and stoppages in production on Thursday to help stem the loss of money from their companies.
Stocks Up Cautiously on Auto Bailout News
The investors on Wall Street responded positively, but cautiously to the news that the government will loan U.S. automakers $17.4 billion to stave off failure of the beleaguered industry. Investors had eyed with worry the possibility of bankruptcy for the major automakers GM and Chrysler and still look to how the automakers will make this loan payoff.
The ensuing fallout from an automaker's bankruptcy would have meant millions more workers added to the unemployment rolls, and when unemployment goes up, spending evaporates and credit disappears. The Dow Jones industrial average was up 53 points in early trading to 8,658.
Wall Street still has a cautious edge, as the financial services industry -- already the recipient of federal monies -- has not regained its strength. Standard & Poor's ratings on 11 major U.S. and European financial institutions was downgraded on Friday. The institutions include JPMorgan Chase, Wells Fargo and Goldman Sachs. Goldman earlier this week announced it would post its first quarterly loss since it went public in 1999. It will post a more than $2 billion loss in the fourth quarter.