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leistb
12-09-2008, 12:57 PM
Bernanke Opposes Fed Loans for GM, Ford, Chrysler (Update2)
By Scott Lanman


Dec. 9 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke (http://search.bloomberg.com/search?q=Ben+S.%0ABernanke&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1) signaled opposition to extending central bank loans to automakers, saying that would fall outside its traditional duties and suggesting options including a bankruptcy reorganization.

“Congress is best suited” to determine the viability of the car companies, Bernanke said in a Dec. 5 letter to Senate Banking Committee Chairman Christopher Dodd (http://search.bloomberg.com/search?q=Christopher+Dodd&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1), obtained by Bloomberg News today. It’s “unclear” whether the companies have strong enough collateral for the Fed to lend to them, he also said.

While the Fed chief didn’t rule out using emergency-lending authority to aid carmakers, he made clear that Congress should determine whether to assist a specific U.S. industry. The letter indicates he’s trying to draw a line on Fed rescues, after the central bank prevented the bankruptcies of Bear Stearns Cos. and American International Group Inc. this year. :rolleyes:

Congress may wrap up a $15 billion aid package tonight or tomorrow, Senate Majority Leader Harry Reid (http://search.bloomberg.com/search?q=Harry+Reid&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1) said today. General Motors Corp. (http://www.bloomberg.com/apps/quote?ticker=GM%3AUS) and Chrysler LLC say they need at least $14 billion in combined aid to keep from running out of cash by early next year. Bernanke said in his letter that the Fed is “not able to verify those assessments.”

Bernanke also underscored that the Fed is against extending credit to the industry in the absence of any plan endorsed by Congress.

‘Extremely Reluctant’

“The Federal Reserve would be extremely reluctant to extend credit where Congress has actively considered providing assistance but, after due consideration, has decided not to act,” he said in the letter, a copy of which the Senate banking panel forwarded to Bloomberg.

The comments represent Bernanke’s first public remarks on whether the Fed would lend to the beleaguered industry. Dodd, a Connecticut Democrat, asked Bernanke Dec. 3 for his position and the scope of the Fed’s authority to lend to automakers.

GM, Chrysler and Ford Motor Co. (http://www.bloomberg.com/apps/quote?ticker=F%3AUS) and have asked U.S. lawmakers for as much as $34 billion in aid. Congress is discussing a $15 billion rescue proposal where the Treasury would get warrants for stock equivalent to 20 percent of any government loans.

Reid, a Nevada Democrat, said on the Senate floor today that remaining disagreements could be resolved within a few hours. The Senate’s top Republican, Mitch McConnell (http://search.bloomberg.com/search?q=Mitch+McConnell&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1), today called the plan “deeply flawed” because it fails to ensure taxpayers won’t be forced to provide additional aid in coming months and years.

Bankruptcy Option

Congress should also consider a “range of possible policy actions” besides direct aid, including a government-assisted “orderly bankruptcy reorganization” or company mergers, Bernanke said in the letter.

Senator Charles Schumer (http://search.bloomberg.com/search?q=Charles+Schumer&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1), a New York Democrat and member of the Senate Banking Committee, asked the Fed in a letter last month to begin lending to the automakers’ credit arms while Congress considered a rescue plan.

Bernanke said in the letter to Dodd that the central bank can only lend in emergency circumstances when the financing can “be secured to its satisfaction.” It’s “unclear” whether the three U.S. automakers could “meet this requirement.”

Industrial Policy

“Even if the companies have sufficient collateral, lending to an auto manufacturing company would represent a marked departure from that policy, and would take us into distinctly new realms of policymaking,” Bernanke said. “In particular, it would raise the question as to whether the Federal Reserve should be involved in industrial policy, which has traditionally been outside the range of our responsibilities.”

The “critical unknown” in the automakers’ plans is “their ability to develop and produce vehicles that the public wants to buy,” Bernanke said.

Dodd said in a statement that the Fed “plays a crucial role in maximizing jobs and economic growth for all Americans.”

“I believe that American manufacturing is just as important to our nation’s economy as a healthy financial sector,” Dodd said. “I look forward to continuing my oversight and work with the Fed to accomplish the goals that we both agree will secure American jobs and stabilize our economy.”

To contact the reporter on this story: Scott Lanman (http://search.bloomberg.com/search?q=Scott+Lanman&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1) in Washington at slanman@bloomberg.net (slanman@bloomberg.net).

Last Updated: December 9, 2008 12:46 EST

http://www.bloomberg.com/apps/news?pid=20601087&sid=a7vSwKVjfjRA&refer=home

BirdGuano
12-09-2008, 01:42 PM
Solution:

Reorganize into the bank of GM, bank of Chrysler and Bank of Ford, and the money will then flow like water.

:re: