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The Trouble with using TARP for the current US Auto Industry Bailout
The Troubled Assets Relief Program (TARP) was set up by the United States Government as part of its response to the (almost) Wall Street crash of autumn 2008. ,[link widoczny dla zalogowanych]
OK perhaps the word crash is perhaps over stated but lets be honest the DJIA did still plunge some 6000 points at its worst and enjoyed some fairly spectacular one day plunges during this period and if the truth be known (and I don't want to sound too alarmist) but there is a lot to be said for the argument that we might not have seen the worst of this crisis. Let's see how we get through January and February 2009 before we start to say whether we are out of the woods on this one yet.
Anyhow back to TARP and the current proposed bailout for the US Auto Industry. Now as we said,[link widoczny dla zalogowanych], TARP was set up primarily to provide a vehicle for the US Government via the Treasury and /or Federal Reserve to purchase illiquid or difficult to value assets from Banks and other troubled Financial Institutions. Now this is where it gets awkward as far as the current US Govt strategy for the Auto Industry is concerned. As we have mentioned TARP was set up to help solve problems within the Finance Industry and not any other.
Quite why then the House of Representatives and the US Senate last week debated whether to use TARP funds to help the troubled ��Detroit Three" heaven alone knows?
Now as we all know the legislation passed through the Democrat controlled lower House, the House of Representatives before coming unstuck in the Senate. Now this in fact may be a blessing in disguise as far as the US Government was concerned primarily due to the fact that the big three Auto Manufacturers are just that,[link widoczny dla zalogowanych], Auto Manufacturers and not Banks and therefore would have opened a relative Pandora's Box if they had been provided with financial relief from TARP.
Why? Well the bottom line would have been,[link widoczny dla zalogowanych], if TARP was set up to assist the world of Finance and now they were using it to assist the Auto Manufacturers then where in effect would the Treasury Dept be able to draw the line as far as other potential sector rescue packages were concerned?
Now again as it turned out the proposal was thrown out by the Senate amidst a fair deal of acrimony but this in the long term may have been to both the Industry and Governments benefit. Now it could also so be argued that the Republicans in the Senate could be fairly hawkish on this proposal as the White House had said at the time that failure for the Auto Industry was not an option that it was prepared to see happen at this point in time so they always knew there was plan B waiting in the wings.
How long it is going to take for Plan B to materialise is anyone's guess but they do not have long to put it into place. General Motors have said that they need to see the funding in place by January 2nd 2009 which is a crucial date as this is the date by which the next round of supplier payments fall due and a failure on the part of GM to meets its supplier bills could in the end turn out to be catastrophic.
Watch this space. Stephen Morgan writes on a number of Financial matters and more information on his particular take on Finance and Stock Trading can be found at Trading Futures and Online TradingTopics related articles：


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