Gridlock in Congress may stiff car industry
But divided government is doing nothing right now to help Detroit automakers.
By the time members of the Senate and House wrap up their lame-duck session and head home for the holidays at week's end, it is entirely possible that Congress will have failed to agree on any assistance measures for the carmakers.
Part of this disagreement is ideological - many Republicans say they believe that U.S. car companies failed to compete in the marketplace, lost substantial market share as a result, and should fade from the scene.
But politics are part of the mix, too. Big labor played a central role in helping Democrats expand their majorities in both the House and the Senate, and any measure that would benefit the United Auto Workers union would by definition be a tough sell to Republicans.
UAW-organized plants are concentrated heavily in the Detroit area and some other parts of the Midwest, where Democrats reign. Foreign automakers have placed many non-UAW plants in the Republican-controlled South.
"It is a philosophical difference: The Republicans philosophically oppose bailing out the auto industry, which they think has not made the changes it needs to make, and the Democrats' position is, well, that may be true, but if you don't do it, you may have a depression on your hands," said Richard Semiatin, an assistant professor of government at American University.
The ideological divide on Capitol Hill came into play yesterday, not only over a possible bailout for the Big Three automakers, but also over proposals by the Democrats to use billions in federal bailout money to aid homeowners facing foreclosure.
Republicans want the money to be used only for shoring up shaky financial institutions, while Democrats want to spend some of the money to help homeowners avoid foreclosure, which the lawmakers say lies at the bottom of the financial crisis.
Treasury Secretary Henry M. Paulson Jr. repeated the administration's opposition to using the money for that purpose and added during testimony before the House Financial Services Committee that the administration also remained opposed to using the bailout money to help Detroit.
The White House instead wants the automakers to use $25 billion in loans authorized earlier by Congress to help the industry modernize its product line.
In September, Republican and Democratic differences over how to manage the financial crisis came close to capsizing the rescue plan proposed by Paulson and Federal Reserve Chairman Ben S. Bernanke for banks and other beleaguered financial institutions.
Then, after Bernanke warned members of the Senate and the House that failure to pass the $700 billion proposal risked creating chaos on Wall Street, House Republicans rejected the proposal.
It was only after GOP lawmakers heard from constituents who complained that the frozen credit markets had threatened to put them out of business that Republicans supplied enough votes to put the measure over the top.
That plan, for all the uncertainty about whether it will work in the long term, is well on its way to being executed. Treasury said yesterday that about $250 billion of the funds had already been committed to banks and other financial institutions in an effort to get credit flowing again.
Semiatin said one of the reasons that Republicans were resistant to new bailout proposals was that, despite assurances from Bernanke and Paulson that financial markets have turned the corner, it has not been at all apparent that their prescription would restore the economy.
"The backstory is that this is a problem that has been building for 25 years, from default and neglect of the government both in collecting information and making sense of it," said Howard M. Wachtel, former economics professor at American University, and author of Street of Dreams - Boulevard of Broken Hearts, a history of Wall Street. "To this day, they don't know what the exposure is in hedge funds and credit default swaps - and that is a scandal of enormous proportions."
Wachtel said that partisan gridlock on the Hill was less significant because Bernanke and Paulson for weeks had been executing their rescue plan and pouring money into financial institutions.
In addition, he noted, Paulson has been pressuring banking institutions to provide assistance to homeowners facing foreclosure.
But that may be of little comfort to automakers.
House Majority Leader Steny Hoyer (D., Md.) said yesterday that a bailout measure might not pass during the lame-duck session this week, and that could force Congress to return once again to work on the issue before Christmas.
Contact staff writer Chris Mondics at 215-854-5957 or cmondics@phillynews.com.


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