The stimulus package is lumbering its way through Congress.  Using the House of Representative’s $820 billion stimulus bill as a model, the Senate came up with its own bill of $900 plus billion, and then carved it down to nearer $800 billion.

After more than five days of Senate conference negotiations, more than $110 billion has been cut from the $937 billion proposal.  The latest figure runs around $780 billion plus another possible $47 billion more in already promised tax incentives to aid auto and home sales broken down to about 40 percent tax cuts and the rest in spending. 

Major spending items cut from the bill were $40 billion in aid to the states, $16 billion for school construction and around $6 billion for public health projects.  Up to $100 billion will be spent to buy and modify some troubled homeowner mortgages.

The 58 Democrats in the majority are enough to pass a vote on the bill if they can get it to that position.  However, at least 60 Senators must vote to proceed to a vote before the vote is actually taken.  Currently, Republicans blocked a vote on Friday saying they have not had time to read the bill.  Debating sessions have been set for Saturday and Monday, with a vote expected midday Tuesday. 

The Republicans complained that the bill that came from the House contained a wish list of everything the Democrats ever wanted, and to some extent, I think some of that may be true.

Republicans Arlen Specter R-PA, Susan Collins and Olympia Snowe, both R-MN have stated that they will vote for the bill in or near its present form.

Senator Arlen Specter is not totally happy with the bill, but said, “I do believe that we have to act and I believe that under all the circumstances this is the best we can do and we ought to do it.”

Senator Susan Collins said, “This project, this bill is not perfect.  It would be difficult to get a bill that everyone agrees on; but it represents an effective, targeted approach to the economic crisis facing our country.”

Once the bill is passed in the Senate, representatives from both chambers will meet and reconcile any differences in the two bills, making it a single bill to be voted on by both houses and signed by the president.  Obama’s signature is what makes it law.

Moving to act quickly, the provisions of the bill target around 80 percent of the total package to be distributed into the economy in the first two years.

In addition, Senators voted Friday to direct the U.S. Treasury to spend at least $50 billion of the $350 billion remaining in the TARP fund on home foreclosure relief efforts. 

Democrats and the few Republicans who consider the welfare of the people they represent are working on a compromise stimulus bill that, although imperfect, can be put into action.  The Do-Nothing Republicans of the male Caucasian cadre who voted against equal pay for women, minorities, disabled and older workers, rail out against any action except their own.

Two of the most notable are John McCain R-AZ, still stinging over his last hurrah at trying to be President, and Michael Steele, the newly elected chairman of the Republican National Party.

Steele advocated in the latest Republican radio address that keeping more money in their pockets would help families the most.  I wonder if Chairman Steele understands economics at all, or is purposely looking to destroy America for his party’s purpose.  People keeping money in their pockets will extend the recession indefinitely and deepen it.  It is the flow of money in consumer spending that will start and drive the economic engine.  But then, they know that.

The Senate stopped discussion on the $14 billion automaker bailout bill for those car companies that recently flew their executives to Washington in their private jets to beg the government for a handout.
 

The Senate has voted

Our representatives in Congress have acted as they should.  The vote Thursday, December 11, on a procedural motion (whether they should proceed to the bill) fell short of the 60 votes (3/5)  needed to move forward.  So they are stuck, at least until January when the new Congress convenes.

As Harry Reid, Democratic Senate Majority Leader said Thursday night, “It’s over with.”

He later said with a twisted smile, “I dread looking at Wall Street tomorrow.  It’s not going to be a pleasant sight.”

The last time Congress failed to pass a bailout plan that most had assumed was a done deal the Dow Jones Industrial Average (DJIA) dropped 777 points in one afternoon. 

The DJIA instead rose more than 64 points on Friday, indicating the threatened bankruptcy of the major American automakers was a non-issue to investors. 

Senator Reid added, “I would hope that the President who has worked so well with us these past few weeks on this legislation would now consider using the TARP money to help the auto industry and workers of this country.  I hope that they would consider doing that as early as tomorrow.”
 

TARP funds

The White House has reported that it would consider using some of the $700 billion TARP money initially approved to bail out the financial system to keep the auto industry on life support until the new Congress convenes and the new administration moves in, but there was no timetable given.

President-elect Barack Obama is in favor of aiding the auto industry.

After the bailout collapse on Thursday, a Treasury spokesperson reported that the funds were designated only to help the financial sector.  Congress has halted legislation for 2008, and it may be required to amend H.R. 1424 (the $700 billion) before tapping it for another purpose. 

The Troubled Assets Recovery Program (TARP) is the $700 billion bailout plan for the financial industry passed in October.  All but $15 billion of the first $350 billion has been dedicated to distressed banks or insurance companies, and the Treasury Department is barred from dipping into the second $350 billion without formal notification from Congress.
 

Rebellion

Republican legislators have been in open rebellion with the White House over the auto bailout.  Although the President backed the bill passed by the House, Republican lawmakers held the line on the automakers restructuring their debt and bringing their employee compensation into line with foreign automakers before money is given them.

Senate Republicans would prefer that the automakers receive no taxpayer funds, since it would do nothing to correct the industry mismanagement and only postpone the inevitable bankruptcies.  But they don’t wish to be responsible for adding hundreds of thousands more Americans to the unemployment rolls.

The most vocal Senators opposing the bill were those from southern states with foreign auto plants employing their citizens.

The failed bill had intended to take the $14 billion from a green modernization fund passed earlier this year, using money already appropriated for automakers.  The green modernization fund authorized up to $25 billion in low-interest loans for retooling older auto factories, even though the cost for a complete job  hovers around $200 billion.
 

Independent polls of public sentiment indicate the majority of Americans are against the auto industry bailout by a small margin.
 

The real issue

Wages paid to employees of the American car makers are about the same as the foreign companies, roughly $30 per hour.  Over the years, the United Auto Workers (UAW) union has negotiated great benefits for their members, even though loss of market share has weakened the domestic automakers, raising their members’ total hourly rate at GM to $69 for active workers.  The foreign companies total rate is $48 per hour.  Those amounts include wages, healthcare and pensions.

GM alone, for example, also has 432,000 retirees and spouses for whom they are paying healthcare and pensions, while the foreign companies have far fewer retirees and leaner retiree benefits.
 

The Benefits

It is reported that for $10 per month, with a $250 deductible, UAW members and retirees receive comprehensive medical, prescription drug, hospital and surgical coverage.

When workers are laid off due to plant closings or reduction in workforce, they are transferred to the UAW JOBS bank for up to 48 weeks.  They can stay home and collect 85% pay (less unemployment benefits), or they can spend their days at the local union hall for 100% pay (less unemployment).  The workers at the union hall are sometimes asked to run errands, perform small tasks at the plant, or perform community service.

The health benefits add $1200 to the cost of each car, and the JOBS bank adds another $200. 

The added costs have prevented the big domestic automakers from competing in the small and midsize auto markets, so they focused their niche on trucks and large SUVs, where they could make a profit – until oil hit $140 a barrel and dealerships became glutted with unsold vehicles. 

The UAW is treating this as if it wasn’t their problem.
 

It will be their problem when the automakers file in bankruptcy court, and the judge orders the workers’ benefit contracts rewritten to competitive terms.

Bailout funding with no other changes would keep the expenses at the same level, and only serve to move bankruptcy a little further out in time.

The problem in Congress is that the UAW has spend thousands of volunteer hours and more than a half billion dollars of member dues, making sure Congress is dominantly Democratic, and now they are calling in their IOUs.
 

UAW killed the bailout

The big three automakers have been desperately axing thousands of jobs and closing plants, driven by lack of demand for the fuel-inhaling sport utilities that had been their sources of great profit.

However, the UAW killed the approval of the bill when union leaders insisted they would not renegotiate wages and benefits until 2011 when its contracts run out.  Congressional negotiators offered any date in 2009, and the union refused. 

They think this is a normal wage negotiation. 

They just don’t get it.
 

The victims

The autoworkers don’t see the $69 per hour.  They go to work every day and take home their $30 per hour wage, and when they lose their jobs, that salary is in jeopardy.  They have continued to receive their pay for nearly a year (up till now), and health benefits for 48 weeks. 

But after that?
 

Bankruptcy

The Big Three automakers employ around 250,000 people.  Parts suppliers employ around 100,000.  One out of ten U.S. jobs are tied to the auto sector with shared suppliers and vendors, adding up to around 2.5 million jobs that could be affected by the domino effect of auto industry bankruptcy.

GM and Chrysler have hired outside advisors to explore the bankruptcy option.  Their target date is January 2009.  Under Chapter 11, the automakers will be forced into a restructuring plan and still produce their products, while deferring payments to creditors.  Under those circumstances, the automakers will be forced to be profitable or go into liquidation.  And workers’ benefit contracts will certainly be rewritten by court order to competitive terms.

Car prices will doubtless go up, some models will be discontinued, the companies will scramble to increase the gas mileage of the remaining models, and they will take full advantage of the $31 billion available for plant modernization.

Bankruptcy is not such a bad option, but it depends on where you stand in this picture. 

If you are a consumer, would you purchase a car that may be discontinued, where its resale value goes to scrap and parts may be hard to find?

If you are a supplier, and your income is reduced or delayed due to an automaker bankruptcy, assuming you can stay in business, will you be ready to extend credit to the bankrupt company?

Employed autoworkers will probably continue at their wage level, but their benefits will take a huge hit.  Healthcare will certainly be restructured to be compatible with existing major health plans.  Existing pensions will no doubt remain intact, but future contributions to active workers will be slashed.

The JOBS bank will be instantly killed.

The UAW has conceded to suspend the JOBS bank program effective December 2008.

That is the worst news for the thousands upon thousands of excessed workers who must now exist on unemployment benefits until they can find work in areas where everyone is looking for work.  That in turn will increase the home foreclosures and bankruptcies in those hard hit areas of the country.

Maybe Congress, with the help of the incoming President, can allocate funds to provide jobs in those shock areas.  That legislation would certainly pass.
 

Nancy the blamer

Always having to have the last word, finger-pointing Nancy Pelosi, Democratic Speaker of the House, was certainly more verbal, doing what she does best, pinning the blame on Senate Republicans who voted “no.” 

Her statement, released around midnight Thursday, builds up her own accomplishments, with a laundry list of how her bill will save the world through cooperation, using terms like “bipartisan … protects taxpayers … preserves environmental standards … places tough accountability measures … to help ensure their (auto companies) long term viability and competitiveness. …  demanded deep concessions from … the executives, shareholders and the union. ”

She goes on pointing fingers at the Senate Republicans “refusal to support … bipartisan legislation … negotiated in good faith with the White House, the Senate and the automakers. 

She further accuses them as “irresponsible, especially at a time of economic hardship.”  She adds the scare threats; “consequences … failure to act … devastating to our economy, detrimental to workers, and destructive to the American automobile industry … unless …”

Now she thinks she should run the country, by telling the President what to do; ” … unless the President immediately directs Secretary Paulson to explore other short-term financial assistance options, including TARP and those available to the Federal Reserve.”

She then slams the door on any other course of action but hers.  Her word is final.  “That is the only viable option available at this time.”

For full disclosure, Nancy, three Democrats sided with 31 Republicans in opposition.  Harry Reid also voted “no” for procedural reasons.  Has he become a Republican?

A question; if Nancy negotiated with the Senate, why did they vote the bill down?

I can picture her stamping her foot down, wheeling around, and marching out of the room.  I wonder if she just bought a GM car.

Side note: I don’t like arrogance.  She has a good speechwriter.  I do like the alliteration of “devastating … detrimental … destructive”. 

I’m guessing finger-pointing Nancy now likes President Bush, since he can give her what she wants.  Not like last July, when she called the president “a total failure, losing all credibility with the American people on the war, on the economy, on energy, you name the subject” and that Congress had been “sweeping up after his mess over and over and over again.”
 

A final question; Nancy, did the UAW contribute to your election campaign?