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December 9th, 2008
03:25 PM ET

Jump-starting the economy

[cnn-photo-caption image=http://i2.cdn.turner.com/cnn/2008/POLITICS/12/06/obama.jobs/art.ceos.gi.jpg caption="The chief executives of ailing automakers GM, Chrysler and Ford testify before Congress on Friday."]

Andrew Torgan
CNN Financial News Producer

The proposed plan to rescue Detroit’s Big Three is now in President Bush’s court. Negotiators are said to be close to an agreement on a plan that would provide the automakers with a total of $15 billion in federal loans as soon as next Monday. And a so-called "car czar" would be appointed to oversee the restructuring of the auto industry.

This is by no means a done deal, and it raises all sort of questions: What happens to employee retirement plans if the automakers fail? Why do any of the CEOs still have a job? And my personal favorite… Why doesn't the government just give us all a large amount of money so we can go buy their cars? Check out CNNMoney.com's story answering CNN viewer questions about the proposed auto rescue.

And now that President-elect Obama has suggested that General Motors and the rest of the Detroit Three may need to install new management as a condition of a bailout, the question is: Who might become GM's next CEO?

Another day, another brutal round of job cuts… Three major companies - Sony, Danaher and Wyndham Worldwide - have announced cuts totaling nearly 14,000 jobs this morning. Tokyo-based Sony announced the most sweeping cuts of the three, saying it planned to reduce headcount in its electronics business by 8,000. Wyndham – which operates hotels including the Ramada, Days Inn and Super 8 chains – is cutting 4,000 jobs; manufacturer Danaher will lay off 1,700.

And employers are taking a cautious approach to hiring. More than two thirds employers plan to hold staff levels steady for the first quarter of 2009, according to a survey by employment firm Manpower. But some industries are hiring - including education, health services and accounting.

Merrill Lynch's chief executive John Thain has dropped his controversial request for a $10 million annual bonus after being blasted by New York Attorney General Andrew Cuomo. Thain requested at a board meeting on Monday that Merrill's compensation committee not award him a bonus for 2008, and the board of directors accepted that request. Thain had previously asked for the bonus despite Merrill racking up more than $11 billion in losses this year - arguing things would have been even worse without him. And Morgan Stanley's CEO John Mack is also forgoing his bonus for the second year running amid the worst financial crisis since the Great Depression.

Stocks are surrendering nearly all of yesterday’s big gains, thanks to profit warnings from Texas Instruments and FedEx, and the latest round of job cuts. The Dow surged 3% Monday as Detroit’s Big Three neared a deal that would keep them out of bankruptcy and President-elect Barack Obama pledged to stimulate the economy. Oil prices are drifting lower, around $42 a barrel, after climbing nearly $3 Monday amid the signs of an auto bailout.

Gas prices fell 1.8 cents to about $1.698 a gallon. That’s the 83rd consecutive decrease. According to AAA, the last time the national average price for a gallon of regular unleaded gasoline was near the current price was in 2004.

Former top executives at Fannie Mae and Freddie Mac are taking fire on Capitol Hill amid charges they ignored repeated warnings - before the housing market collapsed - about all their risky loans. The latest figures on the fallout out today - home sales beat expectations in October, but that's just because deeply discounted foreclosures and distressed sales made up nearly half of transactions. The witness list is a rogue's gallery of former Fannie and Freddie executives.

And here's a thought for fixing the economy: Imagine capturing waste energy from dirty industrial smokestacks and turning it into clean power. It’s called “recycled energy” and the potential is enormous. Experts in this field say it could generate as much as 40% of the power we use as a country, and could cut greenhouse gas emissions by 20%. Europeans are the world leaders in recycled energy, and other countries like China are catching up. So why aren’t more American companies doing it?

A House committee looking to uncover the roots of the subprime mortgage meltdown and the ensuing credit crisis on grilled several former CEOs of mortgage finance giants Fannie Mae and Freddie Mac today. Committee chairman Henry Waxman said the companies “made irresponsible investments that are now costing federal taxpayers hundreds of billions of dollars." He added, "Their own risk managers raised warning after warning about the dangers of investing heavily in the subprime and alternative mortgage market. But these warnings were ignored."

One rare bit of good news… pending sales of existing homes fell less than expected in October, raising cautious optimism of some stability in the distressed housing market.


Filed under: Andrew Torgan • Bailout Turmoil • Economy • Finance
soundoff (12 Responses)
  1. Ginny

    I agree Ford, Chrysler, and GM are among the criminals in today’s Economy and Environment thefts of America.

    It’s obvious we have no control over this kind of fascist power. One only needs to research their past bailouts and lobbyist influence on government officials, offices, and committees.

    Therefore, for me and I suspect for many others, even if their future vehicles fly to the moon on air, I’ll never buy one – I’ll never forget!

    December 9, 2008 at 9:11 pm |
  2. Mary

    Whatever happened to compromise? The only thing a 15 billion tax payer loan accomplishes is delaying the inevitable. By next February, all three companies will be filing for bankruptcy regardless. Back the company that is in the best fiscal shape, let the other two file for bankruptcy reorganization and as a precondition for the one receiving the federal aid, back the warranties for the other two, should they fail. The plain truth is that not all three are going to survive. Nature has a way of thinning out the weakest. There just isn't enough food to support the herd, in this case that food is the dollar. Yes workers are going to lose jobs, but other workers are losing their jobs too. Job loss isn't exclusively unique to the auto industry. Support one auto company, let the other two reorganize. Hold back some federal funding for additional unemployment insurance as even more of our work force loses their jobs in the airline, retail, restaurant, construction, clothing, grocery, electronics, hotel/motel, farming, banking, real estate,and medical sectors just to name a few.

    December 9, 2008 at 8:54 pm |
  3. WWalker Alpine Texas

    Hello everyone, what in the heck is everybody so outraged about, we spend 12 Billion Monthly in Iraq 144 Billion annually. Everytime Bush ask for more money for Iraq Gongress gave it to him.

    Where does Bush get off saying he will Vito use of the TARP funds for the automobile industry. We need to give the Big 3 loan gurantees and make the banks that we have already bailed out loan them the money when they need it.

    It isn't just the Big 3 it is American industry, bailing them out is something that would be good for this country; when we need more jobs, not less.

    December 9, 2008 at 8:17 pm |
  4. Joe Thomas

    Why should the Federal Gov't, our taxpayers, bailout the auto industry.
    They have obviously been in bed with the oil industry for decades.
    Let these guys, who have been reporting billions in profits, quarter after quater for years do the bailing. We all know these industries have been in collusion for years.
    You sleep with wolves, you die by wolves.

    Joe Thomas
    Ft. Valley Ga.

    December 9, 2008 at 7:20 pm |
  5. david /coon rapids

    a wise man said
    THE DOWNFALL OF DEMOCRACY WILL BE WHEN THE PEOPLE LEARN THEY CAN VOTE THEMSELVES MONEY.

    i think we have arrived at this time

    December 9, 2008 at 6:56 pm |
  6. Franky

    "But some industries are hiring — including education, health services and accounting."

    How ironic, I actually studied Accounting for a bit in college but then I realize what I was good at, LOL!! Believe it or not, Accounting helped and plus, is business so it prepared me a bit on how to be more stabilized and prepared.

    Hey, Conservatism is in the game, not outside the game, LOL!!

    December 9, 2008 at 6:22 pm |
  7. Adrienne

    I am concerned and disappointed by the developments I am seeing regarding the auto industry bailout. Throughout his campaign President-elect Obama pointed out the “8 years of bad policies” in the current administration that have contributed to the country’s demise. The U.S. auto industry has seen 30 years of poor decisions and sub-par product, in cars that on average are bigger, with higher gas consumption, and inferior performance to their international counterparts.
    It has been widely discussed that small businesses are the backbone of the American economy. While congress considers a bailout package for the auto industry, hundreds of small businesses are closing every day, not because of a shortage of demand, poor product or poor decision-making, but because their credit is being frozen. Small businesses rely on credit to invest in inventory and services, and even the most conservative, well-run businesses are shutting simply because banks have frozen their credit.
    One of the key arguments for the auto industry rescue package is its employment of 3 million people. According to ADP’s National Employment report from November 2008, small businesses (less than 50 employees) employ 102 million people. A collapse of the small business sector would be far more crippling to the economy than an auto industry collapse. Instead of “’giving” billions of dollars to the auto industry (I say “giving” because I am not sure how confident anybody is that these companies are going to turn around, and pay back the American taxpaying investor), why not inject that money into small business credit?
    Small business owners are not sitting in front of congress pleading for help, but the failure of small businesses will ultimately be much more damaging to the American economy than the inevitable demise of the U.S. auto industry.

    December 9, 2008 at 6:05 pm |
  8. earle,florida

    I have but one suggestion for President Bush,Veto this pathetic handout. It could very well be one positive in the plus column for his sub-par legacy. I'd like to add to his defense a profound statement vindicating President Bush's perils as incoming president in 2001. The Credit Default Swaps(CDS) were invented in 1997 by JP Morgan/Chase Bank . They became legal,and illegal to regulate with the Commododity Futures (CFMA) Modernization Act of 2000. They were rushed through congress as a companion bill, the last day before the Christmas holiday. It was never(eleven thousand pages) debated in the House or the Senate. Less than a week after it was passed by congress, President Clinton signed it into public Law(106-554) on Dec.21,2000. Now President Bush has inherited Clinton's folly which is currently $15.5 Trillion dollars CDS market at the end of 2008/Q2 as a United States Composite. This is the Clinton Administration mess the country is in,and not to be blamed on President George Bush. PS. It was the Clinton Administration that passed underhandedly NAFTA & Cafta,...

    December 9, 2008 at 5:12 pm |
  9. jim

    I was against the bailout of the financial companies. If they weren't bailed out, I would be against giving a bridge loan to the Big 3. Since that wasn't the case, I believe the automakers should get a loan with no questions asked same as the financial and insurance companies got. . Thats called being unbiased. The automakers are in this predicament due to the financial crisis and the high oil prices last summer. Remember toyota and Honda sales were down by 34%. Has noting to do with fuel economy. Now that oil prices are down below $50 a barrel, they should be able to marketing their existing models and concentrating on making more fuel efficient vehicles for future years which they should have done in 2004. That is including the foreign carmakers too!.

    Congress has accused the Big 3 of not making fuel efficient vehicles. Their small cars fuel economy is not much different thatn the foreign car makers. It should be noted that foreign car makers were also making large pick up trucks and SUV's

    December 9, 2008 at 5:06 pm |
  10. Jolene, St. Joseph, MI

    I thought a part of the plan was for the Big 3 CEO's to take a substantial cut in pay ($1 a year). Chrysler's CEO is currently not getting paid a salary yet appears to be dedicated to the cause of saving Chrysler. So tell me who would accept the job of CEO and lead the Big 3 out of bankrupcy with no pay?

    Can't wait to hear who the new "Car Czar" will be....

    December 9, 2008 at 5:00 pm |
  11. roland jenkins

    The auto loan can realy work if the oil companies were part of the answer, G.M. could be selling flex fuel cars in the U.S. like they have for the last five years in Brazil but the oil companies in the U.S. unlike Brazil are not offering E-85. Ford Has the 4 cars with 4 cl. and a hybred,also we need made in the U.S.A. batteries for the G.M. Volt

    December 9, 2008 at 4:24 pm |
  12. Joanne, Solvay, NY

    Thanks for the information about the economic fix of capturing waste energy from dirty industry and turning it into clean power. May I also suggest:
    1. Rebuilding and updating our power grids all across the continental US.
    2. Offering the automakers a demand to produce mass transit (trains) for commuters in cities under a population of 250,000.
    3. Firing up the steel production in Bethlehem and take back manufacturing by the roots...steel production from foreign outsourcing.
    4. Disallowing retirees from collecting both Medicare and private health insurance...drop the medicare, it's duplication of expense for taxpayers. Also, allow married couples to pick an insurance carrier between the partners and not maintain the "one that is free" while doubling up by contributing the least to the one that offers the most.

    Greed also infests some middle class Americans.

    December 9, 2008 at 4:04 pm |