The Los Angeles Timesand the Wall Street Journalbanner, while USA Today, the New York Times, and the Washington Postlead with, news that the Obama administration forced the head of General Motors, Rick Wagoner, to resign and has put both GM and Chrysler on notice that they won’t get another round of federal aid unless they come up with a more aggressive restructuring plan. President Obama is set to announce today that the restructuring plans presented by GM and Chrysler earlier this year didn’t go far enough to dig the companies out of their current mess, and he will give them more time, coupled with stricter conditions, to come up with more realistic plans. Administration officials emphasized they’re prepared to let the companies fall into bankruptcy.
The NYT declares that the decision amounts to “a level of government involvement in business perhaps not seen since the Great Depression” while the WSJ points out that it indicates the Treasury Department “intends to wade more deeply than most observers expected into the affairs of the country’s largest and oldest car company.” The White House will give GM 60 days to come up with a new restructuring plan, while Chrysler will have 30 days to work out an alliance agreement with Italian automaker Fiat. The government will give both companies just enough money to survive that period. If Chrysler and Fiat reach an agreement, the government would be willing to lend Chrysler another $6 billion.
In addition to pushing out Wagoner, the administration’s auto task force also said that GM is in the process of replacing most of its board of directors over the next few months. Wagoner has spent his entire career at GM, where he started in 1977, rising to become the company’s leader in 2000. In his years as GM’s top executive, the automaker “has lost $68 billion while the company’s stock has declined by 95%,” details the LAT. The administration isn’t asking Chrysler’s chief executive, Robert Nardelli, to resign, because he’s only led the automaker since 2007 and is playing a key role in negotiating the deal with Fiat.
To reassure consumers who might be reluctant to buy GM or Chrysler cars, the government intends to guarantee the warranties on new cars for either company. Essentially, the government is telling the companies that in order to become viable businesses, they will need to get significantly more concessions from their employees and creditors. Recognizing that further restructuring will result in more job losses, the president named Edward Montgomery as director for auto recovery, a position the LAT describes as “a new executive-branch czar charged with providing support to laid-off auto workers and their families.” The WSJ declares that the “clearest losers” seem to be the “thousands of bondholders and lenders” to both companies, since the government said it is currently saddled with too much debt that will need to disappear if the automakers are going to have a shot at survival.
The LAT points out that by issuing an additional lifeline to the automakers, “the administration appears to be violating the terms of the December loan agreement,” which specified that the White House had until March 31 to decide whether the companies had met all the conditions. Under the original agreement, if the companies didn’t meet the conditions, they would have a maximum of 60 days to pay back the loans. Giving the companies what is being billed as one last shot shows how the administration has “a deep desire to keep the industry alive and avoid the economic calamity that could come from its collapse, despite the increasingly long odds against it.”
The LAT fronts a look at how the problems at American International Group extend far beyond the division that traded in exotic financial instruments and includes the company’s huge business in life insurance and retirement services, which reported an $18 billion quarterly loss this month. AIG’s “situation is emblematic of problems across the life insurance industry” that, in the worst of circumstances, could result in a “second financial crisis.” Although few think that the problems the insurers are facing are as extreme as those in the banking industry, experts caution that they haven’t been looked into as thoroughly, so there’s a lot that is still unknown. AIG has been able to get around its problems due to the major infusion of taxpayer cash. Now other insurers are asking for bailout packages of their own, saying that AIG has an unfair competitive advantage.
The WSJ notes that after a long period of silence, the Treasury Department finally said it has around $134.5 billion left in its Troubled Asset Relief Program. That means 81 percent of the $700 billion has been committed and suggests the White House won’t have to go to Congress for additional funds just yet.
The NYT points out that as home values continue to decline, banks are “quietly” starting to refuse to take possession of properties after the foreclosure process, mostly because the associated costs are too high. The “bank walkaways” usually mean the owners are still responsible for keeping up their properties, even if no one expects that more payments will be made on the mortgage. “It is what some of us think is the next wave of the crisis,” an expert in foreclosure law tells the paper.
The WP fronts a dispatch from Baghdad that notes weekend clashes between Iraqi soldiers and U.S.-backed Sunni fighters could foreshadow a growing insurgency as the Obama administration prepares to withdraw combat troops. In an effort to end two days of violence, Iraqi soldiers backed by American troops carried out an operation in a Baghdad neighborhood to arrest members of the Awakening, the movement made up of former Sunni insurgents that is largely credited with the decrease in violence in Iraq. The clashes began on Saturday when an Awakening leader was arrested, which brought to the forefront simmering tensions between the Sunni fighters and the Shiite central government. Many saw the arrest as a direct attack on the Awakening and say that it’s the latest example of how the government is trying to marginalize them rather than incorporate them into the country’s security forces. The big fear is that the violence could spread to other areas controlled by the Awakening and might push more Sunni fighters to go underground and join the insurgency.
The WSJ reports that a group of Philadelphia tour guides is fighting a City Council plan to force every tour guide to take a history test. Philadelphia’s leaders made it illegal to give historical tours without a license, but three guides sued the city, claiming that the law is a violation of the Bill of Rights. The law came about after another tour guide participated in several of these excursions and concluded “that maybe 50% of the tour guides didn’t know what the hell they were talking about.” Among the things he overheard was one tour guide saying Ben Franklin had 80 illegitimate children and George Washington is buried in Washington Square.