Does Obama's Aggressiveness With GM Reconcile To His Financial Bailouts?

TW: Many have asked why is Obama being a hardass with GM while pandering to the banks. They are different situations requiring differing responses. A simple concept lost to many. The banks have a balance sheet problem, a very huge balance sheet problem whereby their assets are worth far less than book value but their underlying businesses do produce profits. In time the banks will be restored to "normalcy". In addition, it is a dead certainty without a viable banking system one does not have a viable economy.

The automakers as an earlier post showed are in a long-term sectoral decline. As currently structured their legacy costs not only related to retirees but also just old installed capital bases are not profitable now and will never realistically be profitable. Obama has a choice between the lesser of two evils, bite the bullet now or kick the can down the road. Those legacy costs have to be addressed through a combination of retiree concessions, bond holder haircuts and taxpayer subsidies. We can do it now or later. Now is not a good time to do it given the overall economy but there does not appear to be a viable alternative.

From Jim Suroweicki at New Yorker:
"In the wake of the Obama Administration’s decision to take a hard line on bailout funding for G.M. and Chrysler, there’s been a lot of talk about why there seems to be a double standard at work in the way the Administration is dealing with the automakers and the way it’s dealing with the banks. This may well be a premature conclusion: it’s not obvious that the Administration won’t adopt a tough line with at least some banks after the stress tests are completed next month. But to the extent that there does seem to be a difference between the Administration’s strategy for dealing with the two industries, there is an obvious explanation: it’s relatively easy to see how the banks can return to profitability, while it’s much harder to see how the automakers can become profitable again, at least in the absence of the kind of radical restructuring you’d get through bankruptcy or some kind of deal with the bondholders.

The money the government has been giving the automakers has been going not to shore up their capital base, but literally to pay their bills. In the absence of government aid, the automakers would have had to shut down their factories because of their inability to pay suppliers and workers. That’s not true of even the most troubled big banks, which are having no problem meeting their debt payments or paying their bills: the government’s aid has gone instead to replenish their capital and allow them to stay in regulatory compliance. That doesn’t mean the government’s aid was not essential, but it was different: the money the government gave G.M. has already gone out the door, while in the case of the banks it’s still, for the most part, sitting on their balance sheets (which is where it’s supposed to be)..."