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Wednesday, November 19, 2008

Wow

President of Chrysler:

"[As a condition of loan] We fully welcome the government as stakeholder, including as an equity holder [part owner]."

Wow I live in an interesting and scary time. I still don't get it though. If the problem is still largely liquidity and consumer's not buying autos in large part due to lack of financing, why don't we just take $25 billion or $50 billion and provide tax rebates to purchasers of automobiles with relatively high MPG. That helps consumers, helps the environment, helps automakers (from Japan or the USA or wherever).... It is true the effect on stimulating demand, dollar-per-dollar, would be less than government spending or a loan provided directly to US automakers, but it would still be substantial, and frankly seems a little easier pill to swallow.

6 comments:

Anonymous said...

Umm isn't it obvious? If the $25b is a loan and the US government takes an equity stake in the enterprise, then taxpayers have a chance of seeing that money again. If the government shells out the money as a tax credit, it's gone.

Garth said...

The problem is that, no matter how much money you provide to automakers, they will make no more money unless consumers are able to obtain financing either through easing credit markets or through direct tax incentive infusion. It would be one thing if you believed automakers would just take that $25 billion and provide directly or indirectly to consumers, but I doubt they would - more likely they would use for retooling, paying off debts, union cost etc.

Further, a tax incentive to auto buyers (consumers) represents consumers seeing that money again -like - right away. It would simply change where some consumers decide to spend their money.

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