Will GM be bailed out?

Despite all of the tortured wrangling over whether the bank bailout bill can or should be used to bail out GM, it does appear that Congress is likely to step in and at least pass a partial bailout next week. Given the long list of issues involved with bailing out GM, especially the restrictions which Congress would like to place on GM, it is rather unlikely that a full-blown $100 billion bailout would sail through Congress in just a few days. But, a "bridge" bailout to give GM a little breathing room until the new administration is in office and Congress has time to hold hearings, craft a detailed bailout proposal, and then enough time to sell the proposal to the various constituencies seems more likely. Maybe something in the $25 billion range makes sense.

The bank bailout bill was originally intended to shore up banks and the rest of the financial system and not be a general economic bailout. Sure, Congress can re-legislate the bailout, but that may simply open up a can of worms for all manner of other modifications that various groups want since few people are very happy with the current state of the bank bailout. Better to craft a simple, narrow bill to bridge GM until February or March.

Or... Pelosi and Reid can simply agree to pass the Coulmbia free-trade bill and then President Bush would be much more amenable to instruct Paulson to "interpret" the bank bailout program as desired to give $25 billion to GM. The easiest way would be to "buy" part or all of GM's interest in GMAC (which would fit naturally under the bank bailout) for $25 billion or so. Or, at least do that purchase as a "repo" loan to be paid off from the eventual full bailout in the spring. Actually, GMAC is probably not worth $25 billion, but a repo could be done anyway. Or, limit the bailout to the estimated value of GM's share of GMAC. That should probably be enough to hold GM until February or March.

In any case, some form of bailout is very likely. Bush, Pelosi, and Reid would all look rather stupid without it. They are simply playing a game of political chicken to see who blinks first.

-- Jack Krupansky