No loan from Congress, but this is far from over

Yes, the auto loan from Congress fell through last night because the Democrats refused to budge in the negotiations with Republicans. And Harry Reid is urging the president to give the bailout to the auto makers through the TARP funds from the initial $700 billion for the bank bailout. From the WSJ today:

A frantic, last-ditch attempt to forge a relief package for the auto industry collapsed in the U.S. Senate, dealing a giant blow to the immediate hopes of the Big Three.

Senate Majority Leader Harry Reid of Nevada suggested the $14 billion wouldn't be revisited until January. "It's over with," he said.

The talks, which appeared close to a deal several times, broke off due to a sharp partisan dispute over the wages paid to workers at the manufacturing giants.

General Motors Corp. and Chrysler LLC, which have said they can't last the year without federal aid, both hope the White House will now relent and allow the Treasury to provide emergency loans from the $700 billion Wall Street fund, people familiar with the matter said. Mr. Reid also urged that option.

To date, the administration has resisted the idea. But "that may be where they go next," said Sen. John Thune (R., S.D.). There is always a chance Congress will act sooner if one of the companies totters on the brink, although that possibility appears remote. ...

GM has already hired some of the U.S.'s biggest names in restructuring to consider whether to file for bankruptcy protection, said several people familiar with the matter, in what would be one of the largest and most controversial filings in U.S. history. GM Chief Executive Rick Wagoner has been reluctant to embrace the concept, fearing it would scare off potential buyers, and he "still believes the company can't and shouldn't file," but decided in the last few weeks to hire the outside advisers, said a person familiar with the matter.

After a marathon day of negotiations, top Democrats appeared close to a deal that would toughen the bailout package in a bid to raise Republican support, which had proved an insurmountable stumbling block. The focus of talks was on seeking commitments to restructure the industry's debt load and bring labor costs in line with wages paid by Toyota Motor Corp. and Nissan Motor Co. in the U.S., among other things.

But those talks fell apart after Republicans insisted that wages reach parity in 2009. Sen. Bob Corker (R., Tenn.), who emerged as a pivotal player this week in negotiations over the industry's future, said negotiators were close to striking a bipartisan compromise.

Democrats were willing to reach parity, but not on such a swift timetable. Mr. Reid declared talks at an impasse. "We have not been able to get this over the finish line," he said. "We have worked and worked...that's just the way it is."

So this was such a crisis that the Democrats have given up. They couldn't strong-arm it through, so they're going home, and they're willing to let the auto makers fail. Later in the article Reid says they'll try again in January when the new, 111th Congress convenes. Why? Because the numbers are better for him then; he'll have a minimum of 57 votes he can count on. (It would be 58, but Obama's vacancy hasn't been filled yet.)

But the problem with this loan to the auto makers is that the Republicans haven't asked for a damn thing. It's all window-dressing, if you will, and nothing substantive. They can't even settle on what the "car czar" will do. Here's an idea for both sides: TAX CUTS. Cut the corporate tax rate on these guys down to like 12-15%. That's the first step. The next step is to tell them to file Chapter 11. This breaks the contract with the unions, and allows them to restructure. Cutting the tax rates helps them while they're going through the restructuring process. As for the unions, the Big 3 are going to have to renegotiate the contract, and the unions will have to be flexible.

Marcie and I have discussed this and we don't think it's prudent for the government to be loaning out any more funds to anyone. The banks were one thing. It was needed considering how many businesses were directly tied to the banks in danger. But the auto makers can dig themselves out of this by simply filing Chapter 11, and if Congress really wants to help, they need to cut the corporate tax rates.