More auto industry-linked businesses eligible for bailout
— -- The U.S. Treasury threw the door open to taxpayer financing for more companies and industries by drafting broad guidelines on auto industry aid.
"There are going to be other industries that are going to have just as good a case," as the auto companies, former St. Louis Federal Reserve Bank president William Poole said in an interview. "We don't know what those other industries are going to be. Where does this process stop?"
The Motor & Equipment Manufacturers Association has been lobbying for use of federal funds as a backstop for parts makers in case they can't collect money owed by automakers.
The Treasury guidelines may encourage more guessing on what companies and industries are next, said Vincent Reinhart, resident scholar at the American Enterprise Institute in Washington.
Treasury officials "much prefer discretion, and so they would view the statement as being constructively ambiguous," Reinhart said.
The guidelines don't bind the government, so President-elect Barack Obama will have plenty of leeway to decide who succeeds and fails when he takes office. The bailout originally designed to buy assets from banks has become a fund to prop up lenders, insurers, carmakers and their finance arms and, now, any company that's important to those industries.
"The further you go, the slipperier the slope becomes, the more you open the door to anyone who says, 'Look, my firm is in trouble, I need help, too,' " said Lyle Gramley, a former Fed governor and now a Washington-based senior economic adviser for Stanford Group. "We don't want to go any further down that road than we absolutely have to."
The Treasury already has provided $6 billion in aid to GMAC, the financing arm of GM, and up to $17.4 billion for GM and Chrysler from the $700 billion bank rescue fund. GM on Wednesday got the first $4 billion loan of a $13.4 billion package. Chrysler is still negotiating details for its $4 billion.
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