Credit Card Cuts

This article discusses the reasons for the expected $2 trillion in credit card line cuts and some strategies for how consumers may deal with those cuts.

Bush to use TARP money

With the collapse of a bailout bill, President Bush is expected to use a portion of the $700 billion Troubled Asset Relief Fund (TARP), the massive federal bailout passed a few weeks prior to the election.

For President Bush, this is proving to be the worst of both worlds. The Democrats were unwilling to go ahead and release the previously authorized $25 billion loan, which was given to help the automakers become more fuel efficient. And the Republicans were unwilling to get a bill passed for the $14 billion bailout.

Now President Bush is forced to do something he didn’t want to do: use the TARP money for the auto dealers. Some Republicans are alleging the UAW refused to compromise on wage cuts because they knew if the bailout bill failed, that President Bush would have no choice but to take some TARP money.

Whatever the case may be, everyone looks bad in this deal. The car industry is quickly using up its political capital. What happens next year if the automakers need more bailout money? What kind of reception will they get from Congress then? Especially if they are coming in with the same problems they have now.

GM has said it will cut 30% of its North American production during the first quarter. This, however, may not be enough. The facts are that American cars are not seen by American consumers to be as good as foreign cars, and that with the badly faltering economy, a lot of consumers simply aren’t buying cars anyway.

If GM doesn’t make massive cuts now, even deeper than the ones they propose, they will come back to Congress and they may find a far less receptive audience.

Congress mulls $15 billion bailout

Stunned by the loss of 500,000 jobs, the worst month in 34 years, Congress is considering a $15 billion bailout for the automakers.

Speaker Pelosi has dropped her opposition to re-directing a previously passed $25 billion loan to the Big 3 automakers for the development of environmentally better, more fuel efficient cars. This is something that President Bush supported.

There is no support whatsover from Congress to take a portion of that $700 billion and give it to the automakers. But there is enough support to change that loan and release those funds to the Big 3.

Will the Big 3 automakers be forced to file for bankruptcy?

My prediction is that they will not be.

Majority Leader Harry Reid is saying that currently there are not enough votes to get a bailout bill passed:

Not enough votes

This is true, but Congress has already approved $25 billion to the Big 3 to help them produce more efficient, environmentally improved vehicles. President Bush, some Republicans and some Democrats are pushing that this $25 billion be used instead for a bailout package, instead of the Big 3 taking money from the previously approved $700 billion bailout package from a few weeks ago.

That $25 billion hasn’t been distributed yet, and President Bush is calling for the release of those funds.

But Congress is doing something by not releasing the money: they are forcing the Big 3 and unions to make wholesale changes in their industry: union contracts, benefits, the types of cars that are made. A complete re-evaluation of the entire industry. Congress is using the purse strings of that $25 billion to hold Detroit’s feet to the fire, so to speak.

And Congress so far has forced a lot of change. And more needs to happen, and will happen.

Eventually that $25 billion will be released. And if that money isn’t enough, then Detroit will have to come back to Congress to ask for more. But then Congress can legitimately ask: what changes have you made in this intervening time period.

Without this push, the Big 3 would continue to do the same old, same old.

Which clearly hasn’t worked.

Credit card lines to be cut by $2 trillion

Credit card companies are expected to cut credit lines by $2 trillion over the next 18 months.

This will lead to a sharp drop in consumer spending, which will lead to more trouble for retail businesses, which will lead to retailers laying off workers, which will lead to more foreclosures, which will worsen the economy.

But since banks have no money to lend out, they have no choice.

Sarah Palin visits Georgia

Alaska Governor Sarah Palin, the first woman Vice Presidential nominee for the Republican Party, visited Georgia this weekend, including a stop in Atlanta on Monday to campaign for Saxby Chambliss for the Tuesday runoff.

Regardless of who you may support, we encourage you to vote TODAY, TUESDAY, in the special runoff election.

Global car sales

Swedish, Japanese and South Korean car sales dipped significantly in response to the worsening global financial crisis.

GM and Ford have approached the Swedish government about financial aid for Saab and Volvo.