The latest and one of the most bizarre aspects of the decision of whether the US government will make loans available to bailout Detroit is the battle over which federal agencies can provide capital and which cannot.

According to MarketWatch, "Despite the opinion by the Government Accountability Office that the automakers could receive funds from the $700 billion bailout fund, Treasury Secretary Henry Paulson disagrees." The Fed has already turned down a request to be the source of capital.

Regardless of where the Federal funding originates, a large chorus of experts are saying the the first request for $34 billion in loans from The Big Three will not be enough. The costs of cutting workers, paying debt holders, and writing checks to suppliers will be too great when added to the expenses of altering plants to make more fuel-efficient cars.

There is also a real chance the the overall car sales market in the US will contract again next year and in 2010 and that the Japanese will pick up more market share. The plans that the Detroit firms are presenting to Congress do not clearly address those possibilities.

MarketWatch: "Mark Zandi, chief economist for Moody’s Economy.com, testified that the companies would need $75 billion to $125 billion over the next two years to avoid bankruptcy."

Fiddling while Rome burns.

Douglas A. McIntyre

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