By Ravi Bhatia – Talk Radio News Service

During testimony given before the House Financial Services Committee Thursday, Treasury Secretary Timothy Geithner echoed the White House’s support for Committee Chairman Rep. Barney Frank’s (D-Mass.) proposal that would grant the Federal government the authority to take control of failing financial firms.

Frank’s legislation would create a fund paid for by businesses with over $10 billion in assets in order to bear the costs of big firms that fail. Such costs were incurred by American taxpayers in the 2008 bailouts of banking company Citigroup and General Motors. It would also create a Financial Oversight Council, led by Geithner, to set policy and stricter regulations on the firms, and mediate arguments between federal agencies.

“It’s not about redemption for the firms that make mistakes,” Geithner said. “It’s about unwinding them in a way that doesn’t cause catastrophic damage to the economy.”

The Committee will vote on the legislation as early as next week. The committee’s Ranking Republican, Spencer Bachus (R-Ala.), opposed the legislation and the speed at which it is being pushed.

“The draft legislation that was supposed to be the subject of this hearing was not received until Tuesday afternoon,” he said. “I doubt that any of today’s witnesses, with the possible exception of Secretary Geithner, have had the opportunity to fully comprehend the legislation entirely.”

“Their proposal places taxpayers first in line to bear the losses when the government invokes its resolution authority,” added Bachus.

In a statement released before her testimony on Thursday, Federal Deposit Insurance Corporation Chairman Sheila Bair said that the proposed Oversight Council lacks the authority to “effectively address systemic risks.” She recommended that the President appoint an independent chairman, subject to Senate confirmation, to fill the role Geithner would otherwise.

“A Council with regulatory agency participation will provide for an appropriate system of checks and balances to ensure that decisions reflect the various interests of public and private stakeholders,” Blair said.

Geithner said that he believes Frank’s bill will update the federal government’s financial regulatory system to match what he called, “21st century” challenges.

“The Council will have the obligation and the authority to identify any firm whose size in leverage and complexity creates a risk to the system as a whole and needs to be subject to heightened, stronger standards on leverage,” he said. “The rules in place today are inadequate and they are outdated. We’ve all seen what happens when in a crisis, the government is left with inadequate tools to respond…. That is a searing lesson of last Fall.”

House Majority Leader Steny Hoyer (D-Md.) says that Chrysler and GM could not explain why they closed many dealerships (0:23).

 

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Lelica Callaremi, who owns an automobile dealership in New Jersey, asks Congress for more support for the Automobile Dealer Economic Rights Restoration Act of 2009 and asks Fritz Henderson and James Press (CEOs of GM, Chrysler) how they sleep at night (0:14).

 

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Rep. Betty Sutton (D-Ohio) says that by preventing GM or Chrysler from shutting down independently owned dealerships, Congress does not intend to preserve the brand of GM or Chrysler. Rather, Sutton says, Congress is making the move to save jobs (0:14).

 

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Rep. Sheila Jackson Lee (D-Texas) says that the ability for GM and Chrysler auto dealers to keep their dealerships open is a civil rights issue at a news conference where many auto dealers whose dealerships have been closed were present. In recent months, the Presidents of GM and Chrysler have begun shutting down numerous, and sometimes profitable, dealerships (0:23).

 

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By Courtney Ann Jackson-Talk Radio News Service

Senator John McCain (R-Ariz.) comments on how he believes it’s “beyond belief” that the federal government is running General Motors and Chrysler. He said he believes they will go back into bankruptcy within 2 to 3 years. (0:25)

 

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The U.S. financial crisis facing auto-makers has begun to take its toll on the dealers as well. Following the declaration of bankruptcy by both Chrysler and General Motors, two of the U.S.’s largest auto-manufacturers, the companies put forward a plan to restructure their dealership networks. Chrysler will terminate the contracts for 789 dealerships while General Motors plans on terminating over 1,100.

“This has been the most difficult business decision I’ve ever personally had to take, but the decisions had to be made. They were gut-wrenching, but absolutely necessary for Chrysler’s survival,” said James Press, Chrysler President, during a hearing with the Senate Committee on Commerce, Science, and Transportation today.

Dealers have cited a number of concerns over the restructuring. Many dealers were not told why their contracts will be cancelled as opposed to others and questions remain over the reasoning behind shutting down the franchises when the dealers cover all expenses.

Perhaps most distressing for the dealerships is the timeframe in which they have to close-shop. While General Motor’s is giving their franchises till October 2010 to gradually sell their inventory, Chrysler has ordered its dealerships to perform the same task within twenty-six days.

“You just can’t close a dealership in 3 weeks,” said Russell Whatley, a Chrysler dealer who appeared as a witness before the committee. “We have an 8 month supply of vehicles and only three weeks to clear them out.”

Former Vice President Dick Cheney explains why he does not perceive the help GM will receive as the best solution to overcome and recover from the financial crisis. Amongst other reasons, Cheney says that going through the chapter 11 process which allows for the reorganization of a firm might be a good way to start over. (1:02)

 

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By Michael Combier-Talk Radio News Service

President Barack Obama announced today that even though 400,000 jobs have been lost before this restructure of General Motors has begun, more will come in the future, more plants will close and more dealerships will shut their doors. (1:12)

 

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By Michael Combier-Talk Radio News Service

Two months after laying his plan with his Auto Task Force to keep struggling U.S. auto giants from collapsing, President Barack Obama announced today that General Motors has filed for Chapter 11 bankruptcy.

“Working with my Auto Task Force, GM and its stakeholders have produced a viable, achievable plan that will give this iconic American company a chance to rise again. It’s a plan tailored to the realties of today’s auto market – a plan that positions GM to move toward profitability, even if it takes longer for our economy to fully recover; and it’s a plan that builds on GM’s recent progress in making better cars,” Obama said.

Also today, Fritz Henderson, GM President and CEO, said that: “The economic crisis has caused enormous disruption in the auto industry, but with it has come the opportunity for us to reinvent our business. We are going to do it once and do it right. The court-supervised process we are pursuing provides us with powerful tools to accelerate and complete our reinvention, as well as strong safeguards for our customers and our business. We are focused on the job at hand, for the benefit of our customers, employees, dealers, suppliers, retirees, taxpayers, investors and other stakeholders.”

Obama said that GM will build a larger share of its cars in the U.S. and will be more committed to building more fuel-efficient cars.

In addition to the $19 billion already given to the company with federal loans, Obama said that the federal government is investing about $30 billion in GM which will “entitle American taxpayers to ownership of about 60 percent” in the auto company. Obama said his administration was doing this to protect jobs and “that is the only way to help GM succeed.”

The Obama Administration has no interest in running GM or making decisions for the auto company in the future, Obama said.

“GM will be run by a private board of directors and management team (that) will call the shots and make the decisions about how to turn this company around,” said Obama. “The federal government will refrain from exercising its rights as a shareholder in all but the most fundamental corporate decisions.”

But “building a leaner GM will come at a cost. It will take a painful toll on many Americans who have relied on General Motors throughout the generations… More jobs will be lost. More plants will be close. More dealerships will shut their doors, and so will many parts suppliers,” said President Obama.