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Struggling Automakers Press Congress for Federal Aid

On Capitol Hill Tuesday, Ben Bernanke and Henry Paulson defended their economic rescue strategy and automakers made their case for federal aid. Senators detail the debate over using bailout funds to help automakers.

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  • GWEN IFILL:

    Congress returned to Capitol Hill today. And among the first items on the docket, bailing out business. The question: Are bailouts working? And who should get them?

    Congressional correspondent Kwame Holman begins with a report on today's hearings.

  • KWAME HOLMAN:

    Treasury Secretary Henry Paulson's appearance at the House Financial Services Committee hearing this morning came amid strong criticism for the way he's handled the $700 billion rescue package for the financial industry.

    Paulson has shifted the focus from buying up bad assets to investing directly in banks and financial companies.

    Today, for the first time, he defended that approach before Congress, which has gathered for a post-election session.

    Alongside Federal Reserve Chairman Ben Bernanke and Federal Deposit Insurance Corporation Chair Sheila Bair, Paulson declared the Troubled Asset Relief Program, or TARP, has had success.

  • HENRY PAULSON, U.S. Treasury Secretary:

    The authorities in the TARP have been used to strengthen our financial system and to prevent the harm to our economy and financial system from the failure of a systemically important institution.

  • KWAME HOLMAN:

    But he faced tough questions from members who want more federal action to prevent home foreclosures, the original source of the financial meltdown.

    The FDIC's Bair also stressed the need to do more there. She's estimated 4 million to 5 million loans will enter into foreclosure over the next two years.

  • SHEILA BAIR, Chairman, Federal Deposit Insurance Corporation:

    As foreclosures escalate, we're clearly falling behind the curve. Much more aggressive intervention is needed if we are to curb the damage to our neighborhoods and to the broader economy.

  • KWAME HOLMAN:

    Committee Chairman Barney Frank asked why massive federal funds were used to prop up troubled insurance giant AIG and not to assist homeowners.

    REP. BARNEY FRANK (D), Massachusetts: I don't know what investment counselor, absent macroeconomic conditions, would have advised you to invest in AIG. I suspect it does not rate highly as an investment these days.

    I hope it goes well going forward, and there's no question that this will be helpful to it, but $40 billion for AIG, and then we can't find $24 billion on the mortgage foreclosure is part of the reason we have the real problem with the country.

  • HENRY PAULSON:

    AIG was a situation, a company that would have failed had the Fed not stepped in. Had we had the TARP at that time, this is right down the middle of the plate for what we would have used the TARP for.

  • REP. BARNEY FRANK:

    I'm not objecting to AIG. But the point is that clearly part of this was not just to stabilize, but to reduce the number of foreclosures, for good macroeconomic reasons. And so, again, the intent couldn't be clearer, from what I've read.

  • HENRY PAULSON:

    I am going to keep working on this and looking for ways to use the taxpayer money as they expect me to here with regard to foreclosure mitigation. We have been, you know, as recently as last week taking a step which I think will have…

  • REP. BARNEY FRANK:

    No, I'm sorry, Mr. Secretary. Those are not substitutable. Because I will tell you this — and I apologize for taking the time — it is nobody's view that we have been as successful as we need to be for the stake of the economy in reducing foreclosures. We have a very large pot that was intended to be part of that effort that's going untapped.

  • KWAME HOLMAN:

    The committee's top Republican, Spencer Bachus of Alabama, asked the secretary if giving financial institutions cash to lend had actually worked.

    REP. SPENCER BACHUS (R), Alabama: Do you think we're on the right track in restoring lending?

  • HENRY PAULSON:

    The way I look at where we are today is I think we've turned the corner in terms of stabilizing the system and preventing a collapse.

    I think there's a lot of work that still needs to be done in terms of recovery of the financial system, getting it working again, getting credit flowing again. I think this is going to be key to getting the economy going.

  • KWAME HOLMAN:

    Pennsylvania's Paul Kanjorski wanted some of the $700 billion used to help the battered U.S. auto industry.

    REP. PAUL KANJORSKI (D), Pennsylvania: Do you consider the loss of the American auto industry a significant and systemic risk or don't you? If we lose 3 million jobs, what would it cost to make it up?

    What would be the loss of revenue? And would it be worth spending $25 billion initially to stop that from occurring? And if we don't do that, what is our backup plan? And what do we intend to do?

  • HENRY PAULSON:

    I think it would be not a good thing, it would be something to be avoided, having one of the auto companies fail, particularly during this period of time.

    We have asked Congress — you know, Congress has worked to deal with this. But I believe that any solution be a solution that leads to long-term viability, sustainable viability here.

    And so, again, I don't see this as the purpose of the TARP. Congress passed legislation that dealt with the financial system's stability.

    And, again, you know, there are other ways. And, you know, you also appropriated money for the auto industry in the Department of Energy bill, you know, 136. And you want another alternative maybe to modify that.

  • KWAME HOLMAN:

    At a second hearing, this one on the Senate side of the Capitol, the big three automakers pleaded their case before a packed meeting of the Banking Committee.

    SEN. CHRIS DODD (D), Connecticut: If I had known the interest, I would have held this at RFK.

  • KWAME HOLMAN:

    Chairman Chris Dodd began by pointedly disagreeing with the treasury secretary's decision not to use the TARP to aid Detroit.

  • SEN. CHRIS DODD:

    The secretary of the treasury has until now declined to use that authority, and I regret that, focusing the resources of the act on financial companies. It's hard to explain how you can provide massive assistance to AIG but manage to find no room at all assistance for our three major automobile manufacturers.

  • KWAME HOLMAN:

    Top Republican Richard Shelby of Alabama opposed the original financial bailout legislation six weeks ago and was skeptical of the automakers' plea.

    SEN. RICHARD SHELBY (R), Alabama: How do they plan to deal with current management, labor, cost, and quality control, and product development shortfalls, which they know they have? Are we here in the Senate being asked to facilitate a stronger, more competitive auto manufacturing sector or to perpetuate a market failure?

  • KWAME HOLMAN:

    Alan Mulally of Ford outlined why his company needs assistance.

    ALAN MULALLY, President and CEO, Ford: We suggest the loans be structured in a revolving format so exposure to the taxpayer would be limited and, if used, we would repay them, of course, with interest.

    We at Ford are hopeful that we have enough liquidity, but we also must prepare ourselves for the prospect of further deteriorating economic conditions in 2009.

    In addition, the collapse of one of our competitors would have a severe impact on Ford and our transformation plan, because the domestic auto industry is highly interdependent.

  • KWAME HOLMAN:

    G.M.'s Rick Wagoner rejected the charge that the automakers' troubles mostly are due to their own mistakes.

  • RICK WAGONER, CEO, General Motors:

    Mr. Chairman, I do not agree with those who say we are not doing enough to position G.M. for success. What exposes us to failure now is not our product line-up, is not our business plan, is not our employees and their willingness to work hard. It is not our long-term strategy.

    What exposes us to failure now is the global financial crisis, which has severely restricted credit availability and reduced industry sales to the lowest per capita level since World War II.

    What would it mean if the domestic industry were allowed to fail? You heard Sen. Stabenow, so I won't repeat other than to say the cost would be catastrophic in jobs lost, income lost, government tax revenue lost, and a huge blow to consumer and business confidence.

  • KWAME HOLMAN:

    The leaders of the big three automakers take their plea to the House side of the Capitol tomorrow.

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