Bailout failure shows leadership vacuum

The Senate’s defeat of a White House-backed bailout for the auto industry pushes General Motors Corp. to the brink and puts pressure on President BushPresident Bush to reconsider his refusal to tap Treasury funds to stave off bankruptcies this winter among Detroit’s Big Three.

Just 10 Republicans supported the $14 billion loan package on the 52-35 roll call, which fell well short of the 60 needed to move forward. It was a major defeat for the lame duck president, but more importantly underscored a larger vacuum in leadership in Washington with Bush unable to deliver his party, Federal Reserve Chairman Ben BernankeBen Bernanke clinging to the sidelines, and the incoming Barack ObamaBarack Obama still hesitant to use his election mandate to rally his former colleagues.

Obama never threw himself into the fight in a major way, and in contrast with the mortgage foreclosure crisis, Democrats seemed almost intent on protecting him from being entangled in the fight. But if GM falls into bankruptcy now, followed quickly by Chrysler LLC, it will greatly compound the unemployment crisis the new president faces Jan. 20th.

A frustrated Sen. Carl LevinCarl Levin (D-Mich.) condemned the outcome as one of the “most costly filibusters” in Senate history, and after a day-long effort to try to find a final compromise, Senate Banking Committee Chairman Christopher DoddChristopher Dodd (D-Conn.) warned the Senate that in the midst of already difficult economic times, “We are about to add to that by walking away.”

Asian markets fell Friday after the news, and Majority Leader Harry ReidMajority Leader Harry Reid (D-Nev.) predicted that Wall Street is “not going to be a pleasant sight.” But in truth the markets were never a driving force in the month-long auto industry debate, which proved a poor stepchild in dollars and drama to the larger fight in September and October over Treasury’s $700 billion financial markets rescue fund.

Fatigue from that battle, and the bruising national elections in November, drove down Republican support. And much as pro-labor Democrats were more willing to carry the ball for the administration, they were not eager to claim ownership for the bailout plan.

The final day in the Senate captured these different currents as Dodd and the United Auto Workers made a last effort to reach a compromise that would bring over Republican support. But the talks broke down over conservative demands that the UAW accept wage cuts by a date certain in 2009, putting its members at parity with workers at auto plants owned by foreign competitors like Toyota and Honda—many in the Republican South.

The date certain was pivotal to a proposal by Sen. Bob CorkerSen. Bob Corker (R-Tenn.) to toughen the terms set in the underlying administration’s bill, which had cleared the House Wednesday night. Corker demanded large concessions as well from bondholders to reduce the debt levels on GM. But the labor provisions were the most contentious, and much as the UAW gave ground on several fronts, it resisted the date certain demand as unfairly political.

“What my colleagues would like to see is just a date certain when something is going to occur,” Corker said before the vote.”We offered any date in the year 2009—any date, any date, just when will we actually get there.”

Corker’s day in the limelight followed Senate Minority Leader Mitch McConnellMitch McConnell (R-Ky.) announcement Thursday that he would oppose the administration’s plan, all but assuring its defeat. This set the stage for the first term Tennessean to step forward with a five-page amendment that set specific benchmarks for the industry to restructure itself by Mar. 31.

Critics argued that Corker overreached, intruding too much on management and the union’s relationship. But the strong medicine has political appeal, and the former Tennessee businessman has steeped himself in the details of the auto crisis and won the admiration of key Democrats close to leaders in both the House and Senate.

The talks brought together a remarkable set of stakeholders who converged Thursday afternoon on a set of Foreign Relations Committee meeting rooms off an ornate lobby on the first floor of the Capitol. Corker and Dodd were the chief negotiators together with Majority Whip Richard DurbinRichard Durbin (D-Ill.).

Labor was represented in the room by Alan Reuther, legislative director the UAW. And along with representatives of GM, Stephen A. Feinberg, the reclusive founder of Cerberus Capital Management – which owns a major stake in Chrysler--came and went as the negotiations ran into the evening.

“Look, it’s cramped and that’s the only way it’s going to happen,” Corker said of his demands also put on bondholders. “The only way this debt is going to get structured in a proper way is to do it under intense pressure.”

“We’ve been on the phone this morning with people who are talking to bondholders. They’ve actually organized on a conference call to talk about this. But I assure you the only way this is going to happen is if there is a firm deadline and people have to make it happen…It creates that sense of crisis.”

The fact that the UAW engaged in the talks reflected its own concerns that Treasury may not yet agree to be backstop for Congress. But the union’s approval was always decisive for Democratic leaders, and Durbin warned early that Corker was asking a lot.

“It’s possible that it will be a bridge too far." By agreement, Corker took back the last best offer to his caucus for a party meeting Thursday night, after which the decision was made the two sides were at impasse.

With a large auto presence in his home state of Kentucky, McConnell had been seen as a potential ally for the industry after providing crucial support for the Treasury Department’s financial markets rescue fund this fall. But he has since endured a punishing reelection fight. And faced with strong resistance in his caucus, he said that the bill "isn't nearly tough enough” and that he could not ask taxpayers to “subsidize failure.”

Any successful amendment would have been subject to further action by the House, which has been preparing to go home for the year after just 32 Republicans supported passage on al 237-170 vote Wednesday night.

House Financial Services Committee Chairman Barney FrankBarney Frank (D-Mass.) had hoped the better-than-expected margin could help tip the scale in the Senate, but Speaker Nancy PelosiNancy Pelosi didn’t hide her unhappiness with the lack of Republican support — a harbinger of Thursday’s collapse.

“To have just 32 Republicans, you think, ‘Why don’t we write our own bill?’” she told Politico, citing the concessions she made to the White House. “And the California Democrat predicted Paulson may have to intercede.

“He may. He may,” Pelosi said.

But UAW officials were less convinced, which is why Reuther made the trip to the Senate to try to reach a deal—and save the bill.