Why Congress Should Rescue GM--and When

The automakers are begging Congress for a $25 billion handout. I see no reason why Congress should refuse. Specifically, I think members have incentives to make it happen before the lame-duck session ends, but not before showing the companies who is the boss.

Why $25B in lame duck session

Members are debating a $500B stimulus package; next to that, $25B is small potatoes. On the other hand, $25B is also small potatoes next to GM's $60B negative equity--or its $6.9B/month burn rate. At this rate, GM will burn through the $25B package in 3 and a half months, just in time for 111th Congress to debate the issue again. A larger majority and a president from the same party should make it easier to work out a more comprehensive (i.e. larger) solution then. $25B is bridge money.

Who's boss

Congress has the power to ruin GM, by doing nothing, but why should it? The downside is a meager $25B. The upside is an opportunity for more legislative involvement in running and regulating private business. Executive pay is one issue that has been debated recently. In the same way the Congress checks and balances the executive by holding the proverbial purse strings, it wants to check and balance business. It should give automakers their bone, but it should first make them bow their heads, Burghers-of-Calais-like, and display a newfound humility before Congress that will be a lesson to captains of industry.

The upshot

If this speculation is correct, Congress will make angry sounds for a few days. GM's stock should fall on these threats, and then rise promptly when the eventual handout comes. The higher price may not hold, but GM could be a good flip later this week or early next.