Hank Paulson slapped the markets, lawmakers and the public silly today.  After first demanding and then begging for a free hand in dealing with the financial crisis, Congress gave the ok for the $700 billion bank bailout package, only to be told today that Mr. Paulson would rather spend the money taking an equity interest in banks. Paulson’s also gave his comments regarding his opinion on the ailing auto industry; he is not enthusiastic about the possibility of bailing out the auto makers to the tune of $25 billion.

Policy makers, Politicians and Pundits are conflicted: A bailout for the auto industry is seen as throwing good money after bad. The US auto industry has limped along ever since the first oil crisis in the ‘70 illustrated just how much the industry was out of touch with the market. It hasn’t improved much in subsequent years, and has continued to embrace gas-guzzling products. Others claim that the auto industry is too big to be allowed to fail; that the cost in terms of impact to our whole manufacturing chain would be overwhelming: affecting parts suppliers, service suppliers, and dealers.

As usual the truth is somewhere in the middle. While the ripple effect of the failure of the auto industry would be serious, it would not have the same effect as it would have 40 years ago. The auto industry no longer employs the vast numbers of US workers that it once did. In 2007, Ford and GM were the 13 & 14 largest employer in the US, behind companies such as Walmart, Home Depot, and Target; companies which did not exist 30 years ago.

Of course, the auto industry isn’t completely at fault for their lack of innovation. Every administration since the Carter administration has had an opportunity to address our energy infrastructure. In particular the current Bush administration missed a opportunity after 911 to call for a ‘energy-freedom tax’. An tax which would have established a minimum price for a barrel of oil. A minimum price which would have provided innovators with the confidence to invest in an otherwise wildly fluctuating market.

But, I would like to tell the US auto industry to take a powder. When the industry asks for $25 billion in order to “innovate”, I would suggest that they have had 30 years to innovate since the last oil crisis. No other industry comes hat-in-hand to the American taxpayer for funding for innovation. As Tom Friedman suggests: we ought to put Steve Jobs in charge of GM. Given a free hand, Mr. Jobs would build the next iCar, kick some ass to get it done fast, and done right! Of course, it is unlikely that Steve could be coaxed into such a task, but it seems like wild idea!

Seriously though, the current financial and economic crisis may provide an opportunity to innovate by addressing several concerns through one wide ranging initiative for the incoming Obama administration. The administaration should agree to a auto bailout with several strings attached:

• Current senior management must go.
• Immediate commitment to develop and bring to market a product line of all electric vechicles, and/or plugin hybrids.
• Product lines must be slashed. (Think Apple’s laptop product line not Dell’s)

The bailout would actually be part of a larger initiatve to develop an all electric energy infrastructure over the next 15 years.  Al Gore has proposed a 10 year program which will take an aggressive approach to energy independence by:

• Creating an alternative energy economy utilizing wind, solar, and geothermal sources
• Developing and deploy a intelligent electrical grid
• Encouraging energy efficiency
• Creating an all electric energy transportation system

Come to think of it.. Al Gore IS on the Apple board. Perhaps Al can convince Steve to get involved after all.