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Posted by on Dec 20, 2008 in Economy, Politics, Society | 6 comments

Detroit Bailout: Conflicted and Confused

After reading the divergent opinions of the professional punditry, after consulting polls of public sentiment, after making a withdrawal from the ideological deposits in our respective brain-banks — many of us remain undecided on the import of the so-called bailout of America’s “Big 3” automobile manufacturers.

We understand and appreciate the various arguments and counterarguments.

We nod when we consider Judge Richard Posner‘s conclusion that “domestic producers should not be allowed to collapse at a time of profound and … worsening economic distress.” But we then flip and give props to Posner’s co-blogger, Nobel Laureate Economist Gary Becker, who argues that bankruptcy is the better option, that it “would strengthen rather than weaken the competitive position of the American automakers.”

We listen carefully when Congressman David Obey describes the larger economic situation as “a massive, massive hole that we are about to fall into unless we do something dramatic.” (Translation: Our government must shed its political shackles and do whatever it takes to keep this ship from, as VP-elect Joe Biden puts it, “absolutely tanking.”) But we also suspect Congressman Jeb Hensarling could be right when he describes the Detroit bailout as “a devastating precedent” … and that he’s darn close to right (sans exaggeration) when he predicts “the federal government will now be pressured to bail out every failing company in America — something that taxpayers and future generations cannot afford.”

In this highly conflicted state of mind, we manage to put on hold our revulsion for President Bush’s past deadly mistakes, and take temporary solace in his description of what sounds like a reasonable, interim compromise, to wit: General Motors and Chrysler would get “$13.4 billion immediately and another $4 billion in February if Congress approves and the companies meet targets for extracting concessions from unions and bondholders.” We are further assured when we hear echoes of Judge Posner’s rationale (see above) in President Bush’s explanation of his decision:

Under ordinary economic circumstances, I would say this is the price that failed companies must pay — and I would not favor intervening to prevent the automakers from going out of business. But these are not ordinary circumstances. In the midst of a financial crisis and a recession, allowing the U.S. auto industry to collapse is not a responsible course of action.

But later, we are conflicted once again when we read Andrew Sullivan‘s response:

… the Bush gambit is of a piece with the rest of his legacy: a carefully wrapped ticking bomb that will explode over us slowly over the next decade. From Iraq to Afghanistan to Gitmo to the doubling of the national debt: it is a legacy of reckless, stupid governance by an irresponsible president trying to cover his ass on the way out.

Damn.

At this point, “we-the-unsure” will likely continue our muddling, stranded in a collective state of conflict and confusion until history makes up our minds for us, rending its firm and final verdict on this debate. Meanwhile, the most we can probably do is envy the clarity of vision achieved by Posner, Becker, Obey, Hensarling, Bush, Sullivan, and others like them, a.k.a. “they-the-very-sure.”

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Copyright 2008 The Moderate Voice
  • Jim_Satterfield

    When I see posts about this issue I want to know where the people who say normal bankruptcy procedures should be followed think that the DIP financing necessary for successful Chapter 11 will come from. I have yet to get an answer. Some say they should file a prepackaged bankruptcy and the financing can come from the government for that. For those people I ask “What’s the difference between that and what’s happening now except for the name?”. Look at the conditions being set on the companies and unions. Is it really that different from a packaged bankruptcy? I don’t think so.

    • mikkel

      One word: bondholders. GM especially has so much debt that it is going to be hard for them to even make their interest payments from existing bonds, let alone pay off any government loans. Bankruptcy can be used as a cramdown for bondholders…but I don’t know if it’s worth the risk that something would go wrong.

  • PattyDaddy

    Lead follow or get out of the way. This post is plain vanilla with no beans (vanilla). Over the years the Detroit automakers were stupid to give in to the UAW contract demands. The UAW was stupid to hitch their horse to the stupid leadership at the Detroit Automakers. Now the politicians will pursue stupid policies to “avert” an economic meltdown. Talk about a ponzi scheme. Wait awhile and as your left holding the bag watch it all melt down awash in inept corporate leadership; whining, greedy, bed-wetting workers; and finger-pointing, running-for-cover, loser politicians. The laws of economics demand bankruptcy for GM and Chrysler all of the efforts to prop them up will be like pissing into the wind. Like New Orleans, where the uninformed were led to believe they could live safely below sea level the auto worker and their dependants are being told that better days are to come. I suggest they line up for the life boats while they can. Unfortunately there are not enough to go around.

  • Jim_Satterfield

    PattyDaddy, you still don’t answer my question. Who will finance the bankruptcy proceedings?

    • PattyDaddy

      “PattyDaddy, you still don’t answer my question. Who will finance the bankruptcy proceedings?”

      Sorry, I’ve been out stimuating the economy. You are assuming that Chapter 11 is the only route. If no one will finance the bankruptcy, then the companies would be liquidated.

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