Friday, December 12, 2008

Another Harriet Myers Nomination

Bush's sellout on the auto company "rescue" ranks with the Harriet Myers nomination as one of the most fatuous acts of his administration.

The rationale offered by the White House is a contemptible joke -- that a bailout is better than the risk of a "disorderly bankruptcy." This turns the situation on its head. What the bailout guarantees is continued disorder. By contrast, bankruptcy is a highly structured and orderly procedure that would enable the American car companies to shed many of the millstones around the neck that have dragged them down -- an uncompetitive labor cost structure being chief among them.

American auto manufacturing ultimately is doomed unless it can start producing reliable cars of quality that most consumers can afford. Competitive cost structures are part of it, but so is completely new management.

A trustee in bankruptcy could force the changes in top management without which these companies will not survive, no matter what other changes are made.

For these companies, Chapter 11 bankruptcy offers the only path to a real rescue.

1 comment:

Rottenchester said...

I agree in general that a serious trip though some kind of bankruptcy-like proceeding is needed. But consider this:

1. The gov't guarantees pension liabilities for these companies, so we'd be on the hook for those whether or not they go Chap 11.

2. If their current shareholders and bondholders lose all their money, where are these companies going to go for credit? It's either Uncle Sam guaranteeing loans, or Chapter 7 (liquidation) in the current environment.

So, while I hate to see it, and they don't deserve it, some kind of bailout with major strings attached seems like the way to go.