Both George Will and economist Martin Feldstein are coming out against a bailout for the Detroit automakers in the opinion pages of the Washington Post this morning.
George Will makes the rather obvious point that seems to have eluded so many, namely that it’s too late to keep the automakers from failing:
“Nothing,” said a General Motors spokesman last week, “has changed relative to the GM board’s support for the GM management team during this historically difficult economic period for the U.S. auto industry.” Nothing? Not even the evaporation of almost all shareholder value?
GM’s statement comes as the mendicant company is threatening to collapse and make a mess unless Washington, which has already voted $25 billion for GM, Ford and Chrysler, provides up to $50 billion more — the last subsidy until the next one. The statement uses the 11 words after “team” to suggest that the company’s parlous condition has been caused by events since mid-September. That is as ludicrous as the mantra that GM is “too big to fail.” It has failed; the question is what to do about that.
Without the sort of revised business plan, rooted in reality, that only Chapter 11 bankruptcy can make possible, the automakers will have no other recourse but to return for handouts again and again and again.
Dr. Feldstein echoes things I’ve written here on the subject:
The Big Three pay much higher wages than production workers are paid in the nonunion auto firms and in the general economy. And the health-care costs of current workers and retired union members are an enormous additional burden.
The simplest solution is to allow GM and the others to file for bankruptcy. If the companies file under Chapter 11, they would be able to continue producing cars, and the workforce would remain employed while the firms reorganized. The firms would also be able to get short-term credit under bankruptcy protection.
The bankruptcy court could require the unions to rewrite contracts, bringing wages down to levels that would allow the firms to compete and therefore to maintain employment. Scaling back employee and retiree health benefits would further improve price competitiveness and allow better cash wages. The firms’ bondholders and other creditors would have to take losses. Shareholders’ fate would depend on how firms responded to this restructuring.
As I noted yesterday government loan guarantees during the transition period would re-assure consumers not to mention creditors, investors, and banks of the longterm viability of the domestic automobile companies.
Is the argument to not help the auto industry more about the GOPs last opportunity to crush unions before they loose what power they have left?.. I am having a difficult time believing they are just now thinking about being fiscally responsible…is it the GOPs last chance to kick more working Americans in the backside…how is it that we can bail out AIG and others like them but not come to the aid of working Americans who’s jobs are on the line…
http://www.time.com/time/nation/article/0,8599,1859962,00.html
The Big Three and their affiliated suppliers account for 2% of the U.S. workforce, or more than 2.5 million U.S. jobs. GM alone employs over 100,000 workers, the same number of autoworkers that have been laid off so far this year. And that’s not to mention the hit the federal government would take when GM dumps its pension, insured by the quasi-governmental agency, the Pension Benefit Guarantee Corp.; with nearly a million participants, it is the largest private defined-benefit pension plan in the U.S. Some experts estimate that that hit alone could cost the taxpayers more than $100 billion, with another $100 billion in lost tax revenues and $10 billion in increased Medicaid expenditures annually.
I did not like Mitt Romney much as a candidate, but I like this editorial. I think bankruptcy restructuring is the way to go.
Perhaps bankruptcy if the rest of the economy were doing better..the auto industry had no control over the banks not lending..which has compounded the problem. Right now there are far too many people involved…not worth the risk at this time..get the financial system back up and running..then talk about what needs to be done…if our bailout can cover shareholders and executive bonuses and gods only knows what other perks our tax dollars are being used for…I think we can help a whole bunch of working Americans keep their jobs for a bit longer…It about time that we have bottom-up bailouts and end this top down bull crap…it is not working folks..
http://robertreich.blogspot.com/
Robert Reich has a short and to the point posting today..
And Congress should save the rest of the $700 billion program for a new administration that will put it to better uses. For example, as FDIC Chair Sheila Bair has suggested, use the money to guarantee payment of mortgages whose terms are eased by lenders. Use it also to restructure automobile companies whose creditors, executives, shareholders, and workers agree to put up money as well. Use it to guarantee loans made to credit-worthy small businesses, college students, car buyers, and others who at this moment cannot get credit — and who therefore cannot keep this economy moving forward.