Understanding the GM bankruptcy

Many of you are new to this blog since I wrote extensively about autos six weeks ago. As background, I coordinated the auto loan process for President Bush last fall as the Director of the White House National Economic Council (the position now held by Dr. Lawrence Summers). I wrote a series of posts on the auto loans beginning when the President made his late-March announcements, and continuing into the spring. For reference, here are those posts:

  1. Auto loans: a deadline looms
  2. Auto loans: options for the President
  3. Auto loans: the Bush approach
  4. Auto loans: Chrysler gets an ultimatum, GM gets a do-over
  5. Auto loans: the press forgot to ask about the cost to the taxpayer
  6. Should taxpayers subsidize Chrysler retiree pensions or health care?
  7. The Chrysler bankruptcy sale
  8. Mixed results on the Chrysler announcement

This morning I posted some basic facts on the General Motors announcement. Now it’s time for some analysis. Like my post Understanding the President’s CAFE announcement, this is a monster post. I hope you find it valuable despite its length.

I want to try to tease apart the various questions that get conflated in the public forum. My primary goal is to give you a structure for thinking about the issue. My secondary goal is to persuade you to agree with my views on each question. I will be satisfied if you give me credit for achieving only the primary goal.

Here is how I tease apart the questions:

  1. What are the arguments for further government intervention?
  2. Given these arguments, should the U.S. government intervene further by putting more taxpayer funding at risk to prevent GM from liquidating?
  3. Is the pre-packaged bankruptcy likely to succeed?
  4. Is it fair?
  5. Did the government structure the taxpayer financing correctly?
  6. Will the Administration run GM?

Let’s take them one-by-one.

1. What are the arguments for further government intervention?

Today the President explained why he chose to put another $30.1 B of taxpayer funds at risk to prevent GM from liquidating now. Speaking about his decision on March 30th, he said today:

But I also recognized the importance of a viable auto industry to the well-being of families and communities across our industrial Midwest and across the United States. In the midst of a deep recession and financial crisis, the collapse of these companies would have been devastating for countless Americans, and done enormous damage to our economy — beyond the auto industry. It was also clear that […]