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:
- Auto loans: a deadline looms
- Auto loans: options for the President
- Auto loans: the Bush approach
- Auto loans: Chrysler gets an ultimatum, GM gets a do-over
- Auto loans: the press forgot to ask about the cost to the taxpayer
- Should taxpayers subsidize Chrysler retiree pensions or health care?
- The Chrysler bankruptcy sale
- 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:
- What are the arguments for further government intervention?
- Given these arguments, should the U.S. government intervene further by putting more taxpayer funding at risk to prevent GM from liquidating?
- Is the pre-packaged bankruptcy likely to succeed?
- Is it fair?
- Did the government structure the taxpayer financing correctly?
- 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 […]