Can Washington help the economy grow by bailing out General Motors and Chrysler? A sobering article by Steven Pearlstein suggests bankruptcy makes more sense. Keep in mind that Congress already approved $25 b in loans to retool factories in Detroit, but the auto companies are seeking more immediate financing of $10 b.
GM and Chrysler would have the Treasury invest $3 billion directly in the newly merged automaker in exchange for preferred shares with warrants, as with the banks. The government would take over $3 billion of the company's pension obligation. To deal with the industry's short-term liquidity problem, the government would also commit to buying $4 billion in commercial paper issued by the new company.
All that for two companies whose market values today are each less than $4 billion.
Look, if it is in the national interest to save these companies, then taxpayers should have a say in how the money gets spent. For decades, Detroit's big three have been avoiding tough restructuring in their core business model, abetted by the unions and local politicians. Pearlstein outlines a pre-negotiated bankruptcy that would force tough love and maybe just save the American aut industry from the slow, subsidized decimation that has been the status quo.
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