Cronyism and the GM/Chrysler Bailouts

Companies and assets don't go *poof* in a bankruptcy.   In fact, if any of you are even somewhat of a frequent airline flyer, over the last 10 years you likely flew an airline in bankruptcy.  Companies operate all the time, sometimes for years, out of Chapter 11.  In fact, that is what chapter 11 is all about -- helping creditors get more value from a company by keeping it in operation  (only in truly hopeless cases, like Solyndra, is liquidation a higher value outcome for creditors than continued operation).

As such, then, the Obama Administration did not "save" GM and Chrysler, it simply managed their bankruptcy to political ends, shifting the proceeds from those guaranteed them by the rule of law to cronies and political allies.  In the process, they kept these companies on essentially the same path that led them to bankruptcy in the first place, only with a pile of taxpayer money to blow so they could hang around for a while.

To this end, the WSJ has a great editorial on the whole mess

In a true bankruptcy guided by the law rather than by a sympathetic, rule-bending political task force, GM and Chrysler would have more fully faced their competitive challenges, enjoyed more leverage to secure union concessions, and had the chance to divest money-losing operations like GM's moribund Opel unit. True bankruptcy would have lessened the chance that GM and Chrysler will stumble again, a very real possibility in the brutally competitive auto industry.

Certainly President Obama threw enough money at GM and Chrysler to create a short-term turnaround, but if the auto makers find themselves on hard times and return to Washington with hats in hand, his policy will have been no rescue at all.

I will refer the reader back to my editorial way back in 2005 why it was OK to let GM die


  1. SamWah:

    What? A regular bankruptcy would have been bad for the unions, and The Won could not have that happen. So bondholders got stiffed. Who cares, they're all rich anyway! (Note: That part was a lie.)

    So GM management learned nothing, and the unions learned nothing, and are proceeding down the path to Mr. Crapper's toilet.

  2. Billford:

    I don't necessarily think Obama was right in the handling of the auto bail out. On the other hand, I cannot say he was wrong. Maybe it would have been pretty much the same either way, maybe his administration's involvement made the crucial difference at the margin. Nobody will ever know. It was a risky call; consumers may have simply refused to buy GM or Chrysler after the restructuring, government guarantees or not. But, it seems to have worked out decent, and so I count it as a win for the President and think it was appropriate for him to tout it. He got dinged on Solyndra, but he deserves credit or at least no negative marks for the auto bail out.

  3. twobottles:

    Cronyism leaves a bad taste in my mouth, but this is all unimportant compared to the cronyism, policy echo chamber, and revolving-door woes that keep a proper crackdown on and monitoring of Wall Street from occurring. I'll respect those who think the government should stay out of regulation and bailouts, but the current status quo is a disgrace — one amply aided, enabled, abetted, and praised by the right and only slightly less so by the left.