Tuesday, March 22, 2011

The True Story of the Auto Bailouts

As we move towards the 2012 election, Obama will probably say of his Republican opponent that he or she would have opposed or did oppose the auto maker bailout plan. I should hope that this would be true, but we need to educate the public about the truth of how the bailouts of GM and Chrysler have been colossal failures that harmed the economy and the rule of law. Todd Zywicki, writing in National Affairs, has the whole story, here are some excerpts:
The bailouts of General Motors and Chrysler have been held up by President Obama and his supporters as a great success story — proof that, by working together, government and business can save jobs and strengthen the economy. But this popular narrative is dangerously misleading. Far from a success story, the events surrounding the bailouts offer a cautionary tale of executive overreach. And their example clarifies the Obama administration's broader approach to economic policy — an approach that is both harmful to economic growth and dangerous to the rule of law.
. . .

The bailouts of GM and Chrysler at the end of 2008 — and the extension of those bailouts in the beginning of 2009 — were therefore both unnecessary and very likely illegal. But that was hardly the end of the story.

. . .
At first, the fact that the companies' creditors (and especially Chrysler's creditors, who were so badly mistreated) put up with such terms and waived their property rights seems astonishing. But it becomes less so — and sheds more light on how this entire process imperils the rule of law — when one considers the enormous leverage the federal government had over most of these creditors. Many of Chrysler's secured-bond holders were large financial institutions — several of which had previously been saved from failure by TARP.
. . .
Every piece of the "success story" of the auto bailout would thus seem to be in error. The bailout was not absolutely necessary and was pursued by means of dubious legality; the bankruptcies were highly irregular and inefficient; and the companies that have emerged from bankruptcy are far from lean and fit. They are certainly in no position to repay taxpayers for the generous loans they were given.
The whole thing is worth a read. Get educated and get ready.

3 comments:

  1. Seemed like a lot of smoke and mirrors.

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  2. the final few paragraphs regarding the near incestuous relationships between the government, unions, and the auto industry is truly frightening.

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