The Auto Bailout

Was the auto bailout the only way to save General Motors, or in fact was and is General Motors worth saving? The current President believes that it was the sine qua non approach. But we do have bankruptcy courts and the airlines seem to have been able to work their way there many times. It appeared as if GM had grossly incompetent management and labor unions whose grabs went much too far. That is what bankruptcy is for. You cram down the equity holders and convert the debt holders, find new management, and restructure the union deals. It works every day of the year but not here.

Now bankruptcy does not mean you fire everyone. Airline operate in bankruptcy almost half the time. They still fly. GM could have still made cars. Any lawyers should know the law of bankruptcy, they allegedly teach it at law schools, even Harvard. Thus what has happened is a distortion of our legal system, the debt holders were wiped out, the Government rewarded the unions and replaced management with God knows what, two telecom guys. Will it get better, the jury is still out.

One thing for certain, debt holders will be very wary next time, try and raise debt when you have a Government which bumps you out no matter what the law. That type of action places a very chilling effect on the economy, as if anyone has noticed!