Friday, November 14, 2008

On the Big 3 bailout

I do not have anything insanely clever to say about the proposed bailout for the Big 3 car companies. David Brooks in the New York Times sums up my views pretty well. I do not see why, aside from electoral considerations, those companies should be bailed out instead of going through bankruptcy. The idea of an "automobile czar" who could oversee the use of bailout money and force the companies to embrace "green" technology is totally ridiculous give the history of those companies. The corporate structure and culture of the Big 3 needs to be completely reshaped and that won't happen if they can get bailout from the government; it will be just a very costly life support for a brain dead patient. The money from the bailout should go to a program to ease the pain of transition for the employees.

Looking at the situation from Obama's perspective, I understand that he is wary of letting the Big 3 die after getting the Electoral Votes from the whole Midwest region and I could see how he'd want to keep them on life support with government funds until his second term. What I'd be curious to know is if Obama actually believes his talk about bailout and "auto czar" or if its just playacting for a Midwest audience.

Update: Before allowing bankruptcy, the government should ensure that they will be able to go through restructuring (Chapter 11) instead of total liquidation (Chapter 7). This might be a problem because a company has to be able to function while going through bankruptcy to go through Chapter 11, and experts think they would not be able to secure loans necessary to buy the parts that would be needed to continue operation. Total liquidation would be disastrous of course, but what about allowing them to go through bankruptcy while the government makes sure they get enough funds to continue operation so that they can go through Chapter 11 reorganization. The goal here is to provide the incentives necessary for the Big 3 to restructure themselves to ensure long term viability, while not completely destroying the economy of a whole region.

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