I apologize if my statements seem naieve.

Each time a company faces failure, we are told that it will “impact the economy” and the government “loans” it money. Bankruptcy plays an important role in the economy – it allows for price discovery when none is available due to market closure.

Government bailouts create a false market – engaging in false price discovery – by borrowing money the government doesn’t have against future tax dollars. This is basically a loan, from our children, to us.
There is no reason to assume that government bailouts are good or useful. Few work. We all know about Chrysler, which was a success. But so many others have failed. Amtrak, while not technically a bailout, is a disaster, but the government decided railroads were too important to let fail. Yet Amtrak continually fails and we fund it with tax dollars.
The RTC was labeled a “success”, but the differentiation here is that price discovery was permitted through an auction facility which allowed the government to regain its “loans”.

Such an auction facility today for the various bailouts being considered, is unavailable or even wise to engage in.

Some companies MUST be allowed to fail, because failure sends a message – MORAL HAZARD WILL NOT BE PERMITTED OR REWARDED. Yet bailouts permit and reinforce moral hazard.

I don’t care how much the Big 3 “prove” they deserve the bailout, or what their plan for success is. It will fail. Remember one thing about the “success” of Chrysler – it succeeded because the government switched its fleet purchase agreements to Chrysler from its competitors. Had this single item NOT existed, Chrysler would have struggled. How will the government recreate this in the current muckup?

We have permitted far too much moral hazard. Some people must suffer for their foolishness. UAW workers may blame the corporations, but it is THEIR greed which also plays a role. I don’t mean to say $16mm a year payouts to CEOs of failing companies are justified while their workers only earn $56/hour or so…..but $56/hour is more than I earn, and I’m living comfortably in NYC.
I suggest all involved grow up and learn to deal in reality.

Overall, people lose pensions all the time. When the airlines went bankrupt and restructured, people lost their pensions. It happens with smaller businesses that are under the national radar all the time. We don’t swoop in as a country and start saving those companies.

If we want to help ensure that people who need help get it, the right way to do it is to ensure our social safety net is in place so that ALL people who lose a pension have access to services if they need them. Not to save some completely and leave others helpless.

In the meantime, if we continue to rescue companies that screw up badly enough, we create even more perverse incentives than already exist for taking on high risk for short term gain.

Are you talking about the Big Three cars built overseas or my Honda built in the United States with American labor (the best in the world)?

STOP the government from giving away taxpayer money to many corporations.

I was at GM in marketing from 1999 to 2005. I and others advocated that GM develop more car platforms instead of SUV and crossover platforms. But, GM is an American corporation that inherently chases short-term profits. Management that didn’t do so would have been ousted by the Board of Directors. The only difference is that the auto industry takes 5+ years to start a product from scratch, design it, engineer it, develop it, market it, sell it, etc… It takes expensive manufacturing, tooling and lots of unavoidable time to change product lines. It’s not like writing software. You can fault the BIg 3 for not having a more diverse portfolio, but if it weren’t for oil speculation causing a huge spike in oil prices and for the banks’ shady practices pulling the rug out from under the credit markets, the car companies would have been able to make it with their restructuring and negotiations. The government should have been raising fuel economy benefits slowly. Given the economic situation, they need a loan to get through. Our country needs the millions of jobs associated with the auto industry. To lose those would cause a major hit to the unemployment fund, would result in lots of lost tax revenue. In the end, not giving a loan will cost each of us much more. Nobody has the capital and is willing to take the risk to start a new car company. let alone buy an existing one like Cerberus and Chrysler. And as suppliers go under, even transplant car plants will not be able to build cars and they will have to lay workers offf. We will have a gaping economic hole around the country, will increase our trade imbalance, and we will lose a major part of our national security as it takes manufacturing to defend a country.

UH2L

This is a link to my opinion on the subject: http://moneyandsuch.blogspot.com/2008/11/big-three-bail-out-good-or-bad.html

This is nothing like the financial industry bail-out. Here a company is essentially asking us to save it from the evil forces of the market, not to resolve a market failure.

The pundits should shut up about things they do not understand. If the auto makers need a cash infusion, let them borrow from the Government and pay interest.

Wouldn’t you much rather bail out workers than bankers who pushed money around to make imaginary investments that crashed and led to reduction in our wealth? I don’t understand why people are so jealous of UAW workers. They don’t just screw on bolts. Many of them have skills such as model-making, equipment repair and maintenance, and running computer controlled machinery that not all of us could do. The monotony of repetition deserves some compensation as well. True, the union has its problems and not everybody is a model worker, but that happens in white collar jobs too. In fact, the unions are partially responsible for getting us to the level of wages and benefits that we enjoy today. Perhaps they’ve gotten too much over the last few decades, but without them, just think what working conditions would be like in so many industries.

UH2L

Read my post above and others’ posts as to why this is different. Many people will need unemployment bailouts all over the country and tax revenues for the government will be severely reduced as our trade imbalance grows and national security is put at risk.

UH2L

Thanks, I forgot to mention that too. That would just exacerbate our loss of manufacturing.

Also, if this article was truly objective, it would have shown more than just a picture of a Hummer. How about showing the Volt or a 33 mpg mid-sized Saturn AURA or 33mpg Chevy Malibu or an Aveo or VUE Hybrid for balance?