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  • Bankruptcy? Nope, It's Just Another Bailout.

    All bankruptcies are not created equal.

    For months, Heritage and other conservatives have counseled that the proper course for an ailing automaker is the same medicine as for any other sick company: the bankruptcy process. All along, industry shills and union activists have pooh-poohed that idea, claiming that bankruptcy filings would be the end of the industry—an argument that’s never made much sense.

    So it was a welcome surprise to many conservatives to see President Obama, no foe of big-government bailouts, speak in favor of automotive bankruptcies yesterday. The President’s endorsement of the idea, plus government-backed warranties for new car purchasers, puts the lie to claims that the public can’t or won’t accept bankruptcy and that a bankruptcy filing would spook car buyers. Neither argument ever had much evidence behind it, and now they’ve been exposed as hollow—even GM’s leadership has come to accept the bankruptcy option.

    Unfortunately, however, that capitulation does not mean an end to the bailouts. President Obama was quite clear that the kind of bankruptcy he envisions is one “with the backing of the U.S. government”—in other words, tens of billions more in loan commitments. The President’s tough medicine is that the automakers may not get the money outside of bankruptcy (though they might) but that they will, in the worst case, get it after filing a single legal form—a bankruptcy petition.

    In other words, not so tough.

    But is this “bankruptcy” really bankruptcy, with all that that entails? Probably not. Call it, instead, “bankruptcy lite.” This is bankruptcy stripped of its discipline, its focus, and its restorative effect.

    An essential component of a successful reorganization is some measure of urgency: the company is insolvent, prospects are uncertain, and the entire business is at stake. That pressure leads to bold action and results. It forces companies to trim away bloat and concentrate on their core business.

    The Obama plan for the automakers eliminates this incentive. Billion in government financing would allow GM or Chrysler to muddle through the bankruptcy process, with enough cash to avoid having to achieve the tough, painful concessions that are needed for long-term viability and success. So sure, they could emerge from bankruptcy in just a few months, perhaps, but they would look an awful lot like they do today. Once again, taxpayers are being asked not just to reward but to subsidize failure.

    That’s not bankruptcy. It’s just another bailout.

    Posted in Economics [slideshow_deploy]

    10 Responses to Bankruptcy? Nope, It's Just Another Bailout.

    1. MAS1916 - Denver, CO says:

      By saving GM from bankruptcy court supervision, Obama preserved the UAW and other burdensome contracts that must be renegotiated in order for the organization to survive. This is a political 'pay-back.'

      But what happens in the next few months will be quite interesting. Obama and his team do not have the skill to run the business. Is Obama then going to handle laying off thousands of UAW workers? Probably not. He will be back before Congress in the near future with yet another expensive and unnecessary bail out plan.


    2. Ron, Derry NH says:

      This is the look of socialism; no real change, a lot of propaganda and government appeasements, but in the end a huge waste of private citizens value freely given to government stooges.

      Hail to the Chairman Barrack!!

      This is so arrogant and has the look of a child running the country, who wants control not solutions.

      We have courts, use them. We have procedures in place but god forbid we allow the courts their due process when we have Chairman Barrack at the helm steering us to serfdom.

    3. Brad S,, Detroit, MI says:

      Jesus 2.0 (Obama) is in a very sticky situation. He is putting himself in the bind of breaking up the Union that helped put him in office in the first place.

      The first thing that should have been done is letting AIG and the risky hedge fund banks to go into bankruptcy. The precendent was set and now the children in charge don't know what to do.

      Remember – Socialism is not about re-distributing wealth. It is about controlling the wealth.

    4. Jerome Zacny says:

      The management at Ford Motor Company now look like geniuses. They told the government to shove their bailout money. Now, they won't have to dance to the tune of the Obama quartet (Obama, Geithner, Frank & Dodd). They won't have to change their name to Fiat, or anything else.

      Bailout money by itself will not save GM or Chrysler. These corporations will, of necessity, file for reorganization under Chapter 11. At that time, their obligations to retirees will be restructured. Ford can then tell the UAW that they must accept the same terms for their retirees as GM and Chrysler/Fiat. Pattern bargaining in reverse.

      Ford Motor Company should be the example for other corporations or businesses contemplating taking bailout money. When you take money from the government, they own you. One would hope that individual citizens would learn the same lesson.

      When you own a pet, that pet relies on you for food, shelter, medical care, limited freedom, everything. If the owner/master decides to withhold these necessities for whatever reason, the pet has no choice but to accept its fate. If the pet displeases its master, it is dropped off at an animal shelter to await its fate. Right now, our government is putting on the leash and saying "let's go for a walk".

    5. Tim AZ says:

      Why sholdn't Obummer and the liberals keep bailing out the UAW? For every dollar the liberals take from you to give to the UAW they get a percentage back in campaign contributions. Some call that money laundering but what do you expect most of them are lawyers. The UAW can play poker all day so long as the money flows back to the intrenched liberals. Eventually if the liberals succeed at instituting socialism in the US they will no longer have need of the UAW or any other labor unions. You know. Cut out the middle man.

    6. Ben C, Ann Arbor, MI says:

      After Obama nationalizes GM my guess is that other companies will take a serious look at whether staying in the USSA is in their best interest. The long range implications of this situation have devestating consequences.

    7. Marshall Hill MI. says:

      We are printing,just Paper,from just Words,to dig

      the Hole Deeper!

    8. Jim - Utah says:

      I think for the first time in my 65 years here in the good ole US of A, there might be more people leaving than trying to get in! Never thought I would even imagine something like this. Come on people out there WAKE-UP! Attend your state's Tea Parties and let your voices be heard.

    9. Dennis, Idaho says:

      We should be careful in looking to the courts for help. Remember that the courts are also strongly liberal. There is no such thing as the “rule of law” any more. It is the “rule of interpretation”. Just redefine the works and thoughts of our Founding Fathers and the Liberals can have anything they want. Well there are many in America that love freedom enough to die for it. There may be blood in the streets before this is over. Take WARNING this United States are divided.

      The Liberals that promote themselves as “champions of the poor” are themselves becoming very rich and powerful. There is very little real concern for the truly poor because they can contribute nothing but their manipulated vote.

    10. Ross, Florida says:

      During James Carter' presidency, Chrysler almost "belled up". But unlike this bailout, Chrysler was the primary contractor for military tanks and armored vehicles. One of the provisions of the bailout was that the US government would use only Chrysler products for the federal motor fleet until the loan was paid back. Back then, Chrysler product was junk!

      To my knowledge, neither automotive company have any government contracts because of the "string attached". Now they have "the camel in the tent" with the camel driver screaming its not his fault. It may be too late, but Chrysler and GM should file for bankruptcy, restructure and get rid of the hobbling created by its union contracts.

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