Big Three Bailout Options

Mary Katherine Ham follows the usual logic of the false dilemma as she writes:

For the auto industry to completely collapse would be a disaster in this kind of environment, not just for individual families but the repercussions across the economy would be dire. So it's my belief that we need to provide assistance to the auto industry. But I think that it can't be a blank check.

Filing for Chapter 11 bankruptcy protection allows a company to continue its operations under some framework approved or managed by a court. It should be distinguished from Chapter 7, which forces a company to dissolve (or in Ham's phrasing, to completely collapse). Chapter 11 forces a business to admit the failure of its business model, restructuring it to become a going concern.

In particular, GM needs to renegotiate its labor contracts.

It would be very helpful if GM could decide what kind of cars to make, as well. But that won't happen, since it can't renegotiate the CAFE standards with Congress.

I've predicted that if GM were to get bailout money, there would be nothing stopping them from entering bankruptcy protection anyway. That's right, Madam Speaker-In-Law, they could take the money you want to give to your union thug pals and declare a fat dividend followed by bankruptcy. In fact, the board would be fiduciarily remiss not to do so.

But in the NY Times, Harvard economist Edward L. Glaeser has another suggestion.

There is a middle path between bailout billions and car company catastrophe: the possibility of limited government aid after automobile companies have entered Chapter 11.

I don't think he's right. There is no need for a bailout, and if one comes it will worsen the losses.

But if we have to accept one, it would sure be nice if GM could admit the failure of its business model before getting it.

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