Bush Breaks His Streak
On the front page of this morning's SF Comical, dead tree edition, Wonks Anonymous sees that the Bush administration will use bailout funds keep the automakers from going under. And, despite the well argued and fervent comments of an anonymous commentator to this blog - see comments on Dinosaurs and probably comments which will appear here - Wonks Anonymous thinks that this is a good thing.
The theory, really the overstretched analogy, that business failures during a recession represent a sort of creative destruction may work in ordinary times when a recession is merely an intensification of ordinary competitive conditions. When the entire financial system is collapsing - government debt has negative returns and mortgage rates are still at about 6% - the judgments of the collapsing market are not to be trusted.
Of course this does not solve the problems of the auto industry or even of the economy as a whole. It does give us a month or so of grace until Bush leaves office.
It is most likely that this bailout was finally sold to the administration by auto industry creditors who did not want to lose their investments. Bush realized that some of his cronies would be hurt after all. It will be likely followed by some really messy sorting out - hopefully Paul Volker and many people with long experience as corporate knackers will play a prominent role.
Wonks Anonymous considers this to be a good thing. We won't have massive layoffs under the national Christmas tree and we won't have some uneducated and unaccountable bankruptcy judge setting the course for our economic future.
The theory, really the overstretched analogy, that business failures during a recession represent a sort of creative destruction may work in ordinary times when a recession is merely an intensification of ordinary competitive conditions. When the entire financial system is collapsing - government debt has negative returns and mortgage rates are still at about 6% - the judgments of the collapsing market are not to be trusted.
Of course this does not solve the problems of the auto industry or even of the economy as a whole. It does give us a month or so of grace until Bush leaves office.
It is most likely that this bailout was finally sold to the administration by auto industry creditors who did not want to lose their investments. Bush realized that some of his cronies would be hurt after all. It will be likely followed by some really messy sorting out - hopefully Paul Volker and many people with long experience as corporate knackers will play a prominent role.
Wonks Anonymous considers this to be a good thing. We won't have massive layoffs under the national Christmas tree and we won't have some uneducated and unaccountable bankruptcy judge setting the course for our economic future.
Since all we (the liberals) care about are the job losses that would impact the economy (the national security concern is silly--if we really needed to we could commandeer a Toyota plant in a time of emergency), my preferred "bailout" would simply be a direct payment of all present workers' salaries (minus management; give them a dollar/year salary but force them to buy stock in their company) for a period of, say, a year--enough time to allow a major reorganization of the companies. That reorganization would be a combination of reducing output of the undesirable models (MPG<20 lets say), continuing research and development on more efficient models, and selling off assets--i.e. brands--to third parties--preferably individuals/hedge funds rather than other car companies (if there are no buyers for the time being the gov't can buy them now, inject some R&D capital to get them started in the right direction and then sell these now attractive "start-ups" off once the economy starts returning). The purpose of the latter is to re-create the _competition_ that was in the market before the giant dunce-behemoth GM was formed. Competition is, of course, good for innovation, and while there isn't a market for SUVs anymore, there may still be a market for HEVs and such--and if not, the government can create extra demand for them by buying them for their fleets and giving out yearly prizes for the companies that have improved fuel performance the most. Something will of course have to be done with GM's debt in the course of that year but that at least gives us some breathing time to work this thing out--and prevents the bailout money from simply being wasted on paying creditors without helping retain the very workers we are supposed to be caring about in the first place (remind you of another bailout?). The crucial thing is that the American people, under the guidance of skilled experts, need to be in control of any company they bail out. David Brooks likes to make fun of the idea of a 'car czar', but doesn't seem to question the ability of CEOs in modern businesses to make wide-ranging critical decisions. Perhaps there shouldn't be a single car czar but rather a team of experts--from Detroit, from Toyota/Honda, from environmental groups, from science & technology, etc. Just as long as Bush lets Obama pick them
If you don't blog you should. But also see my comment about knackers and bankruptcy judges.
WA
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