The U.S. economy is in the toilet because Congress, led by Sen. Christopher Dodd and Rep. Barney Frank, browbeat lenders into giving mortgages to unqualified borrowers. To date, the government has allocated almost $4 trillion it doesn't have to try to repair the resulting economic damage.
Unchastened by the experience, Congress may lend the nation's Big Three automakers $25 billion to keep them afloat into 2009. Congress has become the bank of last resort for General Motors, Ford and Chrysler because they no longer can get private financing. For good reason. Combined, they have a negative net worth exceeding $60 billion, debts of at least $220 billion and unfunded liabilities of $100 billion. They are wholly unqualified borrowers, yet some in Congress consider them good credit risks.
The Big Three should seek bankruptcy protection instead. That doesn't mean they and their subcontractors and dealerships would go out of business tomorrow. Rather, under Chapter 11 of the Bankruptcy Code, the automakers would stay in business while they reorganize under the supervision of the court, just as airlines and other companies have done. Yes, some workers ultimately would lose their jobs and creditors would not be repaid in full, but a percentage of something is still better than 100 percent of nothing.
If the Big Three make it through the process, they would emerge more efficient and viable; that would be good for them and the economy. But even if the court forces liquidation, the companies' assets in all likelihood would be scooped up by other automakers, which would need to hire people to staff and retool their newly acquired plants.
The alternative is $25 billion in irresponsible loans financed with money borrowed by a government that is more than $100 trillion in debt. But the loans also would cost the Big Three some autonomy because Congress would insist on dictating how they operate. In essence, the loans would allow Congress to keep the automakers going long enough to finish the job of putting them out of business. Indeed, the companies are on the verge of extinction in part because of decades of congressional meddling, starting with labor laws that were instrumental in fashioning union contracts that saddled them with crippling labor and legacy costs and left them at an enormous competitive disadvantage.
Congress created Chapter 11 to rehabilitate failing businesses. GM, Ford and Chrysler are failing businesses. Rather than a bailout, Congress should give the automakers a way out, through bankruptcy protection.
http://www.rep-am.com/articles/2008/11/19/opinion/380623.txt
Topic: Bankruptcy only path to salvation ? (Read 419 times)