Bloomberg is reporting that Barack Obama is pushing hard for congress to approve a $50 billion bailout for automakers before he is sworn in as president. To do this would be the worst possible start to the Obama presidency.
Here's Bloomberg's basic news summary:
President-elect Barack Obama is pushing Congress this year to approve as much as $50 billion to save cash-starved U.S. automakers and appoint a czar or board to oversee the companies, a move that would require President George W. Bush's support, people familiar with the matter said.
Obama's economic advisers are now convinced that if General Motors Corp. doesn't get a financial lifeline soon, it will have to file for bankruptcy by the end of January. And if the companies don't get almost $50 billion, Obama will be dealing with the issue again by next summer.
This kind of corporate welfare is NOT the change we need. The American automakers have been completely mismanaged, and there is absolutely no assurance that throwing money at them will be a long term solution. The automakers will still get their opportunity to succeed through the bankruptcy process. This will be painful, but it may be the necessary shock the company needs to restructure itself. Handing out $50 billion will not give automakers the incentive they need to fundamentally change their ways.
The New York Times points to why bankruptcy is appropriate:
not everyone agrees that a Chapter 11 filing by G.M. would be the disaster that many fear. Some experts note that while bankruptcy would be painful, it may be preferable to a government bailout that may only delay, at considerable cost, the wrenching but necessary steps G.M. needs to take to become a stronger, leaner company.
Although G.M.’s labor contracts would be at risk of termination in a bankruptcy, setting up a potential confrontation with its unions, the company says its pension obligations are largely financed for its 479,000 retirees and their spouses.
Shareholders have already lost much of the equity that would disappear in a bankruptcy case. Shares of G.M. rose 16 cents Wednesday, to $3.08, but they have fallen 90.5 percent over the last 12 months, amid sharply lower auto sales and fears about G.M.’s future.
And as companies in industries like airlines, steel and retailing have shown, bankruptcy can offer a fresh start with a more competitive cost structure to preserve a future for the workers who remain.
"Just let market forces play out," said Matthew J. Slaughter, associate dean at the Tuck School of Business at Dartmouth. "And if G.M. or one of the other companies files for bankruptcy, support the workers and the communities that would affected by a bankruptcy filing."
Serious economists like Barry Ritholtz have complete disdain for how companies such as GM have done business, pointing to the complete inappropriateness of rewarding a company for its incompetence:
Along comes General Motors. They are unique corporate citizens, demonstrating a shocking incompetence in not one but two entirely separate industries. They have shown an unsurprising inability to manage a finance company (GMAC), and a remarkable incapacity to run an automobile company (GM). And, like AMEX, they smell blood in the water.
They have already managed to wrest $25 billion in taxpayer monies for hybrid technology research. Do you suspect those monies would have been more efficiently spent if it went to MIT and Stanford, and to the many small innovative firms that have pioneered work in this area? Or, is the best way to generate progress in this technology to give it to a bloated, debt ridden, poorly run, dinosaur?
Do you even have to answer that question?
Imagine if during WWII, instead of putting the Manhattan project in the hands of the scientists that had an expertise in nuclear physics and atomic technology, we instead trusted the project to GM. How might that have worked out?
This is NOT the way to go folks. And Barack Obama's first push for "change" to be a giant example of corporate welfare is an insult to those of us that voted and campaigned for him. But Obama will listen, if we make our voices heard loud enough. Go to his policy suggestions page and let him know how you feel. Remember, electing Obama is only the beginning - We need to hold our elected officials accountable for enacting good policy.
UPDATE: To those who think I am advocating simply abandoning the 3 million workers in this industry, consider that I am merely saying that there is a better way.
How about instead of throwing $50 billion into a failing system, we take that money and retrain manufacturing workers into jobs building alternative energy infrastructure? Combined with investment in new green industries, the "green deal" will work out much better than trying to keep dinosaurs afloat.