Friday, May 15, 2009

Government Failure: Welcome to the Detroit Horror Show

The efforts of the current administration to bailout American automakers represent one of the most shameful episodes in the economic history of this country. Economically speaking, the administration policies are nothing more than absolute nonsense. The politics of them however are much simpler to understand: political quid pro quo of the vilest kind.

Here is a good article by George Will on the subject. Note the following passages:

Many months and many billions of dollars are being wasted by the administration's determination to spare the car companies, and especially the UAW, the rigors of a straightforward bankruptcy. The president's "surgical" bankruptcy plan for Chrysler requires some of the company's lenders, mostly non-banks, to receive less than they would as secured creditors under bankruptcy law.

The law may still make itself heard over the political thunder. Meanwhile, the president faults these "speculators" for not being as cooperative as are most of the banks that have lent to Chrysler. But the banks are compliant because they are mendicants: Having taken the government's money, they are the government's minions. ...

It is Demagoguery 101 to identify an unpopular minority to blame for problems. The president has chosen to blame "speculators" -- a.k.a. investors; anyone who buys a share of a company's stock is speculating about the company's future -- for Chrysler's bankruptcy and the dubious legality of his proposal. Yet he simultaneously says he hopes that private investors will begin supplanting government as a source of capital for the companies. Breathes there an investor/speculator with such a stunted sense of risk that he or she would go into business with this capricious government?

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