The Right Way to Bail Out the Auto Industry
There is a way to bail out General Motors, Chrysler, and Ford that free market advocates can enthusiastically endorse.
In fact, given the potential exposure involved in an open-ended bailout ($125 billion, maybe more), this proposal might even make those who would otherwise be reluctant willing to structure the bailout funds as grants instead of loans.
What a principled bailout requires is a signed list of admissions, written into the bailout law and incorporated into all underlying agreements, by:
- The creators of what I have been calling the POR economy -- namely Nancy Pelosi, Barack Obama, and Harry Reid.
- The CEOs of the Big Three.
- The United Auto Workers.
There should be no bailout unless all admissions are made.
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Admissions by Pelosi, Obama, and Reid
We acknowledge and admit that:
- In June, our statements (Pelosi, Obama, Reid) opposing any expansion of exploration or drilling for domestic energy resources caused businesses large and small to cancel or defer expansion and hiring plans, and consumers in general to curtail their spending.
- Our consistent advocacy at that time, and throughout the election campaign, of punitive increases in Social Security and federal income taxes on the nation's highest earners, to take effect as soon as possible, have led those who would be affected to seriously curtail their spending and investing.
- Our political party's decades-long insistence that banks approve mortgage loans which violated prudent lending standards led to the collapse of government-sponsored enterprises Fannie Mae and Freddie Mac and insolvency at many financial institutions, thus creating the conditions that led to the blackmail-driven passage of the financial services industry bailout in early October.
- The three items just mentioned have transformed what had been a difficult but manageable economic situation in early 2008 into a serious downturn.
- The election of Obama as president, and the concurrent increase in Pelosi and Reid's House and Senate majorities, are the primary reasons why employers reduced payrolls by 634,000 in November, compared to hiring over 300,000 during November 2007.
- The collective effect of the aforementioned actions and events have caused sales at the Big Three automakers, which had already been falling at double-digit rates on a year-over-year basis (12% to 22% in May), to decline calamitously (30% to 47% in November), gravely damaging the companies' already difficult positions and leading two of them to the brink of bankruptcy.