Delusions About the Detroit Bailout
By STEVEN RATTNER
Published: February 23, 2012
WHEN Mitt Romney takes the podium at Ford Field in Detroit today, he’s likely to include yet another sharp denunciation of the government’s rescue of General Motors and Chrysler.
That Mr. Romney would traverse Michigan trashing a program that saved tens of thousands of jobs at the Detroit-based automakers doesn’t necessarily mean he’s politically tone-deaf.
After all, an NBC/Marist poll recently found that 50 percent of Michigan Republicans who were likely to vote opposed the government’s actions (only 42 percent supported them).
Mr. Romney may have the primary politics right — though with a majority of Michigan voters supporting the rescue, he may want to pivot deftly before the general election in November. But on the substance he’s dead wrong.
As a presidential aspirant, Mr. Romney evidently hasn’t felt a need to be consistent or specific as to what should have been done to address the collapse of the auto industry starting in late 2008. But the gist is that the government should have stayed on the sidelines and allowed the companies to go through what he calls “managed bankruptcies,” financed by private capital.
That sounds like a wonderfully sensible approach — except that it’s utter fantasy. In late 2008 and early 2009, when G.M. and Chrysler had exhausted their liquidity, every scrap of private capital had fled to the sidelines.
I know this because the administration’s auto task force, for which I was the lead adviser, spoke diligently to all conceivable providers of funds, and not one had the slightest interest in financing those companies on any terms. If Mr. Romney disagrees, he should come forward with specific names of willing investors in place of empty rhetoric. I predict that he won’t be able to, because there aren’t any.
Without government financing — initiated by President George W. Bush in December 2008 — the two companies would not have been able to pursue Chapter 11 reorganization. Instead they would have been forced to cease production, close their doors and lay off virtually all workers once their coffers ran dry.
Those shutdowns would have reverberated through the entire auto sector, causing innumerable suppliers almost immediately to stop operating too.
Despite the relative health of its balance sheet, even Ford would have been forced to close temporarily, because critical parts would have become unavailable. And service providers — trucking companies, restaurants and more — would have been severely affected.
More than a million jobs would have been lost, at least for a time. Michigan and the entire industrial Midwest would have been devastated.
I consider myself an ardent capitalist, and well recognize the risks of government intervention, particularly the “moral hazard” of rewarding failure and the scary prospect of politics’ entering private sector decision-making.
But when markets fail, as they did for both autos and banks in 2008, government should have the ability — in fact, the obligation — to step in.
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http://www.nytimes.com/2012/02/24/opinion/delusions-about-the-detroit-bailout.html?ref=opinionDelusions About the Detroit Bailout
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