USA Today: Obama Auto Bailout A Success
Posted: Fri Mar 02, 2012 3:47 pm
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Politicians don't like to admit they were wrong (Conks). Such an admission is seen as a sign of weakness or lack of ideological correctness. Occasionally it does happen, though, particularly when the gap between the politician's original position and the outcome grows glaringly wide.
In 2008, candidate Barack Obama belatedly and grudgingly admitted that President George W. Bush's troop surge in Iraq was working. This didn't mesh with Obama's calls for withdrawal or his opposition to the surge. But it did have the advantage of being true.
This year, with the pivotal Michigan primary fast approaching, it's time for Mitt Romney and Rick Santorum to acknowledge the obvious: The rescue of General Motors and Chrysler — which started during the Bush administration and continued under Obama — succeeded.
We say this having once taken the other side ourselves. In the fall of 2008, this page opposed a bailout in its original form, which did not involve either company going through Chapter 11 bankruptcy proceedings. The following year, when Obama opted for managed bankruptcy with government financing the restructuring process, our position softened but remained skeptical.
Now the passage of time leaves no doubt that the plan has exceeded expectations. The two companies have returned to profitability. Last year, GM sold more vehicles than any other automaker in the world. The domestic auto industry as a whole has added 207,000 jobs since June 2009. And the cost to taxpayers has been far less than it would have been had the companies collapsed and the government was forced to partially bail out their pension funds, as well as pay for unemployment benefits and other assistance to displaced workers.
Even so, the two leading candidates for the Republican presidential nomination keep pounding away, unmindful of how divorced from economic reality they appear.
Santorum said at Wednesday's debate in Arizona that he's opposed to all government bailouts. Well, fine. No one particularly likes the concept. But his insistence that GM and Chrysler could have survived the worst economic meltdown since the Great Depression without government intervention is nonsense. They needed tens of billions of dollars at a time when even healthy firms were struggling to find credit.
Romney's argument is more convoluted and only slightly more credible. Rather than have the government lend to auto companies, he said, he would have had the government back loans made by private financiers. It's unlikely that banks could have been induced to lend huge sums during the financial crisis. And if they did, it would have been from a deal so sweet that it would have raised its own set of problems.
This is not to say that Detroit is out of the woods, or that the bailout was ideal.
Most parties in the deal — secured creditors, labor unions, dealers — came out better than they would have in a conventional bankruptcy. The government, meanwhile, lost $1.3 billion on its $12.5 billion investment in Chrysler and would lose $13 billion on its $50 billion in GM (and a few billion more on its $17 billion in the former GMAC) if it cashed out its remaining shares now. That is pretty much the definition of how things are not supposed to work in Chapter 11, where the bankruptcy financier — in this case the U.S. taxpayer — gets repaid first.
But considering the options Obama administration officials faced — letting GM and Chrysler die, shoveling more government cash at them, or putting them through a managed bankruptcy — they made the right call. Now would be as good a time as any for the GOP candidates to admit it.
Politicians don't like to admit they were wrong (Conks). Such an admission is seen as a sign of weakness or lack of ideological correctness. Occasionally it does happen, though, particularly when the gap between the politician's original position and the outcome grows glaringly wide.
In 2008, candidate Barack Obama belatedly and grudgingly admitted that President George W. Bush's troop surge in Iraq was working. This didn't mesh with Obama's calls for withdrawal or his opposition to the surge. But it did have the advantage of being true.
This year, with the pivotal Michigan primary fast approaching, it's time for Mitt Romney and Rick Santorum to acknowledge the obvious: The rescue of General Motors and Chrysler — which started during the Bush administration and continued under Obama — succeeded.
We say this having once taken the other side ourselves. In the fall of 2008, this page opposed a bailout in its original form, which did not involve either company going through Chapter 11 bankruptcy proceedings. The following year, when Obama opted for managed bankruptcy with government financing the restructuring process, our position softened but remained skeptical.
Now the passage of time leaves no doubt that the plan has exceeded expectations. The two companies have returned to profitability. Last year, GM sold more vehicles than any other automaker in the world. The domestic auto industry as a whole has added 207,000 jobs since June 2009. And the cost to taxpayers has been far less than it would have been had the companies collapsed and the government was forced to partially bail out their pension funds, as well as pay for unemployment benefits and other assistance to displaced workers.
Even so, the two leading candidates for the Republican presidential nomination keep pounding away, unmindful of how divorced from economic reality they appear.
Santorum said at Wednesday's debate in Arizona that he's opposed to all government bailouts. Well, fine. No one particularly likes the concept. But his insistence that GM and Chrysler could have survived the worst economic meltdown since the Great Depression without government intervention is nonsense. They needed tens of billions of dollars at a time when even healthy firms were struggling to find credit.
Romney's argument is more convoluted and only slightly more credible. Rather than have the government lend to auto companies, he said, he would have had the government back loans made by private financiers. It's unlikely that banks could have been induced to lend huge sums during the financial crisis. And if they did, it would have been from a deal so sweet that it would have raised its own set of problems.
This is not to say that Detroit is out of the woods, or that the bailout was ideal.
Most parties in the deal — secured creditors, labor unions, dealers — came out better than they would have in a conventional bankruptcy. The government, meanwhile, lost $1.3 billion on its $12.5 billion investment in Chrysler and would lose $13 billion on its $50 billion in GM (and a few billion more on its $17 billion in the former GMAC) if it cashed out its remaining shares now. That is pretty much the definition of how things are not supposed to work in Chapter 11, where the bankruptcy financier — in this case the U.S. taxpayer — gets repaid first.
But considering the options Obama administration officials faced — letting GM and Chrysler die, shoveling more government cash at them, or putting them through a managed bankruptcy — they made the right call. Now would be as good a time as any for the GOP candidates to admit it.
