National Consequences of Auto Industry Bankruptcy (from The American Conservative magazine) by Jon Utley
Reasons Why Washington Should Help Detroit:
Bankruptcy Not a Viable Solution
I live in Washington. We live in a tax-funded cocoon. Most think- tankers here don't fear the crashing economy, the non-functioning credit and bond markets, and the specter of economic chaos as company after company sees business evaporating and can't renew loans.
Overseas, Ford, GM, Citibank, Merrill Lynch, AIG represent the castles of American economic power. Markets are being pounded by panic, liquidity is gone, jobs are disappearing, yet a body of libertarians (who are the economic brains of the Republicans) urge blind allegiance to theories true for normal times, but not during chaos. Extending liquidity is not a "bailout."
Letting General Motors go bankrupt serves no great libertarian theory of markets. We can solve inflation tomorrow, today government must spend and lend on the current crisis. Surely 1929 taught us that.
The crashing markets come in major part because of "mark to market" accounting and SEC elimination of the "uptick" rule (please see article links for explanation by Newt Gingrich). IT IS NOT THE FAULT OF THE AUTO COMPANIES.
Democrats will succeed in pushing through government loans and aid for the struggling companies. But libertarians and conservatives should not lend their support to far leftists who want chaos or punitive policies, as done to AIG, to make the companies "suffer" or drive them out of business. Re labor unions please see December 1, 2008 article from The American Conservative:
Save Detroit —
Bankruptcy Now Would Do Incredible Damage
"Those who argue that it's all the companies own fault and they should be left to bankruptcy and "free markets," whatever the consequences, virtually ignore the credit collapse and two major reasons for crashing bonds and stocks, "mark to market accounting," ( http://www.forbes.com/2008/09/29/mark-to-market-oped-cx_ng_0929gingrich.html?partner=email) explained by Newt Gingrich, combined with the SEC's elimination of the "uptickrule" ( http://www.cnbc.com/id/27850397) governing short selling, put in place after the 1929 crash; it allows speculators to easily drive even viable companies into bankruptcy."