Thursday, December 11, 2008

The Auto Bailout: Between A Rock And A Hard Place

To Bailout Or Not To Bailout, That Is The Question

The House of Representatives should be voting on a bailout package Wednesday, and if it actually takes place it will undoubtedly have been passed. A much stickier road is present in the Senate where there is enough Republican opposition that a filibuster to prevent a vote is very possible. There is some very strong opposition that a bailout is the absolutely wrong way to go.

Is A Bailout A Better Proposition Than A Pre-Packaged Bankruptcy Or A Forced Liquidation?

We have the ultimate game of chicken going on here, particularly since nobody can know how any of these potential near term outcomes would play out.

A bailout of an inefficient and badly run industry would hopefully prevent what could be an absolutely disastrous trickle down of unemployment, bankruptcies and economic dislocation. Odds are that once the government coffers were opened, the companies would be back in a very short amount of time. Once you have given them money, how do you say no the second and third times?

A pre-packaged bankruptcy, or Chapter 11 that would allow the auto company's to continue operations while ridding themselves of some of the onerous contracts that are choking them would seem to be a good option. They would be in a position to negotiate with all involved, scale down, control costs and eventually emerge smaller and competitive with the foreign manufacturers. All without the taxpayers having to throw what might be good money after bad.

Now a forced liquidation or Chapter 7 filing might be the worst of all possible outcomes, as this would result in the enormous trickle down impact that would be felt in many different industries and not just in Michigan.

It appears that the politicking and posturing should end, and a decision be made and followed. The prospect of this hanging out there with no firm direction is as painful as the decision that will ultimately have to be made. There is 100% of a chance that none of these solutions will be 100% perfect, only that some will be less perfect than others. Let's just do what has to be done in what is an unbelievably bad situation, that if given the wrong methods to secure a solution has the potential to royally compound what are already some severe problems.

Remember that whatever happens, our congressmen and senator's will be going on their Christmas recess soon. No matter what!

Chicago Being Chicago
In yet another case of Chicago being Chicago , Governor Blagojevich was arrest on charges that included he is trying to sell the soon to be vacated senate seat of Barack Obama to the highest bidder. Even in Chicago, long storied for the way that the political system works and things get done (bought), even this story stretches the boundaries of believability.

Neel Kashkari is also hammered on the Hill one more time.

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