University of Pennsylvania law professor David Skeel has a great commentary in the Wall Street Journal on the political folly of the GM and Chrysler bailouts. The entire article is worth reading, but what I appreciated most was his recognition that the bailouts didn’t have to happen at all. He writes:
Nor would both companies simply have collapsed if the government hadn’t orchestrated the two transactions. General Motors was a perfectly viable company that could have been restructured under the ordinary reorganization process. The only serious question was GM’s ability to obtain financing for its bankruptcy, given the credit market conditions in 2008. But even if financing were not available — and there’s a very good chance it would have been — the government could have provided funds without also usurping the bankruptcy process.
Although Chrysler wasn’t nearly so healthy, its best divisions — Jeep in particular — would have survived in a normal bankruptcy, either through restructuring or through a sale to a more viable company. This is very similar to what the government bailout did, given that Chrysler is essentially being turned over to Fiat.”
Bankruptcy laws exist for a reason, and they are used by big and small companies all the time. This process could have worked with GM and Chrysler as well. Taxpayers and American business suffer in the long run when exceptions are carved out for politically motivated purposes. This is no exception.