In an announcement made by President Bush today from the White House, the president announced that since congress failed to "bailout" the Big Three United States automakers, he would just raid the money from the ill-fated $700,000,000,000 "bailout/rescue" of the financial services sector.
President Bush buys into the irrational notion that if one or all three of the United States automakers have to declare Chapter 11 bankruptcy protection and reorganization, it will set off a chain reaction of all going under and millions of Americans put out of work. Also, President Bush buys into another bad argument that consumers will not buy from a company that is in bankruptcy.
Thus, President Bush is going to hand out $17,400,000,000 to two United States automakers, Chrysler, which is taking its second turn and the federal government teat, and General Motors. Ford is not going to be part of this as they claim they do not need this "bridge" loan.
Let's take the notion that this is a loan.
If in March, when this will supposedly be reevaluated, and one or both can not reorganize and are even in worse shape than before the loan, how will they be able to pay it back? One way would be, you guessed it, Chapter 11 bankruptcy reorganization protection. There would be no other way for these companies to pay back the loan.
And really, people fly airlines that have done the same thing as what the automakers should do.
A better example is Circuit City. They are in the middle of a Chapter 11 bankruptcy reorganization. I get my local Sunday fish wrap, aka Pasadena Star-News and still see their ads. People are buying products there. And warranties. And, while some people will just not shop there, most are not saying that they can not buy from a company that may not be around in a year or two.
And the scare tactic that millions will lose their jobs is just that. A scare tactic. Yes, some would unfortunately would lose their jobs. These would be people that work directly for one or both of the companies that want the hand out from the feds. And there is a possibility that some dealers and suppliers would have some residual effect. Yes, some dealers would close and some suppliers would have to lay off workers. But, the problem with the "bridge" loan is that this does not solve the long-term problem. It just stave's off the inevitable.
The real problem with this is the willingness of President Bush to believe that "doing something" is better than nothing. And, using the financial "crisis" is opening a can of worms that any industry that seems to be in a similar position (say newspapers) can beg for a similar "loan"
Even in the midst of an economic situation such as the one we are in, sometimes it is better to let the free market shake things out. Having the government try to solve these situations is not the way to go.
Good luck President-elect Obama.