Mitt Romney gets a lot of things right in his critique of the automotive industry bailout, but he makes one critical mistake in arguing that a managed bankruptcy without government intervention would have been just as effective.
Writing on The Detroit News commentary page Tuesday, the Republican presidential hopeful defended his opposition of the initial 2008 bailout, which he first spelled out in a New York Times piece that ran under the infamous headline, "Let Detroit Go Bankrupt."
Romney explained again Tuesday that he didn't want to see General Motors Corp. and Chrysler Corp. go out of business. He only preferred that the automakers take the traditional route to bankruptcy and avoid a government takeover and what he dubbed "crony capitalism" that favored Democratic interests groups, including the United Auto Workers.
"Instead of a bailout, I favored 'managed bankruptcy' as a way forward," Romney wrote Tuesday.
But by the fall of 2008, a managed bankruptcy was no longer an option for GM and Chrysler. With the credit markets crashing and their coffers empty, neither automaker could raise the cash to keep operating through a traditional bankruptcy. That's why their executives went hats in hand to Washington, pleading for a loan.
Their argument for assistance, and it was a legitimate one, was that their supplier network would collapse if payments were cut off, and that would impact not only Chrysler and GM, but also Ford Motor Co. and, to a lesser extent, the foreign transplants.
That was not a risk then-President George W. Bush was prepared to take with the national economy falling rapidly into recession. Despite fierce opposition from his own party, Bush fought for the initial $17.4 billion bridge loan to keep the companies operating, an amount later tripled by President Barack Obama.
There's room to criticize the handling of the government-controlled bankruptcy.
Romney is correct that Obama rewrote bankruptcy law on the fly to reject the claims of secured creditors. He's also correct that the UAW was shoved to the top of the list of creditors, and that white-collar retirees at Delphi got short shrift on their pensions and health care, while union workers were pretty much made whole.
And the former Massachusetts governor and Michigan native rightly urges the government to divest itself of its automotive shares.
Romney didn't mention, as we have previously noted, that the Obama administration used the bailout money as leverage to force the automakers to build small and alternative-fuel vehicles ahead of market demand, and to cow the automakers into accepting ultra-stringent fuel economy standards.
But on the key question of whether the automakers could have managed themselves through a traditional bankruptcy without assistance from the government, Romney is wrong. The loans provided by Bush and then by Obama allowed the domestic auto industry to survive the darkest hour of its history and return to thriving operations today.
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