[It was interesting to watch] the trek to Capitol Hill by the auto company chieftains, who sought $25 billion in federal loans ”” and instead got their heads handed to them by angry congressmen. Incredibly, the C.E.O.’s came with no convincing plan of action, no promise to do better, no offers of management resignations. Even the most sympathetic Democrats, like House Speaker Nancy Pelosi, seemed to turn against them, telling them not to come back unless they devised a plan to show Washington how they would use the money to turn the companies around. And thus the tom-toms of bankruptcy grew louder. What else is left for them to do?
Before the country decides to head down that path, though, let’s consider for a minute what that would mean and what it would entail. In his Times op-ed article this week, Mr. Romney called for “a managed bankruptcy,” making it sound as if such a move would allow G.M.”” with more or less a snap of a finger ”” to close plants, invest in new products, abolish gold-plated union benefits and make the industry more competitive.
But bankruptcy is anything but a snap. It is a long, difficult, drawn-out process with no guarantee that a bankruptcy judge will go along with everything G.M. wants to do. Several bankruptcy lawyers I spoke to all made the same point: if there is any way these goals can be accomplished outside of the bankruptcy process, then that should be tried first. As one lawyer put it to me, “Bankruptcy sucks as a way to achieve real business resolution.” As it happens, I think there is another approach that might work. But it won’t be particularly easy either.
Sometimes drastic actions are required, but why do we so often let things get to that point or so often call for drastic action when considered action would solve the problem?
For instance, it is critical for General Motors to be able to break its contracts with both its unions and its dealers. It needs to dramatically reduce its legacy benefits, perhaps even eliminating health care benefits for union retirees. It needs to close plants. It needs to pay its workers what Toyota workers are paid in the United States — and not a penny more.
Probably bankruptcy is the only way of doing these things. I can’t see them happening under a government bailout.
[i]In this time of crisis, the government has a moral authority that no one institution can match. Just ask Jamie Dimon, the JPMorgan Chase chief executive, who took $25 billion from Treasury that his company didn’t need, and didn’t really want — because Mr. Paulson told him he had to for the good of the country.[/i]
“Moral authority” = nuclear weapons