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$18 billion in loans to “prove financial viability”

December 19, 2008

In today’s Wall Street Journal the Bush government announced $18 billion in loans and non-voting warrants for the Detroit-three.  See article at:

http://online.wsj.com/article/SB122969367595121563.html.

Bush is no longer a Commander in Chief, but is now “CEO in chief” (credit to a recent FORTUNE magazine article).  I’m one who just does not believe government should in business.  I don’t think they should run airlines, investment firms, train companies, shipping companies, own substantial real estate or compete with private industry.  

Government has its place, it’s just not in business.

I’m also not a believer that one should reward failure.  People respond to incentives (incentives and scarcity are two tenets of economics).  If we create incentives for failure it will beget more failure.  Incentives will work to curb behaviours for everyone from fat cat auto executives all the way down to babies and puppy dogs.

I recognize, as Bush states in his announcement, that we are in exceptional times.  I also understand that letting these three employers disappear would create havoc.  But why not let them go into bankruptcy?  Why not force them through the process of purging of union contracts that see workers earning well over $100,000 just for being there and not even working?  Why not force them to rethink their entire method of business in order to compete more favourably with tightly run and nimble competitors (Toyota, Volkswagen and Tata, for example).  

There would be fallout, no doubt.  Creditors would get cents on the dollar.  Workers would be let go (but that $18 billion could go a long way toward retraining them or employing them in the government’s blessed infrastructure projects).  Executives would get golden parachutes.  But the short term pain would set the stage for a proud and profitable recovery.

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