Obviously, I have been glued to the TV and reading all the newsprint about the auto bailout issue; it means so much for the state of Michigan as well as the nation. I have been adamant about allowing the auto companies to declare bankruptcy and restructure. I still believe that course of action offers the best strategy if the companies are to come out lean and mean to take on global competition.
But a few reports have surfaced examining the effects of a pre-packaged and controlled bankruptcy as opposed to a Congressional / Federal loan type bailout.
When a company enters protective bankruptcy, it relies on a “debtor-in-possession” financing to fund its operations during the bankruptcy process. In today’s economic climate, obtaining that operational financing is next to impossible; the government is the last lender willing or able to lend to a company in bankruptcy.
A company unable to find “debtor-in-possession” financing would be forced into liquidation to pay off its debts. At this stage, all efforts or hopes of restructuring disappear.
So, if the government did not bail out the auto companies but was willing to be a lender to a “debtor-in-possession” company, the amount of money needed for such a loan would be a lot greater than what the auto companies are asking for in a “bridge” loan.
Chrysler, in this morning’s paper, said if they declared bankruptcy, 29 plants would immediately close, 53,000 jobs would end immediately and $7 billion in bills to suppliers would go unpaid probably forcing the suppliers into bankruptcy.
Some would argue that this kind of talk is just scare tactics and that if a “pre-packaged” bankruptcy plan was carefully devised, all this suffering could be controlled and they are probably right. The size of the “debtor-in-possession” loan would unfortunately still be enormous when compared to a restructuring on the run through “bridge” loans.
My only problem with this scenario and I thing Congress shares my fears, is that the auto companies will take the money but fail to perform the restructuring that is absolutely needed to emerge in good, competitive health. For example, I don’t think the unions will agree to disappear and they do need to disappear. Will the government agree to take over all the billions in pension costs that the auto companies need to shed; under bankruptcy, this would be automatic.
I know Congress is talking tough and so is the lame duck White House. There is talk of an “auto czar” that would have extraordinary powers to order the auto companies around. All this talk of control by the government has me shaking my head knowing how efficient our government is in handling big jobs; does Katrina ring a bell?
If bankruptcy is too expensive then we need a legal contract between the auto companies and the government as to what steps need to be absolutely taken to restructure the auto companies. Once the money has been repaid to the taxpayer, the auto companies would then regain their freedom and go back to being capitalist entities but for now, I guess we play a socialist game.
Playing with socialism is against all my economic principles but since I have nothing historic to go by, we will all have to use logic and good common sense to get us through this ordeal.
I will say that the corruption of capitalistic principles by Wall Street pigs and the allowing of this corruption by Congressional myopic pigs need to be seriously addressed during our struggles to get out of this mess caused by clearly identified individuals and companies.
We owe it to future generations to institute laws and regulations that will guard the integrity and smooth operation of out tried and true, proven capitalistic system. I agree that capitalism is based on a free market system unencumbered by governmental interference but when individuals and institutions undermine the free market by manipulating it in such a manner that it is no longer truly free, rules and regulations must be imposed.
It is part of capitalism to gamble by investing in an enterprise that may or may not succeed but it is another thing to gamble by placing bets that an enterprise will fail and then doing your darnedest to make sure it fails and therefore you win your bet. That does not belong in a capitalist economic system that runs a country; that kind of behavior belongs in Las Vegas, played under gambling regulations.
More on that as things develop…
But a few reports have surfaced examining the effects of a pre-packaged and controlled bankruptcy as opposed to a Congressional / Federal loan type bailout.
When a company enters protective bankruptcy, it relies on a “debtor-in-possession” financing to fund its operations during the bankruptcy process. In today’s economic climate, obtaining that operational financing is next to impossible; the government is the last lender willing or able to lend to a company in bankruptcy.
A company unable to find “debtor-in-possession” financing would be forced into liquidation to pay off its debts. At this stage, all efforts or hopes of restructuring disappear.
So, if the government did not bail out the auto companies but was willing to be a lender to a “debtor-in-possession” company, the amount of money needed for such a loan would be a lot greater than what the auto companies are asking for in a “bridge” loan.
Chrysler, in this morning’s paper, said if they declared bankruptcy, 29 plants would immediately close, 53,000 jobs would end immediately and $7 billion in bills to suppliers would go unpaid probably forcing the suppliers into bankruptcy.
Some would argue that this kind of talk is just scare tactics and that if a “pre-packaged” bankruptcy plan was carefully devised, all this suffering could be controlled and they are probably right. The size of the “debtor-in-possession” loan would unfortunately still be enormous when compared to a restructuring on the run through “bridge” loans.
My only problem with this scenario and I thing Congress shares my fears, is that the auto companies will take the money but fail to perform the restructuring that is absolutely needed to emerge in good, competitive health. For example, I don’t think the unions will agree to disappear and they do need to disappear. Will the government agree to take over all the billions in pension costs that the auto companies need to shed; under bankruptcy, this would be automatic.
I know Congress is talking tough and so is the lame duck White House. There is talk of an “auto czar” that would have extraordinary powers to order the auto companies around. All this talk of control by the government has me shaking my head knowing how efficient our government is in handling big jobs; does Katrina ring a bell?
If bankruptcy is too expensive then we need a legal contract between the auto companies and the government as to what steps need to be absolutely taken to restructure the auto companies. Once the money has been repaid to the taxpayer, the auto companies would then regain their freedom and go back to being capitalist entities but for now, I guess we play a socialist game.
Playing with socialism is against all my economic principles but since I have nothing historic to go by, we will all have to use logic and good common sense to get us through this ordeal.
I will say that the corruption of capitalistic principles by Wall Street pigs and the allowing of this corruption by Congressional myopic pigs need to be seriously addressed during our struggles to get out of this mess caused by clearly identified individuals and companies.
We owe it to future generations to institute laws and regulations that will guard the integrity and smooth operation of out tried and true, proven capitalistic system. I agree that capitalism is based on a free market system unencumbered by governmental interference but when individuals and institutions undermine the free market by manipulating it in such a manner that it is no longer truly free, rules and regulations must be imposed.
It is part of capitalism to gamble by investing in an enterprise that may or may not succeed but it is another thing to gamble by placing bets that an enterprise will fail and then doing your darnedest to make sure it fails and therefore you win your bet. That does not belong in a capitalist economic system that runs a country; that kind of behavior belongs in Las Vegas, played under gambling regulations.
More on that as things develop…
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