Corporate & Securities Law

Zywicki on the Bankruptcy and the Bailout

My colleague Todd Zywicki is in the Wall Street Journal today on the merits of bankruptcy along with some public choice:

General Motors looks like a financially failed rather than an economically failed enterprise — in need of reorganization not liquidation. It needs to shed labor contracts, retirement contracts, and modernize its distribution systems by closing many dealerships. This will give rise to many current and future liabilities that may be worked out in bankruptcy. It may need new management as well. Bankruptcy provides an opportunity to do all that. Consumers have little to fear. Reorganization will pare the weakest dealers while strengthening those who remain.  So why do the Detroit Three managements and the UAW insist that “bankruptcy is not an option”? Perhaps because of the pain that would be inflicted upon both. …

Those Washington politicians who repeat the mantra that “bankruptcy is not an option” probably do so because they want to use free taxpayer money to bribe Detroit into manufacturing the green cars favored by Nancy Pelosi and Harry Reid, rather than those cars American consumers want to buy. A Chapter 11 filing would remove these politicians’ leverage, thus explaining their desperation to avoid a bankruptcy.  In short, Detroit and the public has little to fear from a bankruptcy filing, but much to fear from the corrupt bargain that is emerging among incumbent management, the UAW and Capitol Hill to spend our money to avoid their reality check.

Go read the whole thing.

Full post as published by Truth on the Market on December 16, 2008 (boomark / email).