Two Sinking Ships Want a Bailout to Rescue One Another

Like I said a couple weeks ago, two sinking ships cannot rescue one another. The proverbial sinking ships, General Motors (GM) and Chrysler, seem to have finally come to this conclusion in the course of their earnest and horribly misguided merger talks. The problem is that, instead of quietly sulking away into Chapter 11 bankruptcy for one or both automakers, they now want to enlist Mommy Government’s help (and thus, your help) in sealing the deal. That’s right, GM and Cerberus Capital Management (Chrysler’s owner) want the United States government to hand them 10 billion dollars so that they can merge.

I am absolutely aghast.

What would the government and—by extension—you and I get in return? Well, 3 billion dollars of that money would buy a chunk of GM/Chrysler’s ‘equity’. Of course, when the combined firm goes under anyway because of the UAW, mismanagement, and other problems that ‘equity’ will be worthless. Another 3 billion dollars would go to taking over GM and Chrysler pension obligations, and the rest would apparently just be free money. This is not a gamble investors will take, so why should the government take it?

Not to mention that it was only a month ago that the U.S. government gave these same automakers 25 billion dollars in loan guarantees—for a running total of 35 billion dollars that you and I are on the hook for if the American auto industry bankrupts itself. Anybody else feel a bit ill?

Update: Hours after I wrote this, I came upon an opinion piece by Steven Pearlstein in the Washington Post who says the same thing, but with a well thought-out alternative solution. Kudos to Pearlstein; I sure hope GM, Chrysler, and Congress are listening.

Update 11/3/2008: The International Herald Tribune reports that the Bush Administration will not be negotiating this new 10 billion dollar bailout with GM. Finally, the government makes a smart economic decision.

Scott Bradford is a writer and technologist who has been putting his opinions online since 1995. He believes in three inviolable human rights: life, liberty, and property. He is a Catholic Christian who worships the trinitarian God described in the Nicene Creed. Scott is a husband, nerd, pet lover, and AMC/Jeep enthusiast with a B.S. degree in public administration from George Mason University.