Hayek Explains Bush on the Auto Bailout

by Mario Rizzo

Today from George Bush’s remarks announcing to use of TARP funds to bailout the auto industry —  until they ask Obama for more later next year:    

… [M]y administration worked with Congress on a bill to provide automakers with loans to stave off bankruptcy while they develop plans for viability. This legislation earned bipartisan support from majorities in both houses of Congress.

Unfortunately, despite extensive debate and agreement that we should prevent disorderly bankruptcies in the American auto industry, Congress was unable to get a bill to my desk before adjourning this year.

This means the only way to avoid a collapse of the U.S. auto industry is for the executive branch to step in. The American people want the auto companies to succeed, and so do I. So today, I’m announcing that the federal government will grant loans to auto companies under conditions similar to those Congress considered last week. Continue reading

None Dare Call It Socialism

by Mario Rizzo

 

The Wall Street Journal reports today that the Republican Administration may agree to a bailout package for the US auto industry that would give the government a large financial stake (“warrants”) in at least GM and Chrysler.

 

 

While it is not clear at this writing whether the warrants would be voting, nonvoting, preferred or common shares, it would be a form of ownership. The warrants would amount to about 20% of the value of the loans. The restructuring that will take place under such a deal would necessarily be open to all sorts of political manipulation and rent seeking. A “car czar” (notice how humor is used by the planners  to make things seem all friendly and nice)  will be appointed by the president to oversee the restructuring. Unlike a bankruptcy judge this appointee will be subject to the winds of political expediency. I hope this plan will die because of political wrangling and disagreement. Nevertheless, it demonstrates where we are. No one in power is counting the long-run costs. The slippery slope is in fine form.

 

 UPDATE: There is a good complementary post at CafeHayek.