There's a great line from the opening minutes of Gladiator, when Russell Crowe's Maximus, at that point a Roman general fighting barbarians on the Empire's Teutonic frontier, witnesses a hulking, bearded adversary brandishing the head of a decapitated Roman messenger. Crowe's fellow general, Quintus, says, "People should know when they are conquered." Crowe is skeptical, but he unleashes hell anyway. It's a line that the current crop of auto bailout critics should take to heart.
Isn't it a little late to be complaining about this?
You might be asking yourself, two years after the bailouts of General Motors (GM) and Chrysler, why the wisdom of the government rescue is even being debated. Simple: Because President Obama has been on a victory tour to celebrate the U.S. auto industry's comeback. His opponent in 2012 is unlikely to be able to run against him on foreign policy, so it's going to have to be the economy, stupid.
There's no way the right can allow this sort of celebration to pass without comment. Unfortunately, Mitt Romney can't argue that the bailout didn't work, because GM and Chrysler have both returned to profitability and are hiring. Unemployment in the Midwest is falling. And the auto industry is the vanguard of an American manufacturing renaissance.
Rather, some old complaints have been revived: that "normal" bankruptcies would have achieved the same effect and the government never needed to get involved; and that the administration favored the auto workers union over the claims of GM and Chrysler bondholders.
There is no bankruptcy without financing
Saving the auto industry was, to put it bluntly, an act of "soft" nationalization. With the financial economy imploding, there was major fear in 2008-09 that the damage would spread far beyond Wall Street and cause a core meltdown in the economy at large. The auto industry was the first giant domino that could not be allowed to fall.
In today's Wall Street Journal, David Skeel argues that everything would have been hunky-dory on this front, even if the U.S. Treasury hadn't steeped in:
General Motors was a perfectly viable company that could have been restructured under the ordinary reorganization process. The only serious question was GM's ability to obtain financing for its bankruptcy, given the credit market conditions in 2008. But even if financing were not available--and there's a very good chance it would have been--the government could have provided funds without also usurping the bankruptcy process.This grotesquely understates just how crippled the credit markets were during the financial crisis. If the government wanted to make sure that GM's bankruptcy happened fast -- not languishing in the manner of, say, parts-maker Delphi, which spent years in Chapter 11 -- it needed to provide swift, sure financing. Calling this "commandeering" the bankruptcy process, as Skeel does, is ridiculous. It was the best way to prevent an industrial cataclysm and Depression 2.0.
What about the UAW?
The second gripe is that the rights of bondholders were trampled so that the administration could preserve the interests of the auto workers' union. I've always thought this line of reasoning was completely disgusting, since GM and especially Chrysler's debt holders were playing a risk arbitrage game all along, while the UAW's leadership was simply trying to preserve jobs and benefits.
Conservatives are great fans of the free market until the free market bares its fangs and loses people lots of money. At which point they try to blame labor. Chrysler's and GM's bondholders were operating on the cynical assumption that the government would bail out the automakers if they went bust, thereby mitigating what would otherwise have looked like colossal risk.
The endgame would have involved screwing the UAW. When that didn't happen, the bondholders stopped being tough free-market honchos and started crying like little girls who'd just lost their lollipops. Until car czar Steve Rattner showed up and told them to take the deal or take a hike.
Miscalculation on the right
In a just world, this will all backfire on the bailout bemoaners. Americans may not have been crazy about the bailouts at the time, but they can see how much worse things would be now had the government not moved decisively. Also, they tend to believe that people who make useful things are morally superior to to people who shift money around all day long and periodically destroy the economy.
The next time you hear someone gripe about the bailouts, do me a favor: tell them they've been conquered, and fire a catapult loaded with burning oil at them.