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The Government Should Profit From Loans To The Detroit 3

Paul Ingrassia, who has followed the Detroit Three auto companies for many years, argues persuasively against the $50 billion in low-interest loans the companies are seeking from the government--and which both Barack Obama and John McCain, with their eyes on Michigan's 17 electoral votes, have promised to support. If such loans are extended, Congress and the executive branch should follow the course of the $1.2 billion Chrysler loan guarantee: The government should have the right to buy company stock at low prices, so it can make a profit (as it did on Chrysler), and the government should get very intrusive and overbearing in supervising the borrowers' businesses. This is described in the 1985 book New Deals: The Chrysler Revival and the American System, by Robert Reich (later Bill Clinton's secretary of labor) and John Donahue. As I recall (I read the book around the time it was published), the government made things so unpleasant for Chrysler executives that CEO Lee Iacocca decided to pay off the loans seven years early. He wanted to get the government out of his hair.

The current legislation doesn't sound like this. To have any chance of working, and of avoiding the moral-hazard effects Ingrassia points to, the loan process should be made as unpleasant for the companies as possible, and the government should be in a position to make profits, not just earn interest, if the Detroit Three do actually recover.

By Michael Barone

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