How Do I Know That the Chrysler Bailouts are About the Unions?

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This question was asked recently by a seasoned political reporter of my acquaintance.  Frankly, I hadn't realized that anyone else seriously believed there was any other reason to bail out Chrysler.  But let's go through a couple of the other stated rationales, to see why I find them so implausible:

  1. Chrysler is a good company caught in a bad situation.  Chrysler has been a bad headache for years.  Daimler bought it for $36 billion in 1998, and actually paid $650 million to have Cerebrus take the company off their hands in 2007.  Robert Bruner said in 2007 that

    The alternative to a private-equity restructuring would be a government bailout. We as an investing public need to decide whether we want the public sector to step in to support these ailing manufacturers or would we rather have these turnarounds privatized."  Chrysler's major problems were not born out of the financial crisis.

  2. The hedge funds benefited from the government money, so they're getting more than they would have otherwise.  As far as I know, Chrysler has burned basically all the cash they got from the government, which is why they're in bankruptcy. They haven't bought exciting new assets the secureds can liquidate; they've just produced more cars that can't be sold at a profit, put more wear and tear on machinery, etc.  The deal they made with Fiat doesn't put any cash into the company.  It's possible the government money somehow improved Chrysler's current financial hopes, but I don't see it.

  3. The administration isn't kowtowing to the unions; it's trying to prevent massive job loss.  Chrysler employs about 60,000 people.  This is a rounding error in the number of jobs that have been lost since this recession began. 

    To put it another way, we could have taken the $8 billion or so we gave to Chrysler and given every one of the company's employees $133,000 to start their own War on Poverty, while still providing much of their pensions through the PBGC.  Of cours, the new Chrysler is going to cut many of those jobs, so the cost of actual jobs saved will probably top $200K per.  For as long as the company lasts.  Which most analysts do not expect to be long, given that their super secret surprise scheme for turning everything around is to have Chrysler sell retooled Fiats to a country with one-seventh the population density and almost twice the birthrate of Italy.

  4. They're bailing out Chrysler because the company is systemically important.  Really?  When Lehman failed, huge other portions of the financial system quite unexpectedly quit working. Yet when I look out on the streets, I see no noticeable dimunition of the number of cars there.  When I turn the ignition key in my car, it still starts.

    Whether or not you agree with the actions the government has taken in the banking system, there is evidence that financial crises have real, nasty, systemic effects that even large industrial failures don't--particularly in a well-diversified economy like the United States.  (If Nokia went belly up, Finland would be in trouble.  But if Nokia went belly-up, Finland probably wouldn't have the scratch to bail it out, either).  I am unaware of any evidence that a single industrial failure has ever precipitated the kind of massive, widespread hardship that followed, say, the failure of Jay Cooke & Co.  Intervening to prop up a company that has been struggling for a decade is almost textbook bad economic policy.

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Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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