This critique is detached from reality. Steven Rattner, who was Mr. Obama’s lead auto adviser, wrote in The Times on Friday that not a single dollar of private capital could be found to prop up the companies, despite desperate efforts, and he challenged Mr. Romney to name one investor who might differ. The Detroit News, which otherwise enthusiastically endorsed Mr. Romney in the primary, said he was dead wrong about the bailout. Only the government was in a position to save the auto industry from “the darkest hour of its history,” the newspaper’s editorial board wrote.
Rattner never once asked private investors if they wanted a piece of GM to save it. In fact, that option was never placed on the table by simple virtue of the fact that GM was not allowed a normal negotiation with shareholders. But the government’s behavior in the bailout may reveal why investors haven’t flooded back in to the automakers: GM’s creditors were forced to take a non-negotiable haircut on their principal investments by none other than the Obama administration.
Moreover, that amoral insistence that debt contracts have no meaning is violently wrong. Bankruptcy is the process that entities and their creditors agree to in order to resolve cash flow problems like GM’s. How do we know it works? Ford did the same thing a few years before GM and thrived without a dollar of government assistance or a single fucked-over bondholder.
The worst part of all of this is the fact that Detroit’s mythical renaissance is founded on accounting tricks and bad lending. Subprime auto lending is practically the sole source of Detroit’s “amazing profits” - and yet liberals remain oblivious to the problem, much like conservatives maintained that the home bubble was the product of sound policy. It’s rubbish and it will end in tears. Worse still is the “channel stuffing”, a process whereby GM and its ilk book immediate profits on inventory buildups that have reached historic levels; make the car, sell it to the dealer, and book the revenue even if no one ever drives it. Which, oh by the way, is the primary motivating factor for all of this subprime and below-prime lending.
In other words, literally everyone who’s commented on the auto bailout has been hysterically wrong. It’s a stunning failure of journalistic skepticism, political sausage-making, and industrial prowess. I don’t hesitate one moment to call it Soviet. Not because it’s communist, socialist, or somewhere in between: but because it represents a failing nation tied to a zombie economy churning out garbage products.
