I’ve been looking into this auto industry bailout versus “let them go bankrupt” thing and it kind of freaks me out. First of all, Mitt Romney did indeed contribute an Op-Ed to the New York Times in November of 2008 entitled “Let Detroit Go Bankrupt.” Who knows if it was Mitt Romney, a ghost writer, or a NYT copy editor who came up with that. The point of the Op-Ed was that if GM, Chrysler, and Ford simply got cash injections from the government, that would mask fundamental flaws in these companies. Bankruptcy, Romney argued, was the path provided by our system for addressing these flaws. The federal government should, he argued, provide loan guarantees for the initial financing necessary to bring the restructured companies out of bankruptcy. Romney was clear that current stock holders and bond holders would, and should, lose whatever they had invested.
What actually happened was that GM and Chrysler went into bankruptcy. (Ford had begun making fundamental changes a couple of years earlier and did not need government assistance to complete those changes.) Before GM went into bankruptcy, it had a plan. All the good stuff GM had – the newer factories, the brand names – would be sold to a new company. The old company would keep all of the crap, and its creditors and shareholders would be lucky to get any of their money back. But who would own this new company? Why, the federal government of course! The US Treasury took some of the $700 billion which Congress had allocated to save the banking industry and used it to buy a 61% stake in this new automotive company (which, btw, is now called “General Motors.” The old company changed its name to something like “SUCKERS!”)
The new GM went public a while later, and the government sold some of its stock at a several billion dollar loss. (The TARP “bank bailout” program has made billions on the money invested in banks but lost billions on the auto industry.) The Treasury now owns about 28% of GM and about 71% of the finance company initially created and owned by GM and formerly known as GMAC. That company is now called “Ally Bank” and they advertise on NPR. They are also due to receive $45 million in incentives from the State of North Carolina if they keep certain operations located in Charlotte. $45 million from the State to a company which is 71% owned by the US Government. A company, like the new GM, which was proposed to the Judiciary of that same government before the old GM entered bankruptcy and ended the realistic possibility that private individuals would get any of the money they had invested into the company out of the company.
So what’s the difference between what Mitt Romney proposed and what actually happened? Romney’s plan was less radical in terms of how our courts, financial system, and national treasury have worked together in the past. One could question whether or not the Romney approach would have been aggressive enough to reach what he envisioned as the outcome: a leaner, more sustainable, more innovative car industry. In my humble opinion, that’s where we have gotten. It’s possible that the Romney plan would have gotten us there with less cost to the taxpayer, although credit was so tight at that point that it’s hard to know if anyone would have financed the new GM, loan guarantees or no loan guarantees.
My point is this: it’s complicated. I’m not voting for Mitt Romney, but I don’t think he wanted Detroit factory workers out on the streets. Moreover, the “bailout” effort that the President led is not without its own sketchy bits. What Mitt Romney proposed and what Barack Obama wound up doing are a lot closer than the current rhetoric might lead you to believe. And the same might be true of how each would approach the next four years as President.