November 24, 2008

The Perpetual Bailout Machine

ARRA News Service - Conn Carroll, The Morning Bell, The Heritage Foundation: Failure is a part of U.S. business culture. That is why Americans feel extremely comfortable buying tickets from bankrupt airlines, electronics from bankrupt retailers, and apartments from bankrupt builders. To paraphrase a popular bumper sticker: bankruptcy happens. Bankruptcy does not have to be the end for any business. Instead bankruptcy, under Chapter 11, offers court-supervised protection from creditors so that a business can reorganize itself into a new successful form. The larger and more complicated a company is, however, the more preparation it must do before it can enter Chapter 11. In fact the executives of businesses facing tough economic times have a fiduciary duty to their shareholders and creditors to develop a bankruptcy plan. Only the most irresponsible executives would shirk this duty, and only the most conniving would do so knowingly as part of an effort to blackmail the American taxpayer. Enter General Motors CEO Rick Wagoner.

Testifying before Congress. . ., Wagoner admitted that GM has “put virtually all effort into avoiding” bankruptcy and has not worked out a detailed contingency plan. By contrast, Chrysler CEO Robert Nardelli said his company has “looked at all aspects” of a potential bankruptcy filing and has “gone through advisers to help us think this through.” The Wall Street Journal reports: "Because of its refusal to make plans for a bankruptcy, GM is “courting a Lehman-like situation,”. . . ." In other words, by willfully failing to plan, Wagoner is trying to maximize the pain a GM bankruptcy would cause so that Congress is forced to act. Giving in to Wagoner’s cynical game of chicken would be a disaster for the economy. . . . If Congress, or the Obama Administration, grants GM its bailout, they will have created a perpetual bailout machine, one that prompts every troubled industry in the country to abandon its fiduciary duty to plan for the worst and, instead, come to Washington demanding a handout. . . . [Source and comments] See also: Romney Advises "Let Detroit Go Bankrupt"

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