Monday, May 7, 2012

The Tale of Two-Tiered Bankruptcies with GM and Chrysler. Sick of the rhetoric from BOTH parties on this issue? The try some honest analysis here...

Here is a very short, down the middle, as unbiased a primer as I have seen on the GM and Chrysler Motors bankruptcies.  Below is the conclusion, but if you want to be better informed on this political issue, then read the whole thing at the link below.  This will help you separate fact from the fiction BOTH sides of the political spectrum espouse.

The GM and Chrysler Bail-Outsb (source: The Conversable Economist)
The claim that the U.S. government "saved" GM and Chrysler is wildly overblown. The firms would have continued to exist if they had gone through a standard bankruptcy process. Were the TARP loans to GM and Chrysler and the government intervention in the bankruptcy process worth it? Part of the answer is the value you place on the faster bankruptcy process, or on how you feel about a process that gave bondholders less value and the UAW retirement fund more value than they probably would have received in a standard bankruptcy. But as another metric, let's say that the government ends up eventually losing $10 billion of its investment in GM, which has 50,000 hourly jobs in 2010. Say that in a standard bankruptcy, hourly jobs would have been slashed more sharply, down to 30,000. (Of course, it's possible that GM would have been managed differently under a standard bankruptcy, in such a way that jobs wouldn't have needed to be cut as sharply.) Saving 20,000 jobs at a cost of $10 billion works out to $500,000 in government spending per job saved.   
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