“Enough” Bailouts

Take a look at this!  What a great perspective on “The Bailout.”

EDITORIAL FROM THE RICHMOND-TIMES DISPATCH (NEWSPAPER) Thursday, Nov 13, 2008 – 12:09 AM

“ENOUGH”

Congressional Democrats and flunkies for the Big Three automakers are beating the bushes for more bailout money.  The bailout of the financial sector was a regrettable necessity.  The bailout of the auto industry would be a giant mistake.  Chapter 11 is the better route.

First, in an important sense the car industry already has been bailed out.  The rescue of the financial sector was designed to thaw the frozen credit market, a major component of which is — you guessed it — car loans, which dried up this year when the banking sector tanked.  What’s more, Congress has approved a $25-billion low-interest loan for the Big Three to help them retool.

Second, Washington bears a significant share of the blame for the banking collapse.  With congressional Democrats pimping for Fannie and Freddie, and Clinton-era changes to the Community Reinvestment Act driving banks to make risky loans, the subprime-mortgage mess was as much a creature of Washington’s creation as it was of Wall Street’s.

But the problems confronting America’s carmakers are largely of their own making — with a big assist from unions that have mau-maued the companies into ever-more-costly benefits and work rules.  The industry’s chief problem is that it makes inferior cars that buyers pass over on their way to a Japanese-car dealership.  (Management sometimes has been abysmal, too.)

 

The one major exception?  SUVs.  Until recently SUVs benefited from looser treatment under corporate average fuel-economy standards and became the replacements for station wagons that families used to buy.  SUVs generated huge profit margins and helped offset anemic revenue from small-car sales.  Then gasoline prices shot up — and SUV sales nosedived.

 

Third, bailing out the auto industry opens the door even wider to more bailouts down the road.  Where does it end?  Should Washington bail out Circuit City?  How about The Los Angeles Times, The New York Times, and other newspapers that have faced daunting financial problems of late?

 

Finally, as Ugandan journalist Andrew Mwenda recently remarked with regard to the financial upheaval, governments invited to intervene in the marketplace at a moment of crisis have a tendency to overstay their welcome.   The troubles facing Detroit’s automakers are disruptive and dismaying.   But the troubles that would arise if Washington steps in could be even more disruptive and dismaying, and last far longer.   The best way Washington can help businesses is to keep taxes low — and get out of the way.