Thursday, November 20, 2008

Managed bankruptcy for GM

Luis Zingales has a piece at VoxEU that is the most sensible thing I've seen written on GM (which isn't saying much, I know, but the thing is worth reading anyhow).
We believe that a Chapter 11 bankruptcy filing for GM is the only possible solution. However, we recognise that in the current environment, there are several likely inefficiencies associated with the bankruptcy process. In particular, if we do nothing and wait for GM to file for bankruptcy, which would likely happen in a month or so, we would risk a bad outcome of the proceedings, namely an inefficient liquidation of the company and a substantial amount of social disruption from the sudden loss of jobs. We therefore propose that the government oversee a prepackaged bankruptcy for GM that would give the company the restructuring it badly needs and avoid inefficient liquidation.
Finally, something lucid. You can't bailout the morons at GM with just cash. The history of the company and the industry proves that if nothing else. At the same time, the last thing we need right now is a large and panicked bankruptcy and liquidation of the company which sets of a chain reaction in the suppliers, lenders, employees, etc ... The government needs to provide debtor-in-possession financing and allow the private lenders who are still onthe hook to force an orderly restructing of the company. Shareholders should be wiped out and all management should be canned.

The next question is why we don't follow this same model with the big banks.

If we are going to have a government, now is the time for it to LEAD -- not be the dog wagged around by the ass-end captains of private industry who have already proven their incompetence beyond a shadow of a doubt.

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