Saturday, November 15, 2008

Don't bail out the carmakers: The Economist

Politicians, business and the unions all want a bail-out of Ford and General Motors. That would be a mistake. Chapter 11 was made for situations like this. As article says: Bailing out Detroit would be a bad use of public money. It would be bad in principle, because it would be an open invitation to companies everywhere to apply for aid to survive the recession. Banks qualify for help because the entire economy depends upon their services. They are vulnerable to sudden collapses in confidence that can spread to other banks that are perfectly solvent. A good car company does not face the same threat. And although Detroit employs a network of suppliers, which would suffer if production shuts down, nothing would sap a recovery and job-creating enterprise like locking up badly used resources in poorly performing companies.

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