Auto Bailout

Here's an idea: Instead of a bailout with taxpayer funds, let's make a deal whereby we hand over to the UAW all the equity (which is currently negative to the tune of about $75 bln) of GM and let them have the company. In true socialist fashion the workers will then own the means of production, let them have a go at it. The new proletariat committee they put in charge can immediately raise the salaries of all the workers and extend benefits to any level they like. All this will be, I'm sure, more than offset by the massive increases in productivity that will ensue, once the shackles of the evil capitalist exploiters are thrown off.

On a serious note, while I think a bailout of GM, which has been technically bankrupt for years, is in the long run a terrible idea, in the short run I am torn. Given the current fragile states of the economy, credit and equity markets, the repurcussions from a major shutdown of all or part of GM would create ripples far worse than those we are currently still feeling from the Lehman bankruptcy. Firstly, for the credit markets, there are a huge outstanding amount of credit default swaps which pay off if GM declares. Now many of these are netted (i.e. JP Morgan is long with Merrill and short with Goldman, netting a much smaller real outstanding amount), but I don't think anyone knows exactly what the total net exposure of these instruments is or how it is distributed by firm, but it would create a much larger problem than what would be experienced by GMs immediate creditors and bond holders. So a GM bankruptcy would like cause a new round of financial firm failures due to CDS losses. Likewise the economic dislocation due to large layoffs and ripple effects through GM suppliers, etc... would be dangerous to an already very weak economy. In other words, as much as I dislike the idea of bailing out the idiotic managements and deluded and grasping unionized workers of these companies, it will most likely be far cheaper for the taxpayer to give them sufficient money to keep them going for 2-3 years and then let them fail in a hopefully much better economic environment. That, of course, presupposes that they won't just become permanent taxpayer supported zombies, which is a big if.