It’s taken me all the way until the end of the day to actually digest the day’s big story—the Obama administration’s new auto industry plan. The first thing to say about this is that unlike a lot of other things that have raised the cry of “socialism!” this really sort of is socialism. You have the President of the United States firing the CEO of General Motors, and simultaneously ordering Chrysler to pursue a process of selling itself to Fiat. The administration is wisely trying to avoid an extended period of state-directed management of industrial firms producing consumer goods, but that’s certainly the situation they’re in at the moment and it’s something we ought to try to bring to an end as soon as possible.

My understanding of the Chrysler portion of the deal is basically that if Chrysler and Fiat can’t come to terms within 30 days, then Chrysler is going to enter into a Chapter 7 liquidation process at which point Fiat could buy whatever it wants. Consequently, Fiat is likely to be able to extract favorable terms on whatever deal they reach. General Motors, meanwhile, is in effect being put into a debtor-in-possession bankruptcy. They haven’t technically been put in such a scenario, but the firm’s restructuring plan has been rejected and the panel is offering a 60 period in which to put together a more radical restructuring featuring haircuts from bondholders and labor unions and dealers. This is basically what would happen in a DIP bankruptcy. The thinking is that given current conditions in the economy and the credit markets it wouldn’t be possible to arrange that through the private sector, so a bankrupt GM would need to be liquidated rather than reorganized. The government is stepping in to, instead, facilitate reorganization.

In both cases, these seem like economically reasonable courses of action. It’s important to note, though, that if these plans work it doesn’t seem like they’ll especially achieve what people would ideally like to see. The American auto industry isn’t really going to be “saved.” General Motors is going to shrink radically, and Chrysler’s production facilities will basically become “transplant” factories of an Italian firm. In job terms, the auto industry is going to continue to shrink as a source of employment. In particular, the Chrysler-Fiat merger scenario is consistent with massive job losses in the United States since it’s not obvious how many Americans Chrysler would really want to employ. If GM succeeds in getting out of a lot of its debt obligations, the resulting company isn’t going to be well-positioned to expand when the broader economy recovers since it’ll be hard to borrow on favorable terms. And the “good jobs” nature of blue collar work in the auto industry is going to further erode.

Long story short, this looks like an economically responsible way to avoid a cataclysmic implosion of these firms at an inopportune moment. But this isn’t going to prevent the conditions facing the population of Michigan from further deteriorating. That state more-and-more looks like it’s going to be the 21st century version of the Great Depression’s Dust Bowl. The most important policy question facing us in this regard thus continues to be what can be done to help the people of the Rust Belt that doesn’t just involved indefinitely propping up shrinking firms. The first step is simply to turn around the shrinkage in the larger economy, but the question will remain even if recovery reaches the rest of the country.

CAP’s Brian Katulis offers his take on what the past weekend’s crack in the edifice of sectarian relations in Iraq:

The stated goal of the surge, according to the Bush administration, was to reduce violence in order to help Iraq’s political factions bridge their divides over power, but that has simply not occurred in a meaningful way. Iraq remains plagued by enduring political divisions, as I argued last September in a paper on Iraq’s political transition after the surge.

A key tactic used in the Iraq surge could essentially be likened to what was done in the run-up to the current financial and banking crisis in the United States—steps were taken to make things look better than they actually were, while real problems lurked beneath unaddressed. A day of reckoning must at some point occur, because the structural imbalances of power in Iraq will naturally address themselves, as sure as the force of gravity that keeps us all sitting in our chairs. The inexorable force in Iraq is demographics. Iraq is a Shia-majority country now governed by Shia factions, with nominal participation by Sunni forces. This represents a fundamental shift from the balance of power during decades of Saddam Hussein’s rule, which ended nearly six years ago. Ever since his regime’s ouster in 2003, the fundamental story has been one in which Iraqis adjust themselves to the new reality of Shia rule in Iraq.

This weekend’s incident was the first crack in a shaky foundation constructed by the 2007 surge of U.S. troops—a foundation that largely glossed over long-standing political rivalries. And frankly this tension between the central government and these independent militia groups is less dangerous than the growing tensions between Arab and Kurdish factions in northern Iraq.

As if often the case in Iraq, one can read this two ways. The potential deterioration in the situation could be used as a pretext to backslide on the Obama administration’s commitment to abide by the terms of the Status of Forces Agreement and leave Iraq. Alternatively, you could see the continuing unstable nature of the Iraqi polity as a reason that we shouldn’t be endlessly optimistic about the idea that tens of thousands of U.S. troops can stay in Iraq safely. Personally, I’m inclined toward the second reading. But the point is about larger strategic vision—some see it as in American interests to maintain a large military force in Iraq come what may; others, the people who are right about this, see that idea as contrary to our interests. Either way, it’s useful to recall that despite “surge” triumphalism, the bulk of the underlying issues in Iraq remain unresolved.