Yesterday, Rep. Michelle Bachmann (R-MN) sent a letter to President Bush advocating that the Troubled Assets Relief Program (TARP) not be used to rescue America’s ailing domestic auto industry:
Exercising options already afforded them by law, under a Chapter 11 reorganization for example, the American automobile industry can make the necessary reforms and could soon return to profitability. A federal bailout of the automobile industry, on the other hand, would put taxpayer money at risk, shield the companies from making the reforms necessary to restore competitiveness again, and set a costly precedent that the federal government will bailout other failing companies and industries.
According to MinnPost.com, while announcing her stance, Bachmann declared that, “The real road out of this recession is through Main Street America, not Washington.”
Bachmann is not alone in advocating Chapter 11 bankruptcy for Detroit’s Big Three. In the Wall Street Journal, Todd Zywicki, a professor of law at George Mason University School of Law, claimed that “bankruptcy is the perfect remedy for Detriot.”
However, as Nobel Prize winning economist Paul Krugman explained, the current financial crisis preempts any chance of Chapter 11 bankruptcy being successful, and thus he is “very reluctantly screaming” in favor of a bailout:
[T]he credit markets are frozen. So normally a company can keep operating, declare Chapter 11 but keep operating — but that depends on being able to continue to get credit lines to do business. And you can’t do that right now. So Chapter 11 quickly becomes Chapter 7 which is liquidation. So we actually see the thing disappear and then we’re talking about a million plus jobs probably disappearing.
As Eugene Robinson explained, “it would be insanity to throw hundreds of thousands of auto company employees, and maybe a few million others in the supply and sales chains, out of work — leaving them and their families at the mercy of an economy that has no replacement jobs for them.”
Indeed, Bachmann’s proposition for the auto companies could result in unemployment for millions of Main Streeters — who would fall back into an already overextended and inadequate social safety net — which would make it awfully difficult for them to lead the way out of the recession.