Not like the banks

Professor Bainbridge makes several good points about bailing out the Big3/UAW axis. Here is one of them:

7. As I’ve said before, in assessing the merits of a government bailout of the automobile industry, it’s important to understand the distinction between the problems experienced by the financial sector and those being experienced by the automobile industry. Financial institutions were faced with a situation in which too many of their assets had either declined in value or simply had no known value. As a result, many financial institutions had negative equity positions or, at best, severely impaired equity. This made banks unwilling to lend, because banks are required by law—and good practice—to maintain an equity cushion on their balance sheet. In other words, they have to retain positive net assets in order to function. Injecting capital into the banks increased their assets, while holding their liabilities constant, which resulted in an increase in their equity. In effect, it increased their inventory.

The automobile makers face a very different set of problems. Their problem is not a shortage of capital. Their problem is that they are spending way more money than they are bringing in, “at a rate of least $4.9 billion a month”!

Injecting capital into the automobile makers does not address the underlying structural problems faced by this industry. It does nothing to give them leaner bureaucracies, less expensive legacy health and pension costs, more flexible work rules, less restrictive and costly union contracts, and, to put it bluntly, products somebody would want to buy. All it does is delay the inevitable by giving them more money to burn through.

Bush and the surviving GOPers in Congress should just say no.

Read the rest here. Read the post directly after this one. And, if you’re interested in more, check out:

Generous Motors
Sunday, March 27, 2005

Unions busting you
Thursday, October 25, 2007

General Motors, Corporatist Giant

Monday, November 10, 2008

Well, it’s got the word “bank” in it, doesn’t it?
-H. Paulson

Tuesday, November 18, 2008

Bailing out the Big 3 – A Plan
Friday, November 21, 2008

Rep. Tim Ryan wants to bergeron Honda, Hyundai & Toyota

Sunday, November 23, 2008

The natural function of a trade union and the one for which it was historically conceived is to represent those employees who want collective representation in bargaining with their employers over terms of employment. But note that this function is perverted the moment a union claims the right to represent employees who do not want representation, or conducts activities that have nothing to do with terms of employment (e.g. political activities), or tries to deal with an industry as a whole instead of with individual employers.

– Barry Goldwater, The Conscience of a Conservative