Auto Bailout: Monday Evening Edition

The plan is taking shape. This is the latest from the Wall Street Journal: In Bailout, Car Makers Could Cede Stakes to U.S.

The key things here are:

The White House seems to be pushing back on the viability of the companies receiving the aid. Clearly the administration doesn’t want to pour money down the drain. Giving a ton of cash to GM if it doesn’t prevent bankruptcy is a waste. This I agree with.

The Democrats have included some provisions [the details are still being worked out] that give the government an equity stake in any company receiving cash. This is also good. But I would go dollar for dollar, rather than the 20% the Democrats have suggested.

The key here should be to eliminate the existing shareholders first. They are the ones who took the original risk and should sacrifice their positions before the government puts in money. This is especially true of Chrysler whose owner is Cerebus, a private equity firm. Once the shareholders have been wiped out the next group to surrender something would be the workforce through the re-writing of benefit and wage contracts.

Substantially this is what would happen in bankruptcy. So it appears that the government will end up as the provider of restructuring funds, akin to a debtor in possession in a normal bankruptcy.

The whole process is beginning to look like a thinly disguised bankruptcy process with the government rather than the courts overseeing the pain. If so, good. Perhaps then something will be salvaged from the mess.