bailouts — VOICES for REASON

So, Chrysler has filed for bankruptcy. You might think I’d be celebrating, having urged President Obama back in February to “let bankruptcy courts take the wheel” instead of bailing out the auto companies. As I said then:

If an automaker can return to profitability by streamlining products, cutting staff, or closing plants, a bankruptcy judge can allow a reorganization. But a company that’s hopelessly floundering may have to be liquidated through an orderly sale of assets, with income paid to creditors according to their existing contract rights.

Unfortunately, the bankruptcy filing is overshadowed by the Obama administration’s attempts to sabotage the debtholders whose contracts entitle them to first crack at Chrysler’s assets. Instead of letting bankruptcy law drive the process, Obama has become everybody’s nightmare–the backseat driver who barks orders and threats, and leans forward as if to seize the wheel.  Read the rest of this entry »

In the debate over pay caps for bailed out bankers, we’ve been offered a seemingly unresolvable conflict: On the one hand, the government has no right to dictate CEO compensation. But on the other hand, is it really fair for CEOs to be paid whatever their boards want to give them when they are being paid with taxpayer bailout dollars?

As Ayn Rand pointed out, “You may take it as a general rule: whenever an issue leads to an unresolvable conflict, you will find, at its root, the violation of someone’s rights.”

Clearly, the problem is the bailouts themselves.

In a private company, the CEO should get paid whatever shareholders judge will be best for the company’s bottom line, based on their assessment of the relevant market factors. But the CEO of a nationalized or semi-nationalized company? Who should decide his pay? By what standard?

As Austrian economists pointed out decades ago, there is no rational answer to these questions. The decision of how to compensate executives–and, ultimately, every business decision–inevitably stops being profit-driven and becomes politically driven. The question is no longer, “Will a bonus be a boon to our bottom line?” It’s, “Will this satisfy the boys in Washington?”

What we need to cap is not CEO pay, but government power. It’s time to end the government’s ability to take over private businesses. Then shareholders can pay what they judge to be necessary to retain and motivate their CEOs. And if they pay a lousy CEO big bucks, they–not American taxpayers–will be the ones to lose out.

As General Motors nears its Feb. 17 deadline for submitting a viability plan, there’s no “Car Czar” in place to review it. Under the current bailout scheme, GM must appease this yet-to-be-named industry dictator to qualify for another $4 billion in public money.

I have a better idea. There’s a whole group of federal employees already hired and in place, just waiting for jobs like this. They have decades of experience in scrutinizing the revival plans offered by failing businesses. And if GM would only ask, they would be happy to swing into action.

I’m talking about the federal judges who oversee our nation’s bankruptcy courts. As I said in my latest op-ed, bankruptcy laws are designed to achieve a just outcome when businesses can’t meet their financial obligations:

Under bankruptcy, the risk of financial loss stays right where it belongs, on those who assumed the risk of non-payment by voluntarily dealing with a badly managed company. But in Barney Frank’s bailout universe, Congress can simply paper over the reality of business failure by shifting those losses to taxpayers, competitors, and consumers–in short, everyone who doesn’t deserve to pay.

Message to President Obama: Turn off the Bush bailout spigot and let the bankruptcy courts decide whether GM has a shot at recovery–with private financing.

One of the lessons to come out the auto bailout soap opera was that asking for government help means submitting to government control. That should make a recent development in Connecticut particularly disturbing. Lawmakers there are pushing for a newspaper bailout. According to Governor M. Jodi Rell, “There’s something about having that paper and being able to sit there with your cup of coffee or your tea and read through and find out not only the news but the real feel for a community.”

So far, the papers are scoffing, recognizing that it would mean the end of a free press. I like the way one journalist put it: “You can’t expect a watchdog to bite the hand that feeds it.”

But as the newspaper industry continues to decline, that opposition could weaken. While newspapers oppose the specter of government control today, they just might be willing to reconsider in the face of bankruptcy. After all, they, like virtually everyone else, take it as self-evident that there should be a newspaper industry, in the same way that it is treated as self-evident that there should be an American auto industry, regardless of whether either can survive on a free market.

But there is nothing sacrosanct about the newspaper industry. If Americans prefer to get their news from TV or the Internet, then the government has no business interfering–regardless of how Governor Rell likes to drink her coffee.