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Romney is right about the auto bailout



Mitt Romney is fairly accused of clumsy pandering. But, as Michigan primary voters go to the polls today, it is worth noting that he is refusing to pander on the question of the propriety of the bailout of GM and Chrysler. Though the bailout is popular is Michigan, it will make auto workers worse off in the long-term (and unfairly affects Ford, which also employs lots of Michigan auto workers). Todd Zywicki's analysis is worth rereading. For more detail about the disingenuous bankruptcy court opinion permitting the unfair treatment of the Chrysler senior creditors, see Mark Roe and David Skeel in the Michigan Law Review:

Chrysler entered and exited bankruptcy in 42 days, making it one of the fastest major industrial bankruptcies in memory. It entered as a company widely thought to be ripe for liquidation if left on its own, obtained massive funding from the United States Treasury, and exited via a pseudo sale of its main assets to a new government-funded entity. The unevenness of the compensation to prior creditors raised considerable concerns in capital markets, which we evaluate here. We conclude that the Chrysler bankruptcy cannot be understood as complying with good bankruptcy practice, that it resurrected discredited practices long thought interred in the 19th and early 20th century equity receiverships, and that its potential, if followed, for disrupting financial markets surrounding troubled companies in difficult economic times is more than small.

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Isaac Gorodetski
Project Manager,
Center for Legal Policy at the
Manhattan Institute
igorodetski@manhattan-institute.org

Katherine Lazarski
Press Officer,
Manhattan Institute
klazarski@manhattan-institute.org

 

Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.