The Peterson Institute’s Steven Weisman, formerly of the New York Times, had a good piece at the Daily Beast on Sunday drawing parallels between the fiscal travails of mid-1970s New York City and the auto industry today. Like the auto industry, New York was seen as profligate and overburdened by bureaucracy, thus undeserving of taxpayer funds. But ignoring New York's woes proved bad--politically, for Gerald Ford, and economically, for all the industries and workers who relied on the city fiscal viability. Weisman’s central point is this:
But who can be sure that if the Big Three auto makers go down, it won’t be like Lehman Brothers earlier this year, with surprising impacts around the world and at home? Would a default of the auto companies lead to collapses of countless suppliers and businesses around the country, or to Michigan and other states, or to financial institutions connected to them?
I am not so sure that allowing some or all of the Big Three to enter Chapter 11 would cause financial panic, and I don’t know of many voices out there who feel certain things would be okay. In other words, with so much at stake in an economy this fragile, why take the risk of letting an entire industry founder? In such a calculus, $25 billion seems a small price to pay to avoid the unknown.