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David Brooks' Cultural Critique Of The Gm Bailout

Brooks raises several legitimate concerns about the government takeover of GM, most of them having to do with corporate culture and his pessimism that the new arrangement can change what was pathological about it. I don't share his pessimism, but he certainly could be right.

This particular concern strikes me as off-the-mark, though:

[T]he Obama plan will reduce the influence of commercial outsiders. The best place for fresh thinking could come from outside private investors. But the Obama plan rides roughshod over the current private investors and so discourages future investors. G.M. is now a pariah on Wall Street. Say farewell to a potentially powerful source of external commercial pressure.

Two quick points. 1.) It strikes me that GM and Chrysler will be more attractive to future investors if they emerge from bankruptcy as profitable companies. They may not, of course. But, then, they weren't viable companies beforehand. It's not like new investors were lining up to hand them capital.

2.) The restructuring that GM and, to a lesser extent, Chrysler needed was so radical it simply couldn't be accomplished through "external commercial pressure." In a nutshell, both companies needed to shed crippling obligations/relationships/claims against them (not just labor contracts and pension liabilities but relationships with dealers, etc.), and there was no way to do this outside of bankruptcy. And because no private investors were willing or able to finance GM through the bankruptcy process (i.e., provide it with so-called debtor-in-possession financing), government money was the only way to make it happen.

External commercial pressure is great if you can swing it, but it just wasn't up to the task in this case. For all the potential pitfalls Brooks identifies, a huge amount of government money was the only way to instigate the changes the company needed to make.

(Now, one could argue that we should have let GM and Chrysler go into liquidation and see what emerged for the wreckage. I think that would have been a bad idea, too, but it's a separate argument.)

--Noam Scheiber