Tuesday, December 16, 2008
"Where to Draw the Bailout Line?"
It seems that the question has become which solutions are worse, bailouts or bankruptcies?.
It's sort of like choosing which weapon to die by...
It's sort of like choosing which weapon to die by...
At RealClearPolitics.com, Lawrence Kudlow discusses bailouts and specifically the auto industry:
"Coming back to Detroit, there may be a pragmatic solution, one that takes some of the apocalypse-now threat of major economic decline out of play. Senator Bob Corker and others have proposed a federal oversight board that would in effect become a bankruptcy court. Strict conditions would be imposed on the carmakers, especially regarding compensation -- the single-biggest reason for Detroit's decades-long decline.
Corker wants Detroit to have the exact same compensation levels as the Japanese transplants in the non-union Southern states. That means moving hourly labor costs down from roughly $70 to $48. It means reopening the UAW contracts that have created the huge pay-gap between Toyota and GM. It means putting an end to excessive pension and healthcare benefits.
According to Professor Mark Perry of the University of Michigan, GM healthcare benefits add $1,500 to the price of every vehicle, while pension costs add another $700 per car. That will have to end. The lucrative jobs bank that pays laid-off workers 95 percent of their compensation also will have to stop. And bondholders will have to be satisfied with a complete renegotiation of GM's $62 billion in debt, including the union retiree healthcare fund that is under-funded by $30 billion."
