Bailing Out GM

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BAILING OUT GM….The basic argument against bailing out GM (and Ford and Chrysler) is fairly simple: They’re dinosaurs who can’t compete, don’t make good cars, have a terrible corporate culture, and will never get better. If we’re willing to bail out companies like these, where will the bailouts stop?

The basic argument in favor is also fairly simple: Even if all that stuff is true, and even if in normal times we’d let them die, right now we’re on the edge of a truly catastrophic recession. Killing them off, along with the 2-3 million jobs they support, could be just the catalyst that turns a catastrophic recession into a full-blown depression. We’d be cutting off our economic noses to spite our free market faces.

But would Chapter 11 reorganization really be all that terrible? Maybe not. Maybe the companies would shed a few jobs, but in the end come back leaner and stronger. That’s an argument that strikes me as persuasive, but what if it turns out that Chapter 11 isn’t an option? Jon Cohn explains:

In order to seek so-called Chapter 11 status, a distressed company must find some way to operate while the bankruptcy court keeps creditors at bay. But GM can’t build cars without parts, and it can’t get parts without credit. Chapter 11 companies typically get that sort of credit from something called Debtor-in-Possession (DIP) loans. But the same Wall Street meltdown that has dragged down the economy and GM sales has also dried up the DIP money GM would need to operate.

That’s why many analysts and scholars believe GM would likely end up in Chapter 7 bankruptcy, which would entail total liquidation.

If this is true, it probably tips the scale in favor of a bailout — especially given the cost, quality, and labor reforms that all three automakers have already put in place over the past few years. Maybe. For now, I’m just passing this along, but I’ll keep my eye out for anyone else either confirming or debunking the Chapter 7 scenario.

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We didn't know what to expect when we told you we needed to raise $400,000 before our fiscal year closed on June 30, and we're thrilled to report that our incredible community of readers contributed some $415,000 to help us keep charging as hard as we can during this crazy year.

You just sent an incredible message: that quality journalism doesn't have to answer to advertisers, billionaires, or hedge funds; that newsrooms can eke out an existence thanks primarily to the generosity of its readers. That's so powerful. Especially during what's been called a "media extinction event" when those looking to make a profit from the news pull back, the Mother Jones community steps in.

The months and years ahead won't be easy. Far from it. But there's no one we'd rather face the big challenges with than you, our committed and passionate readers, and our team of fearless reporters who show up every day.

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