In the shallow, shorthand, 30-second, sound-bite reporting we have on the nightly news, few Americans understand how deeply the government has become financially intertwined in the financial system's balance sheet.
The government is not just holding hundreds of billions in debt but also equity stakes in major banking institutions, which were required to put it up as collateral. The deal with the Big Three automakers called for "warrants for equity" equal to at least 20 percent of the loans. It doesn't take much imagination to see how the current situation can easily tumble from stock ownership into demands over how things are run.
One need only look at the money-losing enterprises that government has tried to run -- Fannie Mae, Freddie Mac or Amtrak -- and it quickly becomes apparent that bureaucrats do not know how to run a profitable business.
The car companies are in enough trouble, but the prospect of a federal "car czar" running them would be even worse. These are "the same kind of people who run the Department of Motor Vehicles or the Post Office, not the most reassuring image for most Americans," Franc said.
Last week, Democratic leaders argued that if the automakers went bankrupt, it would cost hundreds of thousands of jobs among suppliers that are tied to the industry as well as for numerous banks that hold their corporate bonds.
But a Heritage Foundation study says that if the car companies were to enter bankruptcy protection, where a judge would force their creditors and unions to make concessions, they would emerge leaner and stronger as a result of needed downsizing and restructuring.
Eventually, other automotive manufacturers here like Nissan, Toyota and Honda (the only major car companies building plants in this country) would see their sales rise and expand their workforce and supplier contracts accordingly -- cushioning the impact on the economy.
The plight of U.S. automakers is one of their own making. They failed to listen to the market's demands for smaller, fuel-efficient, dependable cars. They gave away the store to militant labor unions that demanded huge wage hikes, retirement plans and other benefits that the companies could not possibly afford.
Toyota, Honda and other "made in America" foreign car companies did listen to the marketplace. They rarely changed their model designs; they paid their workers well, improved fuel efficiency and pushed hybrids; and Americans flocked to buy them.
They are also victims of the recession, and sales are down for them, too. But they are better positioned to survive the current economic decline, and we will likely see them expanding their production here when the recovery takes hold. You don't see them whining and coming to Washington, hat in hand, asking the government to bail them out.
There's a lesson here for the Big Three that remains unlearned.
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