The Wall Street Journal reports that Washington politicians are close to a bailout for the Big 3 automakers in Detroit. It's a complex deal and details are emerging, but President Bush, in one last great, well-intentioned and deeply destructive act, is about to help Congressional Democrats nationalize the auto industry.
"The auto industry would undergo a restructuring process akin to bankruptcy reorganization, only with fewer rigors and with the government, not a judge, in control, and with many associated political complications," reports The Wall Street Journal. "The program would be overseen by an official, tapped by President George W. Bush, whom congressional aides and lawmakers describe as an 'auto czar.' This person would act as a kind of trustee with authority to bring together labor, management, creditors and parts suppliers to negotiate a restructuring plan. He or she also would be able to review any transaction or contract valued at more than $25 million."
So President Bush, apparently delighted with the success treasury secretary Hank Paulson has had as our banking czar at jump-starting the economy, would replicate that model for another industry and concentrate immense power in one politician's hands in the vain hope that something good will come of it.
What Washington has exacted from the auto industry so far is what Washington specializes in: moral kabuki theater. Oh, they are going to be so especially strict on those awful car executives: No pay for you auto executives! (Oh yes, they will let you failed executives keep your jobs and attempt to bail out your stock price, but they're hoping maybe the voters won't notice.)
I don't want Nancy Pelosi and Charles Rangel and Mitch McConnell to get together and decide what kind of cars Detroit should make. The idea is absurd. Nationalization of the car industry is a recipe for perpetual bailouts -- paid for by taxpayers -- in exchange for political contributions to the lawmakers who keep the taxpayer money flowing.
The message to the wider economy is devastating: If you are an executive who incompetently managed your business and you have a friend in Washington, the taxpayer spigots will flow. In exchange, Washington will assert even greater control over your business, which will mean a cycle of mismanagement, taxpayer bailouts, politicized instructions from Washington, leading to more mismanagement and more taxpayer bailouts. No competent businessmen will want any part of this deal. The incompetent businessmen will continue to get rewarded by the hard-earned dollars of you and me. This is a Ponzi scheme in essence -- an attempt to grow the real economy by expanding the government economy. It won't work.
And it's so unnecessary. We already have a process designed to replace the leadership of mismanaged companies with more effective leadership and also develop a plan to get those companies back on the road to recovery, if it is at all financially possible: It's called bankruptcy.
In modern bankruptcy, the people who messed up the company lose their jobs. A new management team is brought in to try to repay the debts the company owes in a way that also protects the most important asset -- the productive enterprise itself. A judge, not a politician, oversees the process. The goals are clear and specific: Pay back the debt, get the business back on its feet. Friends in Washington have nothing to do with it.
The great problem with the economy right now is a general deflation and looming depression brought about by the collapse of credit markets in the real working economy. Funnelling more money to bungled enterprises and transferring control over those enterprises to politicians can only serve to underscore for already panicked markets the obvious truth: The government has no clue.