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SHOULD GM FILE FOR BANKRUPTCY?

GM must be allowed to file for bankruptcy.  These bailouts are becoming ridiculous and detrimental at this point.  The U.S. Treasury cannot be everything to everyone.  From converting investment banks to money center banks to giving homeowners money to stay in homes they’ll likely foreclose on in a year – this bailout package is getting out of hand.  The banks are one thing, but GM is very different.  I liken the banks to major arteries in the body.  A certain number of them must be bailed out and fixed in order for the system to continue functioning.  If we continue to let the banks suffer, liquidity dries up in every industry and the problems previously contained to the banking system become everyone’s problems.  We are beginning to see that now.  I liken GM to a kidney.  Important, but not vital.

If GM files for bankruptcy they will relinquish their debts and be able to renegotiate the deals the UAW is strangling them with.      Congress is likely to vote on a bill this week to give $25 billion to each of the big three auto companies.  I think it would be an enormous error to do such a thing.  This money is necessary to continue getting the banking sector back on track.  Giving $25 billion to GM, Ford and Chrysler only delays the inevitable.  GM will likely file for bankruptcy protection before year end if they don’t get this needed funding.  If they get the money, I think they’ll file for bankruptcy in 6 months.  We cannot make the same errors the Japanese did in the 90’s by propping up zombie companies.  Companies that are not vital to the system must be allowed to fail.  It’s part of capitalism.  The strong survive and the weak perish.

We are in for 6 months of pain no matter what.  This economy is phenomenally weak and will not strengthen any time soon.  GM’s sales are going to continue to suffer for at least a year.  If GM files for BK now we speed up the process and rid the system of a horribly inefficient corporation.  If GM files in 6 months we drag out this recession.  The stock market has spoken and it says GM should fail.  I think we should let the free market work.