Start Making Sense

There’s been so much talk about Detroit–some of it smart, some of it less than smart–that you would think there was nothing more to say on the matter. After all, we seem to be drifting toward a general agreement that bankruptcy is better than a bailout for Detroit. Though some of the reflexive piling on misses the point that the auto makers have done a lot of restructuring already; and made the cars we demanded.

With that in mind, Steve Pearlstein‘s Washington Post story on Obama and Detroit is a salve to our increasingly deflation-jangled nerves. Pearlstein starts with a claim that Obama has already settled on a post partisan plan that neatly splits the baby. (He thinks we’ll hear it just after Thanksgiving and it’ll swap free trade with Colombia as part of the deal.)

Then he rattles off his vision of a government-backed, pre-packaged bankruptcy. Any can do that. Where Pearlstein shines is paying attention to the demand side of the equation:

Congress could also authorize the General Services Administration to negotiate an advance order, with a big down payment, for millions of new fuel-efficient cars and trucks to be delivered over the next decade as the government’s fleet needs replacing. Such an order could not only prod the companies in the direction of more fuel-efficient cars, but also help to finance the research and development necessary to achieve breakthroughs in battery and other technologies. Another $25 billion in loans has been authorized to retool factories to produce the new vehicles.

And to restore the flow of liquidity to the auto finance market, the Treasury could be ordered to use some of the next tranche of money under the $700 billion bailout program to buy packages of auto loans, with an emphasis on loans made after Dec. 1, 2008.

Such a multipronged rescue might require the outlay of a bit more than $25 billion, but it would significantly increase the likelihood that taxpayer money would be repaid. The government could get a nice discount on a new fleet of fuel-efficient cars and trucks. Most importantly, a vital industry would be required to complete a restructuring that was too long delayed.

With the way things are going, Washington will be continue to be the center of capitalism for some time to come. So we should all start bookmarking Pearlstein as a first read of the day.

A Voice of Reason Puts Automakers on the Road to Rescue

STEVEN PEARLSTEIN

November 18, 2008, The Washington Post

http://www.washingtonpost.com/wp-dyn/content/article/2008/11/18/AR2008111803510.html