White House blundered in GM bankruptcy

"...the Obama administration overtly played favourites to get the United Auto Workers protection it would not have received under Section 1113, probably elevating costs in a way that will damage prospects for a successful reorganisation. It made and imposed business judgments on GM about what cars to make and what plants to close (and perhaps about suppliers and distribution) that no one in the government or on the task force had the experience to make and for which no one would be financially accountable. Worst of all, despite Sunday’s desperate attempt to distance itself from GM’s future decisions, it left its fingerprints all over the new plan. Inevitably the White House will take political and hence financial responsibility for its success, relieving pressure on management and labour to succeed. Ultimately it elected to adopt an industrial policy toward the industry that failed utterly in the UK, and has worked out badly and expensively in France and Italy.

Finally, in the process, it disturbed the security of expectation that has made lenders willing to provide capital as secured credit, thus handicapping all US industry and undermining what has been, for all its flaws, one of the best financial reorganisation processes in the world, now emulated elsewhere.

The administration took a tragic situation and turned it into an expensive mess to pay a political debt. It wasted billions of dollars over many months delaying GM’s filing and then implicitly put itself on the hook for many billions more. The financial, political and social echoes of that decision will be with us for a long time. In short, they blew it."

http://www.ft.com/cms/s/0/cd00d2c6-4ee2-11de
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