Romney on Auto Bailout

I missed this in The New York Times over the weekend but it’s an op-ed piece from former Republican presidential candidate Mitt Romney which provides a really well argued overview as to why the auto industry in the US should not receive bailout money.

I’m inclined to agree with him on his points in essence. Essentially, Romney argues that saving the big three will doom them as they will never learn from the mistakes made, a central component to their eventual evolution and survival. By not bailing out the industry, the US would send a clear signal that they need to provide better cars and assimilate into the modern automaking industry rather than relying on the government to pay for years of neglect and laurel-resting.

In principal he’s right. But he’s saying the words in an America which has seen the crash of Lehman Brothers, the near-demise of AIG and the essential evaporation of its investment banking industry. Allowing these automakers to fail at this time in history just doesn’t seem viable given that, should they indeed fail and not manage to evolve into modern entities which can survive the downturn, the job losses would be so enormous and wide-ranging that any stimulus package from the Obama administration would be unlikely to provide any stability. It’s a tough question which has an impossible answer and we’ll see what that is in coming weeks.

Defending The Auto Industry – Newsweek

Daniel Gross argues in Newsweek that the US needs to seriously consider saving the auto industry. Gross is a proponent of free market values and the advantages of allowing failure in capitalist economies. He makes a number of compelling points that should be noted, particularly noting that, like the already bailed out AIG, General Motors has a certain systemic value in that should it collapse, the network of suppliers, manufacturers and technology firms that rely on the company, not to mention its 300,000-plus employees, would be hammered into the ground.

We’ve written about the auto bailout a number of times and I’m starting to come around to the idea. I do believe that a free market should allow companies to fail but, partly due to regulatory missteps in allowing certain companies to become too big, this just isn’t a viable view in the current marketplace. The auto industry, just like AIG, is perhaps too big to allow failure and now the government should step in to provide capital and restore confidence.

However, should this happen, the burden must be placed on authorities to prevent companies like AIG and GM from forming to such important organisations which are too big to fail. Further, the auto industry should be given extra oversight to make sure that they evolve in the US and start to provide the market with environmentally friendly vehicles that are now in demand. That will not only increase the corporate responsibility of the industry, but should save the companies in the long-run and teach a lesson on making sure they grow in line with the global automotive industry instead of relying on US appetite for homegrown cars of any sort.

Related to this however, it is looking increasingly unlikely that such a bailout will emerge for autos. Democrats believe the opposition from the Republican party will be insurmountable at the lame-duck session next week. Should Democrats be prevented from providing an aggressive stimulus package to markets, it’s likely that one of the Big Three will collapse before Obama comes to power. This, like Lehman, could have a major impact on global markets and, to put it plainly, we’d all be fucked. Watch this space.

US Job Losses Surge

From The Wall Street Journal:

WASHINGTON — U.S. job losses accelerated the last two months, pushing the unemployment rate to a 14-year high in October, a government report showed, suggesting the economic downturn has taken a turn for the worse toward a deep recession.