Yesterday, George W. Bush lent 13.4 billion dollars to GM and Cerberus Capital Management, whose board is chaired by Bush's old pal John Snow.
First, that money was not Bush's to lend. Eight days earlier, the Congress of the United States rejected a proposal that would lend taxpayer money to GM and Cerberus.
George Bush is the executive, meaning that his job is to execute the will of the people as expressed democratically through their elected representatives in Congress. He has no authority to take unilateral action such as this.
In order to "justify" his action, Bush had to pretend that the auto industry is made up of banks. Of course, I guess it is possible that he actually believes that General Motors is a bank.
In explaining the action, Bush said this:
"If we were to allow the free market to take its course now, it would almost certainly lead to disorderly bankruptcy and liquidation for the automakers. Under ordinary economic circumstances, I would say this is the price that failed companies must pay -- and I would not favor intervening to prevent the automakers from going out of business.
But these are not ordinary circumstances. In the midst of a financial crisis and a recession, allowing the U.S. auto industry to collapse is not a responsible course of action."
Apparently, Bush supports free market principles in good times, but not in bad. But either one supports a free market or not, and it is clear, regardless of the rhetoric he uses, that George Bush and the Republican party are not supporters of a free market.
The financial crisis is not the cause of the automaker failures. They have been dying for years. The demise actually started decades ago. They are a drain on our economy, sucking valuable resources onto showroom lots to waste away with barely a test drive.
Recession is the perfect time for automakers to go out of business. It is the liquidation of failed businesses that propels an economy out of recession. Recession and credit contraction are the mechanisms by which unproductive endeavors lose out to those which efficiently create products that people are willing to pay for.
General Motors has survived the last few years on reputation alone. Private interests have been willing to turn excess capital over to them in the mistaken belief that there would be a turnaround. Now, those private interests have finally had enough. They have given up on the U.S. auto industry and set their minds, and their capital, to other pursuits.
It is not the role of government to prop up businesses that every right-minded investor has given up on.
As for the idea that this action "saves jobs," think again. The terms of the loans are onerous. The U.S. taxpayer is getting screwed, but employees at GM and Chrysler are right on our heels (Those who bought GM stock on the news are the biggest losers, but hey, they made their own bed). Many of them will be fired regardless; those are the lucky ones. The ones who stay will endure months or years of wage cuts, benefit cuts, increasing union dues, interminable worry, and depressing work environments.
It is no fun spending your days inside a dying beast.