Enough already with the bailouts
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TEXT OF COMMENTARY
Scott Jagow: House Speaker Nancy Pelosi has joined the chorus, calling for a bailout of the auto industry. And this week, the Treasury gave insurance company AIG more money. The government allowed American Express to become a bank just so it can get a piece of the rescue package. Enough already, says commentator Robert Reich.
Robert Reich: When a big company that gets into trouble is more valuable living than dead, there’s a well-established legal process for reorganizing it — called Chapter 11 of the bankruptcy code. Under it, creditors take some losses, shareholders even bigger ones, some managers’ heads roll. Companies clean up their books and get a fresh start. And taxpayers don’t pay a penny.
So why, exactly, is the Treasury substituting government bailouts for Chapter 11? Even assuming Wall Street’s major banks and insurance giant AIG are so important to the economy they can’t be allowed to fail, they don’t have to be bailed out. They could be reorganized under bankruptcy protection. Their creditors, shareholders, and executives would take bigger hits than they’re now taking, now that taxpayers are bailing them out, but they took the risk. We didn’t.
It would be different if Main Street was getting something out of all this. But credit still isn’t flowing to small businesses or distressed homeowners, and unemployment is skyrocketing.
There’s more at stake for Main Street when it comes to American automakers now on the edge of bankruptcy, because 2.5 million households depend directly or indirectly on them for their paychecks. But the best way to protect all these people is not necessarily to pay off the automakers’ creditors, shareholders, and executives, with no strings attached. When the government bailed out Chrysler in the early 1980’s, a third of its employees were laid off. In order to keep autoworkers employed and also move Detroit to more fuel-efficient cars, all stakeholders will have to sacrifice.
What a tragedy it would be if the government spends so much on these bailouts there isn’t enough money left for the next administration to help average people get affordable health insurance, send their kids to good schools, and find good jobs — including jobs rebuilding the nation’s crumbling infrastructure and finding alternative sources of energy.
You see, it’s not the big guys who need rescuing. It’s the small. And right now, the government has its priorities upside down.
Jagow: Robert Reich is an economic advisor to Barack Obama and he’s the author of the book “Supercapitalism.”
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