School of Management Dean Louis Lataif, a former Ford executive, says the bankruptcy of Chrysler shows it is difficult for the government to impose financial decisions on private enterprises.
“It’s unfortunate that Chrysler must go through bankruptcy. It seems clear that debt holders, who themselves must answer to their own investors, refused to take only half of what they would receive in a Chrysler liquidation, as the government was requesting. It’s another illustration that it’s difficult, if not impossible, for government to impose anti-market decisions.
“It would have been more defensible if the government would have served as a lender of last resort, granting significant bridge loans for the ailing auto makers. Those loans could have been granted with restrictive covenants that would have required concessions by all the participants — management, labor, debt holders, suppliers, and dealers.
“Then when the auto market inevitably rebounds from this credit crisis, the auto manufacturers would begin repaying the loans with interest, making the taxpayers whole. And the government would not have put itself into the business of running the auto companies — an approach that will assuredly prove to be untenable.”
Contact Louis Lataif, 617-353-2668, firstname.lastname@example.org