Lots of us have been thru the whole layoff/company-going-out-of-business thing. It was no fun, and it certainly would have been nice to have someone make the reality go away. But we survived. And her point is well made: where do you draw the line? There is no special merit to simply being big — and it shows some signs of being bad for the long-term health of a business to get too big.

I mostly agree with you on stuff, but I’ve got to disagree here. A few points: AIG and other financial institutions were generally saved b/c–while unfair–they provided an essential job for a functioning capitalistic economy. Trade is the lifeblood of our economy and if that freezes up due to lack of access to capital (which these banks provide) things were going to get really bad.

In contrast, these car companies are not essential to a functioning US economy. There is a very well defined process of bankruptcy that allows companies that are unprofitable to stave off their debtors, wipe out the equity holders, make the debt holders into equity holders, renegotiate unprofitable arrangements and remove incompetent executives so that it can re-emerge as a solvent and more profitable institution.

The US airlines have gone through it and no one stopped buying plane tickets. A similar reorganization is possible w/ car companies and it is inaccurate to think (as some would like to portray) that the company will stop operating if it files bankruptcy. It’ll keep going. It will just have to figure out how to slim down and become competitive again.

Fundamentally, the big 3 have business issue. Even before this economy, they have been losing badly to foreign car companies due to inefficient labor contracts, healthcare obligations that were unsustainable, poor investment decisions and horrible management. A capital injection by the government does nothing to change any of this, so it doesn’t really prevent bankruptcy. It just buys them some time and gets them more in debt. This is not a capital markets issue that is temporary and due to the credit crisis. It is an issue about these three being viable going businesses. They are not.

Bankruptcies are tried and tested means to re-structure unprofitable companies and salvage as much value as can be salvaged. Zombie companies that are propped up by government Clearly, ford and gm will survive in some leaner form if they go bankrupt. even if it is dissolved, other car companies will pick up the assets and a good portion of the autoworkers will retain their jobs. Its not nearly the scary process that it is being made out to be.