The real reason he did it, and he is the one who gave them the first bailout, is that in December of 2008 our economy was in huge trouble. Credit markets were frozen. GM and Chrysler had no money to pay their bills, so they were headed for Chapter 7 bankruptcy. That would have put tens of thousands on unemployment immediately. Shortly followed by most GM suppliers (who hadn’t been paid in months), and the dealerships would have gone under.

I don’t think I’m exaggerating much when I say that decision saved millions of jobs, and kept unemployment from hitting 20%.

And it is not any more true now than it was when I wrote that post that we needed to dump $75 B into these two companies to save putting our “American-owned manufacturing base out of business”. Capital moves to where it is used efficiently and productively, unless government mandate forces it to stay where it is used poorly. And sometimes it is important ot keep capital where it is used poorly – you know – in order to protect union membership rolls and their large political contributions.

It did, however put two failing companies on taxpayer life-support that continues to this day with no end in sight. Moreover, it did it to the detriment of other potential and actual American manufacturing based companies and jobs, who are now forced to compete with government subsidized manufacturers for capital and customers. So it goes.

With Obama’s plan they got something.

Unless the government interferes and changes the rules, of course. And please don’t ask me to shed tears for the mismanaged union pension funds — which us taxpayers are also on the hook for today through the PBGC. The union got the lion’s share of the company AND kept their pension funds. The taxpayers got the bill.

As for the bondholders it’s theoretically possible they would have taken a smaller hit in private bankruptcy proceedings. But it’s also entirely possible they would have gotten less.

Every expert I’ve read on the issue says without Uncle Sam Chrysler would have been in Chapter 7 Bankruptcy because they did not have enough cash to continue operating. Which means their assets would have been auctioned off.

Given that they had virtually no assets, that the assets they had were worthless in the Jan ’09 market (nobody wanted cars, robots that make cars, etc.), and that assets sold at a bankruptcy auction are usually sold for a fraction of their value; it’s unlikely the auction would have been lucrative.

And bondholders were not the only people who had a claim on Chrysler’s assets. They hadn’t paid their suppliers in months. Dealerships were owed cars. The pension fund was owed money.

IMO it’s likely that without the government-supervised bankruptcy Chrysler bondholders would not have gotten a penny,.

So, the government is going to give back all that Chrysler stock to the original owners? Maybe pay up the bonds they extorted away at a fraction of value? Or even just make up the difference to former stockholders and bondholders between the government-forced and government-priced bankruptcy sale and the current value?

Yeah, thought not. In this case “American owned” is a phrase magically transformed from meaning “owned by Americans” to “owned by the unions and a foreign auto company, Fiat, and the rest by the government.”