Bailout redux: apples to apples, dust to dust...

"Bailout" is currently without a doubt the most abused word in the English language. Merriam-Webster defines bailout as follows:

Pronunciation: \ˈbā-ˌlau̇t\

Function: noun

Date: 1951

: a rescue from financial distress

Note the use of the word "rescue", defined (again by Merriam-Webster):

: to free from confinement, danger, or evil

Following the massive Treasury aid package to the financial markets, Detroit's Big 3 automakers are clamoring for for a "bailout" package of their own. Politicians allude darkly to the undemocratic imbalance of bailing out "Wall Street" while ignoring the plight of blue-collar America in Detroit's factories, and demand that the automakers be saved from bankruptcy.

This discussion has been framed incorrectly, with politicians playing to our innermost fears of elitist rule in Washington, where insiders shunt tax-dollars to their fat cat friends while Larry Lunchpail gets laid off from his job with GM. Wall Street banks were hardly bailed out. Massive efforts were undertaken by government to keep the financial system as a whole from breaking down irretrievably, but there were - and will be - many banking victims of this crisis. Bear Stearns: gone. Lehman: gone. Merrill Lynch: ditto. Wachovia, IndyMAC, Countrywide - gone. Goldman and Morgan Stanley: probably converting to bank holding companies. Citi is cutting its payroll by tens of thousands of employees. And the pain is not limited to the United States in this global economy. Northern Rock was nationalized. UBS is badly battered and is unlikely to be around in its current form at this time next year. So let us be very careful in using the term "Wall Street bailout". The banks were not rescued, the system was (we hope).

So if the same rationale is applied to the auto industry, we ought to be looking for ways to maintain auto manufacturing capacity in this country, not prop up individual manufacturers. There is no reasonable way to shore up a manufacturer which burns over a billion dollars a week in cash. Furthermore, there is no reason to. There is no reason the taxpayer should pay for stupid decisions made by management and union leaders for the past 50 years, without improving the likelihood of the industry's survival. Much as with the aid package for the financial system, any help provided to the auto industry is going to come at the cost of jobs and companies. Why does Chrysler even exist? And GM with its many useless brands: Who drives an Oldsmobile? As to Ford: I recently saw a Jaguar X-type station wagon (an "estate" for the benefit of my UK friends) for Pete's sake. Overcapacity, poor planning, lousy union contracts - the rot goes from top to bottom. Reasonably, the government ought to insist on prepackaged Chapter 11 filings for Ford and GM and split the useful bits of Chrysler (if there are any) up between them. Government aid should be in the form of Debtor-in-Possession financing during the period of Chapter 11 reorganization, with most of the principal dollar amount converting to preferred shares once the companies emerge from bankruptcy protection. Just as there really was no free lunch for banks and bankers, there will be no free ride for automakers.