Broken Not Crushed life as a statement, not an apology

For a free market to work, you must have rule of law and contracts that matter. Neither condition was met with the auto bailouts (just ask Chrysler investors).

Now that Uncle Sam is (ostensibly) getting out of the car business, and reducing its stake in GM to a mere 33%, it’s worth asking: “Were the bailouts a success?”

John Berlau at the American Spectator gives the proper metric for making that call:

But how successful and profitable the new GM will be — and there are still many doubts that linger on the company’s financial condition and unfunded liabilities (see this amazing piece from that right-wing bastion NPR entitled “Reasons to Sit Out GM’s Initial Stock Offering”) — is not the right question to ask if its bailout and takeover were good for the economy. The primary question should not even be how fast or whether taxpayers get their money back (and many experts believe they likely never will recover fully).

As I wrote a year and a half ago on the Competitive Enterprise Institute’s blog OpenMarket.org, “The measure of success should not be how fast Chrysler and GM emerge from this bankruptcy, but the degree to which contracts are honored in an impartial process.” By this measure, due to the precedent set by the government running roughshod over the contractual rights of Chrysler’s secured lenders, GM’s bondholders, and dealers franchised to sell both brands of vehicles, the bailout/takeover is a complete failure.

I couldn’t agree more. Honoring contracts, whether with AIG or Chrysler or your mortgage lender, is the essence of a free market. Even if GM emerges in a stronger position financially, the damage to our free market has been done. What investor in his right mind would invest his money, knowing that Uncle Sam may well swoop in and nullify his contract?

When you are “too big to fail”, you are no longer in a free market.