The Baseline Scenario has a post by James Kwak that draws a nice distinction between bailing out Chrysler as opposed to GM.
Mr. Kwak effectively points out that as a privately owned firm, its owners should be willing to commit additional funds to the enterprise if they believe the viability arguments in the plan they presented to the government. Cerberus, the private equity firm that owns Chrysler, has not only not offered to do so but had this to say about the current circumstances:
If Chrysler is unable to restructure its liabilities and if further government funding is not forthcoming, the “Orderly Wind Down” alternative would be pursued, however it may have severe social and economic consequences for both Chrysler and the broader U.S. economy.
Not quite the sort of statement that inspires confidence.
Mr. Kwak finishes off his post with a nice summary of what he thinks is going on:
However, we can’t reliably infer what Cerberus really believes from their behavior, because even if they were willing to put in their own money, they wouldn’t say so until after the government turned them down. You’ve probably heard this bank bailout analogy: The banker walks into the Oval Office, puts a gun to his head, and threatens to blow his brains out unless he gets a bailout; the government bails him out because they don’t want to have to clean the carpet. The difference here is that no one cares about Cerberus (the three-headed dog that guards the entrance to the underworld), so instead he dragged a hostage named Chrysler into the Oval Office and put the gun to her head. In the end, this feels like a kidnapping, where Cerberus is betting that the Obama Administration won’t be willing to take any risks with the hostage’s life.
(Of course, American oligarchs don’t use guns; they use lobbying. Which is why John Snow is still chairman of Cerberus despite overseeing this catastrophic bet on the auto industry.)
Take a few minutes when you have time to read the entire article. It is insightful.