**This appears to be incorrect. It was based on a story that CNBC has now updated. It was “Bain Consulting,” not Bain & Co., that advised the government on re-financing the automobile companies. — klh
Ah! Mystery Solved! Yesterday,in my post, “Crony Capitalism On A Grand Scale“—the title of the post borrowed from an op-ed piece by Romney in yesterday’s Detroit News characterizing the auto bailouts that way—I noted that Romney seems unaware that both companies filed for bankruptcy. Romney says, as apparently he says often when forced at gunpoint to explain his opposition to those bailouts, that he was for the idea of “managed bankruptcy” for both companies, and never actually acknowledges that that is what happened. Much less that these bankruptcies were “managed,” and therefore were able to emerge from bankruptcy as ongoing enterprises rather than as pieces of physical assets, machinery and the like, for a Bain Capital-owned company in the process of being restructured, to scavenge and resell.
This was a mystery to me. Sure, Romney regularly makes up facts to match Tea Party of Club for Growth ideology. But in Michigan,everyone—everyone—knows that GM and Chrysler went through formal bankruptcy proceedings. In court. How, I wondered, did he expect to get away with pretending that these companies didn’t go through managed bankruptcies?
Ah! Mystery solved! In an ABC News report last night by Chris Bury (a genuine news reporter,not a pundit disguised as one, and a long-ago favorite of mine from back when he was reporting for Nightline), illustrates the impact of the bailouts on Michigan’s economy, which is suddenly resurgent. And in the report, which is today’s Yahoo News highlighted ABC NEWS video, explains what Romney means by “managed bankruptcy.”
Turns out, he means, best as I can tell anyway, that private equity firms lend the corporation the money to get through bankruptcy, in exchange for ownership of the company after its emergence from bankruptcy. In the case of GM and Chrysler, many tens of billions of dollars. In an op[ed in the New York Times back then, he described the managed bankruptcy he had in mind as one in which the government would guarantee private loans, but it would not itself provide the financing. Which raises the question of how, exactly, this would have saved the government money, since the companies are repaying the government the loans to the extent possible.
But it also raises the question of Romney’s recommendation that the government play Russian Roulette with the auto industry. Bury’s report points out that Bush Administration officials who put together the initial bailout legislation recognized, as did the Obama administration officials who took over, that the chance was nil that private equity money in such large sums would be forthcoming. And why he conflates ideology with fact, even when the stated fact is baldly nonsensical. “If(automakers) get the bailout … you can kiss the American automotive industry goodbye,” Bury’s report quotes Romney as saying in that New York Times op-ed. Destroying the industry by saving it?
Meanwhile, an editorial in today’s Washington Post* says,in complaining about Obama’s proposal to raise taxes on bailed-out banks in order (the editorial says) to cover the auto bailouts:
TARP was the price the country paid for a public good — financial stability — that the country needed. It’s inconsistent for the president to hail the bailout of one private industry —autos — while playing politics with the bailout of another — banking — that was and is no less necessary to a modern economy. It compounds the inconsistency to demand that the latter pay for the former.
Apparently the [Post]’s editorial board thinks GM and Chrysler caused the housing bubble and sold subprime mortgage-backed securities.
*The sentence has been corrected to say that the editorial is in today’s Washington Post. Originally, the sentence said incorrectly that the editorial is in today’s Wall Street Journal.