As I stated in my prior piece, Bailouts are Unfair to Those Who are not Bailed Out, the main objective of the management of a large company that is in trouble is to get your foot in the door. Get something going now, even if it is inadequate, so that you can beg for much more money later. Once Congress has committed to initial funding, they will be far more disposed to hand over more money, in order to protect their earlier bad decision.
Another way to think about it is to set up a pattern. Even if it is a small amount, getting a legislature to agree with a concept on a small level is the precursor to getting it to agree for big money. Once a pattern is set, the legislature will continue to fund, absent some big economic catastrophe, or other political hurdle.
So we have GM coming back to the trough. Congress protected them last time, they will protect them this time as well. There is no good reason to give them money, in my opinion. Better to send them through bankruptcy, and let Toyota and Honda buy what few pieces of GM have value.
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For those that read me, please realize I work along two tracks — first, the government should not intervene in private transactions. (That means no central bank also.) That is my core belief, aside from fraud and implied fraud. There should be freedom of contract. But the second track is, “Well, if you are going to be rogues and intervene in the markets, well, here is a less evil way to do so.” I offer those thoughts, because I know my first track will not be bought. So it goes.
Full Disclosure: long HMC
