Mixed feelings on this. While it’s no fun watching the stock market in free fall (again), Chapter 11 seems like the best option for automakers needing bailouts. – Ilene 
Stiglitz: Don’t Bailout Incompetence
Courtesy of Mark Thoma, at Economist’s View
Joe Stiglitz says the car companies need to go through Chapter 11:
Chapter 11 is the right road for US carmakers, by Joseph Stiglitz, Commentary, Financial Times: The debate about whether or not to bail out … carmakers has been mischaracterised. … In fact, a … bail out … would benefit shareholders and bondholders as much as anybody else. These are not the people that need help right now. In fact they contributed to the problem. … Today, they are asking to escape accountability. We should not allow it. …
The US car industry will not be shut down, but it does need to be restructured. That is what Chapter 11 of America’s bankruptcy code is supposed to do. A … bankruptcy … can also address legacy retiree obligations. …
With financial restructuring, the real assets do not disappear. Equity investors (who failed to fulfill their responsibility of oversight) lose everything; bondholders get converted into equity owners and may lose substantial amounts. Freed of the obligation to pay interest, the carmakers will be in a better position. … Moral hazard … will be averted: a strong message will be sent.
Some will talk of the pension funds and others that will suffer. … The government may need to help some pension funds but it is better to do so directly, than via massive bailouts hoping that a little of the money trickles down to the “widows and orphans”. Some will say that bankruptcy will undermine confidence in America’s cars. It is the cars and … the dismal performance of their executives … that have undermined confidence. … It is more plausible that confidence will be restored if the industry is … given a fresh start. …
US workers, working for Japanese carmakers, have shown their hard work can produce cars that are desirable. … The failure lies with the managers…
As the bail-outs continue, numbers that once looked huge are starting to seem almost normal. Hundreds of billons are being given to banks and insurance companies. … Even so, we should not forget that a few months ago, President George W. Bush said there was not enough money for health insurance for poor children although it cost just a few billion dollars. …
[W]e need to think more carefully about who we are really bailing out and why. This should not end up as just another rescue package for bondholders and shareholders.
