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<blockquote data-quote="diesel96" data-source="post: 771650" data-attributes="member: 9859"><p>Source-- The Economist : <a href="http://www.economist.com/node/16846494" target="_blank">http://www.economist.com/node/16846494</a></p><p></p><p>So was the auto bail-out a success? It is hard to be sure. Had the government not stepped in, GM might have restructured under normal bankruptcy procedures, without putting public money at risk. Many observers think this unlikely, however. Given the panic that gripped private purse-strings last year, <strong>it is more likely that GM would have been liquidated, sending a cascade of destruction through the supply chain on which its rivals, too, depended.</strong> As for moral hazard, the expectation of future bail-outs may prompt managers and unions in other industries to behave rashly. But all the stakeholders suffered during GM’s bankruptcy, so this effect may be small.</p><p></p><p><strong>Socialists don’t privatise</strong> </p><p>That does not mean, however, that bail-outs are always or often justified. Straightforward bankruptcy is usually the most efficient way to allow floundering firms to restructure or fail. <strong>The state should step in only when a firm’s collapse poses a systemic risk.</strong> Propping up the financial system in 2008 clearly qualified. Saving GM was a harder call, but, with the benefit of hindsight, the right one. The lesson for governments is that for a bail-out to work, it must be brutal and temporary. The lesson for American voters is that their president, for all his flaws, has no desire to own the commanding heights of industry. A gambler, yes. An interventionist, yes. A socialist, no.</p></blockquote><p></p>
[QUOTE="diesel96, post: 771650, member: 9859"] Source-- The Economist : [URL]http://www.economist.com/node/16846494[/URL] So was the auto bail-out a success? It is hard to be sure. Had the government not stepped in, GM might have restructured under normal bankruptcy procedures, without putting public money at risk. Many observers think this unlikely, however. Given the panic that gripped private purse-strings last year, [B]it is more likely that GM would have been liquidated, sending a cascade of destruction through the supply chain on which its rivals, too, depended.[/B] As for moral hazard, the expectation of future bail-outs may prompt managers and unions in other industries to behave rashly. But all the stakeholders suffered during GM’s bankruptcy, so this effect may be small. [B]Socialists don’t privatise[/B] That does not mean, however, that bail-outs are always or often justified. Straightforward bankruptcy is usually the most efficient way to allow floundering firms to restructure or fail. [B]The state should step in only when a firm’s collapse poses a systemic risk.[/B] Propping up the financial system in 2008 clearly qualified. Saving GM was a harder call, but, with the benefit of hindsight, the right one. The lesson for governments is that for a bail-out to work, it must be brutal and temporary. The lesson for American voters is that their president, for all his flaws, has no desire to own the commanding heights of industry. A gambler, yes. An interventionist, yes. A socialist, no. [/QUOTE]
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