Chapter 11? Not the End of the Road!

When talk surfaced earlier this fall that the federal government was considering putting a huge bail out package together to aid several failing companies, I immediately began to question the wisdom of this approach. After all, if private enterprise fails what role does government have in propping up a business?

Early on, I contacted one of my US Senators, Elizabeth Dole, and told her office that I was opposed to the bail out plan that was originally under consideration. Unlike our other US Senator, Richard Burr, Senator Dole later voted against the revised bail out plan which had widespread bipartisan support. Some $700 billion later, we don’t know where all of the money has gone or in what way that it has been used. We have heard stories about lavish taxpayer funded junkets for executives which took place after the bail out money was dispensed (thank you, AIG).

Today, a lot more companies have lined up with their hands out including American Express, General Motors, Chrysler, and Ford. I’ve also heard that about half of the bail out monies — $350 billion – may not be dispensed by Treasury Secretary Henry M. Paulson, Jr., as the Bush Administration prefers that the remaining funds be used per the Obama Administration’s discretion come January 20, 2009 when The One ascends to the presidency of the United States of America.

So, my question is this: if it was a matter of life and death back in September that $700 billion be given immediately to prop up failing companies, why is it that the remaining funds can be sat on for at least two more months before the next administration decides what to do with it? I can only conclude that there wasn’t an emergency in the first place.

I’ll tell you what this is all about: fear. Yes, a group of politicians tried to scare us into forking over a wad of our money a few months ago and it is that same tactic the US automakers are now using (plus select other companies). My response to their demand for taxpayer money: file for Chapter 11 bankruptcy if things are as bad as you assert. After all, you are a private enterprise – why should America be forced to fund your poorly managed companies?

Chapter 11 of the US Bankruptcy Code allows businesses to reorganize their operations while remaining open for business. On the other hand, Chapter 7 is essentially a fire sale bankruptcy, one where the assets are liquidated and the business is shut down.

Now I must tell you that the automakers are suggesting that if they file for bankruptcy, millions of jobs will be lost. Really? Are they planning to file bankruptcy under Chapter 7, not Chapter 11? If so, why?

My thinking is that the automakers are taking a page from the fear play book, painting a worst case scenario where none exists. If the automakers file for Chapter 11 bankruptcy, that’ll open up a world of possibilities for them: union contracts can be negotiated, dealership relationships terminated, contracts with suppliers reviewed, and much more. True, GM and others would escape some of their financial responsibilities but it is these same poorly negotiated contracts which has all three automakers in their current bind.

Why wouldn’t the automakers choose Chapter 11? Political pressure. Politicians whose voting base is heavily unionized want the bail out. They know that some employees will be laid off, plants closed, and tax revenue lost. Meanwhile, a bail out doesn’t cut to the heart of the issue: all three automakers desperately need to be restructured. Inject some taxpayer money into all three companies today and I guarantee it that they’ll hold their hands out again in the near future.

To my fellow Americans: fear can be a great motivator, but it can also be used to act irrationally and protect your self interests even at the expense of other people. Government solutions to any problem –whether real or trumped up – means centralized control and the gradual erosion of our freedoms and the death of free enterprise.

I don’t like how any of this is playing out and I think that most Americans, if they had all of the right information before them, would agree and let their elected officials know that propping up the free enterprise system is bad for taxpayers and businesses alike.