Just as promised

The UAW and Senate Republicans are having a hard time agreeing on what "reasonable" sacrifices must be made by labor to make bailing out the automakers acceptable. Not too surprisingly, the process is becoming highly politicized. Now, imagine repeating this process with bondholders, management, shareholders, suppliers, dealers, etc., with each party peddling influence, votes, campaign contributions, and threats to try to obtain the biggest slice of the pie for themselves.

When decisions normally made by market mechanisms are instead made by politicians, this is an inevitable result. The market mechanisms available in a Chapter 11 restructuring process would be better suited to making these decisions than the political lobbying mess currently being used. This space earlier called for a modified Chapter 11 bankruptcy, and that solution still appears to be best.

The government should provide debtor-in-possession financing and warranty guarantees to the automakers, appoint a systematic risk regulator to ensure the court does not inadvertently endanger the broader economy, and then let the bankruptcy process work. Hopefully Congress has this solution - which, considering its more stringent impact on all players, should be able to pass both houses - in the works already, as it may need to be passed in a hurry if the Unions' and Senate Republicans' game of chicken lasts so long the companies run out of cash.