The Big Debate: Bailout or Bankruptcy?

Should the government pay for GM's surgery
By Kevin Spak,  Newser Staff
Posted Nov 13, 2008 8:24 AM CST
A Sept. 16, 2008 file photo shows General Motors Renaissance Center headquarters building in Detroit.    (AP Photo/Paul Sancya/file)
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(Newser) – The water is coming in fast at General Motors, and Washington is readying its bailing buckets. But simply giving GM money won’t keep America’s biggest automaker afloat. GM needs massive restructuring, and many believe bankruptcy court is the place to do it, says the New York Times, reviewing the argument that is dominating Washington. “The bankruptcy word scares people,” says one investor. “It’s simply a system.” GM would likely emerge from that system stronger, with a more viable cost structure, as several airlines have.

Others disagree. “If GM were to go into a free-fall bankruptcy and didn't pay its trade debts, then the entire domestic auto industry shuts down,” says one analyst. Millions could lose their jobs at supplier companies. Bankruptcy court would also likely tear up GM’s union contracts, leading to a possible UAW strike and endangering the union’s retiree healthcare fund. Supporting cast-off pensioners and unemployed workers will cost taxpayers billions, whether GM lives or dies.