Economy / Fiscal policy

“Let Detroit Go Bankrupt”

Attributed to Mitt Romney, this is a common attack by Democrats – Mitt Romney said “let Detroit go bankrupt.”  It was repeated last night by Vice President Biden who portrays Barack Obama as the valiant defender of the auto industry and the millions of jobs that go along with it.  But, as with much that comes out of the Obama Campaign, it is, at the very least, misleading.

The fact-checkers, who have gained an unruly level of prominence in this election cycle, have largely left this claim unchallenged – the reason being, Romney did say “let Detroit go bankrupt.”  It was the title of his New York Times editorial in November of 2008.  But what he did not mean is that the country should let Detroit fail, and let the myriad jobs related to the industry fall with it.

Mitt Romney grew up in Michigan; he understands the importance of the auto industry to the American economy.  The saying “as Detroit goes, so goes the Nation” is not a maxim in Michigan, it’s a way of life.  What his editorial argued for was not letting the auto industry fail but putting it through a managed bankruptcy.

Essentially a managed bankruptcy means the company must submit a reorganization plan, taking into consideration asset sales and restructuring efforts, which must be approved by two-thirds of voting shareholders.  This allows a company to move more quickly through the bankruptcy process and create a leaner, more liquid company in the process.

Yesterday, the Congressional Budget Office came out with a report stating that the total cost to taxpayers of the bailouts of both Wall Street and Detroit will total $24 billion.  While this figure is actually down from previous estimates, that is the result of profits from the financial bailout that exceeded original predictions.

There are some, such as former Obama “car czar” Steve Rattner, who believe that a managed bankruptcy through private financing was impossible in 2008 due to the fact that the credit markets were essentially frozen.  He stated that “’These companies would have closed their doors and liquidated’ without government money…’We took every phone call, we made as many outgoing calls as we could think of.’”

Rattner may be right.  At the height of the financial crisis, even General Electric, the largest company in the world, was unable to fund its day to day operations because of the frozen worldwide credit market.  But Mitt Romney and Barack Obama should at least be able to have that debate.  Whether or not the bailouts of both Wall Street and Detroit were necessary is a question that should be hashed out in the public square.

As the Democrats continue with this misleading attack, however, it becomes almost impossible.  But I guess we shouldn’t expect too much more from a campaign that also accused Mitt Romney of being a felon and being responsible for a woman’s death.  If this is the state of the campaign, there’s no hope for serious policy discussions, and at this point, with the country facing daunting challenges yet unparalleled moments of possibility, this is the debate we need.

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