President Obama thinks that his administration’s bailout of the automakers is a model for policy in every sector of the economy, and an example of the differences between him and Mitt Romney. Romney, of course, famously penned a 2008 New York Times op-ed titled “Let Detroit Go Bankrupt.”
It wasn't Obama, though, who prevented Detroit from going bankrupt -- eventually, he did. But before Obama even took the oath of office, George W. Bush ensured that Romney's advice wouldn't be heeded.
In Romney’s infamous Detroit op-ed, which ran on November 18th, 2008, he laid out a clear and simple course of action for the troubled automakers: the government should avoid a bailout and instead force the companies to reorganize through a managed bankruptcy, shedding legacy costs and unsustainable debt in the process. Romney's piece left the door open to some limited role for government aid in facilitating the bankruptcy process.
At the time the op-ed ran, Romney’s position was the opposite of what Obama’s transition team was considering. On the Sunday before Romney’s article ran, 60 Minutes ran an interview with Obama in which he advocated “assistance…conditioned on labor, management, suppliers, lenders, all the stakeholders coming together with a plan -- what does a sustainable U.S. auto industry look like?” and explained that the “usual options” of bankruptcy “may not be available” because of the lack of private sector financing.
Just days later, though, Bloomberg News reported that the Obama team, in a break with Congressional Democrats, had begun considering a plan for a pre-packaged bankruptcy very similar to what Romney had sketched out.
Whether Obama would have implemented a Romney-style, “no bailout, managed bankruptcy” plan upon taking office will never be known. That’s because, in early December, the outgoing Bush administration bailed out GM and Chrysler with $13.4 billion of funds originally intended for the financial sector bailout, requiring only that the automakers present plans for restructuring by March.
So by the time he took office in January of 2009, Obama’s original plan of forcing the two car companies to present credible plans for sustainability in return for funds was already off the table – the first tranche of money was already out the door, thanks to the Bush administration. After extending the funding and giving both companies an ultimatum to reorganize their businesses in late March, Obama finally forced the two into bankruptcy a month later.
At that point, Romney had acknowledged that even a bankruptcy would have required some form of government support. On Fox News Sunday on May 31st, Romney said that bankruptcy had always been the preferable course of action, and during an event the next day at the Heritage Foundation, Romney made it clear that he blamed both Obama and Bush for delaying the inevitable bankruptcy. When asked by Chris Wallace whether a bankruptcy would have been feasible, given the severity of the financial crisis, Romney answered that “the government could have helped” provide the "debtor-in-possession" funds that would have kept the doors at GM and Chrysler open during the court proceedings. Those funds normally would have been provided by private-sector actors. In late 2008 and early 2009, it’s unclear that any private entity would have been in a position to make such a loan.
The bankruptcy process that followed under the Obama administration’s supervision was problematic in several respects, and included many of the problems Romney warned would accompany a bailout in his infamous Times op-ed. It’s possible, although not certain, that GM and Chrysler would be stronger today, and taxpayers much better compensated, had the bankruptcy preceded the disbursement of TARP funds. It's also possible that the Obama campaign's plan could have worked if tried in late 2008. Either way, the Bush bailouts mean we'll never know for sure.