You'll be paying for those auto bailouts for decades to come

Detroit and the auto makers claim there was no liquidity (nobody was buying cars or lending) for normal bankruptcy to function. But lenders might have come forward if the government backstop wasn’t crowding out private financing—or perhaps the industry would be more attractive to private capital if every business decision wasn’t a political decision too. No one can know now.

At any rate, even if GM and Chrysler had been liquidated in Chapter 11, Americans could still buy Toyotas, Nissans and other cars that the transplants usually make in the South and Midwest. Those companies might have bought the assets that would have been sold in an economically rational way. All this would have been done under the supervision of a neutral bankruptcy judge or receiver.

That was the real issue for the White House because of its potential damage to union labor. So it proceeded to orchestrate an out-of-court prepackaged bankruptcy. Bond holders would have taken a severe haircut no matter what, but Mr. Obama’s force majeure subordinated their rights to the UAW’s. Even Steve Rattner, who led the auto task force and is its most ardent defender, conceded to the Detroit News in December that “We didn’t ask any active worker to cut his or her pay, we didn’t ask them to sacrifice any of their pension and we maybe could have asked them to do a little bit more.”