Academic journal article Texas Review of Law & Politics

The Tarp Bailout of Gm: A Legal, Historical, and Literary Critique

Academic journal article Texas Review of Law & Politics

The Tarp Bailout of Gm: A Legal, Historical, and Literary Critique

Article excerpt

ABSTRACT

This Article argues that President Obama's use of TARP to fund a Chapter 11 restructuring of GM is reminiscent of the anticompetitive economic policies favored by Franklin Delano Roosevelt during the New Deal. However, it is largely agreed that FDR's New Deal economic policies prolonged the Great Depression. As such, a question arises: why would President Obama repeat FDR's failed economic policies? This question assumes that President Obama's goal is economic in nature.

This Article argues that President Obama's true goal is not economic, but social-to transform the United States automotive industry into one that produces environmentally-friendly vehicles. If that is the case, that is fine-and perhaps laudable-but I am reminded of Arthur Leff's admonition that when politicians implement policy they "ought to have the political nerve to do so with some understanding (and some disclosure) of what [they] are doing."1

Finally, this Article concludes by discussing the fact that over fifty years ago, Ayn Rand described politicians using emergency economic legislation to implement social change. Her novel, Atlas Shrugged,2 provides a unique prospective on this Article's discussion of both the New Deal and TARP.

INTRODUCTION

In 2008, General Motors Corporation (GM) was facing unsustainable legacy costs and increased competition from Asia and Europe. The deepening economic recession in the United States was threatening to push GM into liquidation.4 GM CEO Rick Wagoner testified before Congress that only federal government assistance could save GM.5 President Bush, "[a]bandon[ing] free-market principles to save the free-market system,"6 directed the Treasury to provide $14 billion to GM pursuant to the Emergency Economic Stabilization Act of 2008 (EESA)7 and the Troubled Asset Relief Program (TARP).8 However, following the inauguration of Barack Obama, the TARP bailout of GM expanded exponentially, and by June 3, 2009, GM had received an additional $36 billion.9 But now the cash infusion was contingent upon GM restructuring under Chapter 11 of the Bankruptcy Code.10 Why did the Obama Administration agree to fund GM's Chapter 11 restructuring?

The Obama Administration - at least in public - repeated the explanation offered by the Bush Administration, that bailing out GM was necessary to save the economy.11 Consider the following public statement from the President:

[No one doubts] the importance of a viable auto industry to the well-being of families and communities across our industrial Midwest and across the United States. In the midst of a deep recession and financial crisis, the collapse of these companies would have been devastating for countless Americans, and done enormous damage to our economy - beyond the auto industry.12

However, this Article argues that despite public statements to the contrary, the Obama Administration's expanded bailout of GM had very little to do with saving the economy. Instead, the Chapter 1 1 restructuring of GM was a first step in transforming the American automotive industry from one that produces large sports utility vehicles into one that produces environmentallyfriendly cars and trucks.

First, this Article will expose the fallacy of the claim that government interference in private industry is necessary to avoid devastation to our economy.13 The American people have been here before. Part I of this Article turns to the past, FDR's New Deal. FDR's New Deal was premised on a belief that the Great Depression was caused by the free market; that "cutthroat competition" and "foolish overproduction" drove down prices and rendered existing businesses insolvent.14 FDR's New Deal attempted to reduce those competitive pressures on existing businesses - at least in part - with the Motor Carrier Act (MCA)15 and the National Industrial Recovery Act (NIRA).16 The MCA and NIRA limited competitive pressures on certain industries like trucking and steel by erecting barriers to entry that helped those industries at the expense of entrepreneurial firms. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.