“…a bailout would benefit shareholders and bondholders as much as anybody else. These are not the people that need help right now. In fact they contributed to the problem.”

With financial restructuring under a bankruptcy Stiglitz says, “Equity investors (who failed to fullfill their responsibility of oversight) lose everything; bondholders get converted into equity owners and may lose substantial amounts. Freed of the obligation to pay interest, the carmakers will be in a better position.”

To those who argue that bankruptcy will undermine the confidence that consumers will have in cars made by GM and Chrysler (Ford is not part of the current bailout) Stiglitz says, “It is the cars and carmakers themselves - and the dismal performance of their executives - that have undermined confidence.”

Under bankruptcy, workers retired from a life time of work with U.S. auto makers and those nearing retirement may lose their pension (and health care benefits) should the manufaturers fail. Stiglitz says “The government may need to help some pension funds but it is better to do so directly, than via massive bail-outs hoping that a little of the money trickles down to the "widows and orphans."

The prize winning economist concludes “Even if Congress does now give carmakers $15bn as a ‘stay of execution,’ postponing the hard decisions, before the next multi-billon dollar dose of medicine we need to think more carefully about who we are really bailing out and why. This should not end up as just another rescue package for bondholders and shareholders.”

Stiglitz says of the auomakers predicament and the larger mess our economy is in, “The failure lies with the managers of US carmakers and America's financial markets, which failed in their oversight and encouraged short-sighted behaviour.”

I agree. But why should the workers at U.S. auto companies suffer because of the shenanigans in financial markets – because of the failure of financial inventions like credit derivatives, collateralized debt obligations, and credit default swaps – and the housing boom and bust fed by a lack of government regulation, too low interest rate policies of the Federal Reserve and public policies designed to expand home ownership that led to a loosening of lending standards?

I thought the loan to the U.S. auto companies was to save hundreds of thousands of jobs when the U.S. economy is shedding jobs faster than at any time since 1974, and forecasts are for it to get worse.

It’s true, if the auto companies fail, the country will eventually recover from the fall out -  the lost jobs, the lost pensions, the lost health care coverage.  Jobs will eventually develop to replace those we lose now, and the government may finally get its act together and fashion a national health care policy that guarnatees health care coverage to all, but it will be too late for most current workers at U.S. car companies. 

The last thing this economy needs now, especially during this holiday season, is an additional massive job loss from failed auto companies.