In the tangled debate over whether the auto industry would have survived under Romney's bankruptcy plan, Obama has the edge on the argument.
This exchange is drawn from a headline — “Let Detroit Go Bankrupt” — on an opinion article written by Romney for the New York Times. But he did not say that in the article. (He repeated the line, however, on television.)
Although “bankrupt” often conjures up images of liquidation, Romney is correct in that he called for a “managed bankruptcy.” This is a process in which the company uses the bankruptcy code to discharge its debts, but emerges from the process a leaner, less leveraged company.
Ultimately, along with getting nearly $80 billion in loans and other assistance from the Bush and Obama administrations, GM and Chrysler did go through a managed bankruptcy.
But many independent analysts have concluded that taking the approach recommended by Romney would not have worked in 2008, simply because the credit markets were so frozen that a bankruptcy was not a viable option at the time.
Here’s how the bipartisan Congressional Oversight Panel, in a unanimous finding, framed the issue in a January 2011 report: “The circumstances in the global credit markets in November and December 2008 were unlike any the financial markets had seen in decades. U.S. domestic credit markets were frozen in the wake of the Lehman bankruptcy, and international sources of funding were extremely limited.”
Obama’s claim of 1 million jobs being saved is based on a Bush administration estimate when it extended loans to the automakers. The Bush administration’s Council of Economic Advisers said that “the direct costs of American automakers failing and laying off their workers in the near term would result in a more than 1 percent reduction in real GDP [gross domestic product] growth and about 1.1 million workers losing their jobs, including workers for automotive suppliers and dealers.”