Unless Ronald Reagan succumbs to congressional pressure, he will preside over the biggest bankruptcy in American history by disconnecting the Chrysler Corp. from its federal life-support system as part of radical policy change.
There is no voice among economic officials appointed so far by president-elect Reagan that favors sending good money after bad to keep Chrysler alive. The question is not if but when. Their answer; the sooner the better, as close as possible to the Carter administration to avoid a misleading impression that the beleaguered automaker's troubles originated with Reagan.
Far from breeding panic in financial markets. Chrysler, belly up, might have the opposite effect, say Reagan advisers. The dramatic sign that Uncle Sam no longer will extend credit to failing enterprises may well promote Reagan's early economic policy goal of reviving the failing bond market.
Specifically, Chrysler will go bankrupt sometime this spring unless it gets more federal loan guarantees on top off $800 million authorized so far. Among Reagan advisers and Wall Streeters alike, there is practically no hope for Chrysler's ultimate survival. They Believe more federal help merely postpones the inevitable, as do concessions by labor and suppliers.
Officials in President Carter's Treasury most familiar with Chrysler could not agree more. In fact, they have been surprised that a signal did not come from the president-elect to pull the plug on Chrysler now -- on Carter's watch, instead of Reagan's.
That would have required an intricate maneuver. The chairman of the Chrysler Loan Guarantee Board, Treasury Secretary G. William Miller, would oppose any such cutoff. Whether a whispered word from Reagan would sway the two other board members -- Federal Reserve Chairman Paul Volcker and Comptroller General Elmer Staats -- is debatable. Even then, Bankruptcy probably would not come before Jan. 20.
All such considerations are moot, however, considering Reagan's failure to even consider that option. In the lackadaisical fashion with which high policy has been handled during the transition, Chrysler was not seriously discussed by Reagan. For that reason, it cannot be assumed the new president will resist pressure from Chrysler dealers and Chrysler workers funneled through congressman.
Yet, on this as on many questions, Reagan's first reaction was correct. He intuitively opposed the Chrysler bailout, retreating only under intense pressure during the campaign. The right to fail is viewed by Reagan as integral to a rejuvenated free market where government subsidy is diminished along with government taxation and government regulation. That was the essential choice for Republicans between Reagan and John B. Connally.
There are no economic Connallyites in the Reagan Cabinet. Budget director-designate David Stockman was the only member of the Michigan congressional delegation to vote against the Chrysler bailout. He has not repented.
Treasury Secretary-designate Donald Regan has been considered a possible weak link -- an impression enhanced by comments over a luncheon in Wall Street Dec. 16 by his friend and fellow stockbroker I. W. Burnham III. "I have known Don Regan very well for many years," said Burnham," and I have no doubt that he will not allow Detroit to go bust. He will stop imports by imposing a ban on them for three to six months. . . ." h
But Burnham has not talked to Regan lately. In private, the new Treasury chief has opposed any trade protection for the auto industry agreeing with Stockman on the need to end the Chrysler bailout. When Regan replaces Miller as chairman of the Loan Guarantee Board, there will no longer be an ardent voice for maintaining the life-support system.
Such prospects a year ago would have sent Wall Street into a frenzy. Today's sentiment there, which turned against further federal help in the wake of massive buyer resistance to the K-car, hopes a Reagan hard line on Chrysler will change investor psychology sufficiently to save the bond market.
The message, transcending Chrysler, would be sent to other troubled businesses, including savings and loan institutions. "We want the financial community to know that the federal government won't be sopping up credit to help failed enterprises," a Reagan adviser told us. That would be concomitant with less regulation and falling tax rates as part of a lowered federal profile on the business horizon. To achieve that, there seems no way to Reagan's men that Chrysler can be saved.