Throwing It in Reverse

Ernest Istook / June 02, 2009

Government control of General Motors is likely to throw the company into reverse gear rather than forward. By rewarding bad behavior with $50-billion, President Obama has created powerful incentives for even worse performance. In his New York Times column today, David Brooks lays out six reasons why the latest bailout will backfire:

1. GM has been cut off from innovative thinking. Because Obama wiped out existing bondholders in favor of unions, no outsiders will be willing to bring fresh capital and ideas to GM.
2. Insiders who sank the company remain in charge. The old CEO is gone, but the new leaders are entrenched insiders—especially the union leaders.
3. There is now no downside for failure. Having bet $50-billion already, it would be political suicide for politicians ever to pull the plug on the company. (more…)