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Zywicki Discusses Automaker Bailout on the Air

Professor Todd Zywicki was a guest on the nationally syndicated John Batchelor radio show, where he discussed key issues surrounding the government's bailout of General Motors and Chrysler, saying he believed the bailouts were unnecessary and that the automakers would ultimately be weaker than competitors because of the government's intervention.

Explaining that the purpose of bankruptcy was to determine whether a company was "worth more alive than dead," Zywicki explained that Chapter 11 bankruptcy typically allows a company that has been affected by bad decisions, poor management, or other problems, to reorganize and emerge from bankruptcy competitive again. But the government's entanglement in the auto bailouts created a hybrid form of Chapter 11/bailout that will probably leave the automakers worse off than they were before. 

Zywicki challenged the legality of the automaker bailouts, saying that by diverting TARP funds intended for financial institutions to the automakers, the government ignored the limitations of TARP. Further, he cited a government disparity in treatment of secured creditors under the bankruptcies, saying Chrysler's unsecured creditors received a greater percentage per dollar than its secured creditors, while General Motors' secured creditors received preference in that corporation's bankruptcy. In addition, he said, auto dealerships slated for closure were in some cases kept open through the intervention of legislators with special interests.

Listen to the broadcast

Read about Zywicki's "Auto Bailout and the Rule of Law" in National Affairs