I'm afraid there's no gentle way to say this: the Obama administration is about to commit yet another major blunder. As part of the administration's interference in the US automobile industry, the administration proposes to merge the lending arms of the Chrysler and GM companies into a single unit. This course is, of course, precisely backwards: the key to innovation, recovery, and viability is disaggregation.
Instead we'll see one huge behemoth. While easier for the US to influence and administer, especially given the Obama administration's problems with staffing, the combined organization will have exposure to political and financial risk from both Chrysler and GM. A failure at one of these companies — or, more likely, a political crisis in advance of failure — will lead to risky lending at the new combined organization. Because of its size, the organization will no doubt be deemed too risky to fail, and so the merry-go-round of increased subsidies followed by increased government interference will continue to spin.
Topics: · finance · government
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