David Skeel on Bankruptcy and the Auto Industry Bailout

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🗓️ 4 July 2011

⏱️ 61 minutes

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Summary

David Skeel of the University of Pennsylvania Law School talks with EconTalk host Russ Roberts about bankruptcy and the government bailout of the auto industry. Skeel argues that the bailout damaged the rule of law by not allowing a bankruptcy procedure to take its course. Skeel speculates on how bankruptcy for GM and Chrysler might have proceeded. He also argues that the costs to the taxpayer of the bailout have been underestimated. The conversation concludes with a general discussion of the effects of bankruptcy.

Transcript

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0:00.0	Welcome to Econ Talk, part of the Library of Economics and Liberty. I'm your host Russ Roberts
0:13.9	of George Mason University and Stanford University's Hoover Institution. Our website is econtalk.org
0:21.2	where you can subscribe, find other episodes, comment on this podcast, and find links to
0:26.5	other information related to today's conversation. Our email address is mailadicontalk.org. We'd
0:33.6	love to hear from you. Today is June 20th, 2011, and my guest is David Skiel, the
0:43.4	S. Samuel Arst, professor of corporate law at the University of Pennsylvania Law School. David,
0:48.5	welcome to Econ Talk. Well, thanks for having me. Our topic today is bankruptcy, and in particular,
0:54.6	the bailouts of General Motors and Chrysler and their interaction with bankruptcy law. The most
1:01.4	optimistic view of those bailouts is that these were crucial. They saved hundreds of thousands of jobs,
1:07.8	if not in the direct employee of GM and Chrysler. They're suppliers. It's going to cost taxpayers very
1:17.0	little. We might get all of our money back. If not, we'll get most of it back. And you disagree on
1:22.2	a number of counts. What's wrong with this optimistic view? Well, there are lots of things that are
1:27.7	wrong with it. Almost each phrase of your sentence I would disagree with. Let's go one by one.
1:36.0	Well, I won't remember the particular order, but one point you made, which is a very common
1:43.3	argument, is that the car companies could not have been restructured in any other way. It had
1:51.7	to be done the way it was done. I don't believe that's true. I think something much closer to an
1:58.8	ordinary bankruptcy, and we can get into what was non-ordinary about these transactions, but
2:06.0	something closer to an ordinary bankruptcy could have been used to restructure them. The idea,
2:11.4	which the administration and advocate of the bailout seemed to be backing away from a little
2:17.6	bit now, that the bailouts were almost cost-free, or there wasn't a significant cost to taxpayers. I
2:25.4	think is very inaccurate. Even the administration now acknowledges that they're likely to cost at
2:32.5	least $14 billion, and this is leaving out some very significant costs that were not in the form
	...

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