Nationalizing Detroit

David Sanger has an insightful and sober piece in today's NYT which first calls a spade a spade -- yes, we are in the process of nationalizing the Big Three -- and then looks at the implications.

If the government were to choose a bankruptcy jurist as the car czar, things might be different: the czar would perform what Nancy Pelosi calls barbershop functions -- handing out haircuts to all stakeholders -- and then get out of the way. But that doesn't seem to be the intention: it looks like the czar is going to have much broader strategic input than that, and will be charged by Congress with essentially guiding Detroit out of the wilderness and into some kind of sustainability.

This is good news for Detroit's bondholders, no matter how much of a haircut they're forced to take. Once Uncle Sam's very own car czar is in charge, you can be sure that further liquidity support will be forthcoming whenever it's needed, and that the chances of a re-default in the near future are slim.

On the other hand it's bad news for taxpayers, who will pony up billions of dollars now, just to get the Big Three into the new year, and then billions more in January, as part of the restructuring plan, and then untold billions on top of that in the years to come, as no one in Washington wants to take any responsibility for pulling the plug.

And of course it doesn't stop there. Just for starters, think for a minute about the car czar's responsibility for Opel, and the negotiations which are going to start up between the US and German governments over the European marque's fate. On the one hand, Opels are clearly the kind of thing which Congress wants GM to make more of. But they want GM to make those cars in America, not in Europe. And GM has already asked the German government for money to keep Opel going.

This is likely to start out messy, and only get messier. The balance of probabilities has to be that it will all end in tears.