There has been a debate on whether to rescue the U.S. Auto Industry with fresh set of loans or let them falter away to prevent any moral hazard. Remember that we are talking about a government loan, not a free stimulus package of any kind.
It is clear that these companies are incompetent and should be left to die according to the good ole laissez faire principle. But Paul Krugman remarks “Under current circumstances, however, a default by GM would probably mean loss of ability to pay suppliers, which would mean liquidation — and that, in turn, would mean wiping out probably well over a million jobs at the worst possible moment.”
I say that the government gives out the loan under one critical condition: the government has a say on who stays in the job at the managing level. What I mean is that the current management in the auto industry clearly has no idea on how compete in an international dynamic marketplace. It is poor management that led the industry to this downfall, and we need to kick these executives out and bring in the competent in order for the industry to survive.
I am aware that this level of government intervention might be uncomfortable to many, and some might question on the competence of our own government in running the show. But I believe this is better than the other two polar solutions: either giving the loan or doing nothing. Remember, the problem is the management, not the loan.
