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Hit the Brakes: Why Bankruptcy Beats Auto Bailouts

Recorded on February 27, 2009

Location: The Heritage Foundation's Lehrman Auditorium

General Motors and Chrysler are on the brink of insolvency, with their prospects for a quick recovery fading, despite receiving a more than $20 billion bailout less than two months ago. Taxpayers, say prominent financial attorneys, will probably never see that money repaid, and the companies say they'll need billions more in taxpayer dollars to make it through the year. There is a better solution to Detroit's woes: bankruptcy. Far from being an end, bankruptcy presents the opportunity for the beleaguered automakers to get a fresh start, free from crippling debt, untenable labor agreements, and obsolete distribution models. It is the only clear path to financial sustainability. To understand how to help the auto industry, policymakers need to know what's holding it back, the benefits and challenges of going through bankruptcy, and how to avoid interventions that actually retard progress.