Time to bring back Iacocca?

December 5, 12:46 PMEconomic Policy ExaminerJoseph Hight

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Lee Iacocca (wikipedia.org) 

 
Maybe it’s time to bring back Lee Iacocca, he of the Chrysler bailout of 1979 and of the hugely successful Ford Mustang of the 1960s and 70s.  Iacocca is 84.  He could join Paul Volcker, 81, as the battle torn veterans in the Obama administration.

But if not Iacocca in the flesh, why not use the Iacocca model of loan guarantees, rather than outright loans for the auto industry?

In 1979, Iacocca approached the U.S. Congress for help, realizing that Chrysler would go out of business if it couldn’t come up with enough money to turn the company around.  The result was a loan guarantee, not a loan.  That’s right the government did not lend the money to Chrysler, it only guaranteed the loans which were made by the private sector.

Why not use the model this time around?  Secretary Paulson and the Bush administration could stick to its policy that the bailout is for banks and financial institutions only, and still bail out the auto companies with the loan guarantees.

The United States is using $250 billion of the TARP bailout money to buy ownership shares in the nation’s banks.  The U.S. Treasury could direct those banks to take $30 billion of that money and loan it to the auto companies.  That was the purpose of giving the money to the banks, to allow them to make loans to stimulate the economy.

And as an added incentive, let the government guarantee those loans.

And the government could turn a profit.  It used the same model of loan guarantees to bail out the airlines after 9/11. See, “How the U.S. could make money on the Bailout.”

In the Chrysler bailout of 1979, the government eventually made $300 million from the Chrysler loan guarantee, because it included options for the government to buy Chrysler stock at a preferred price.  After Chrysler recovered, the government sold these options, netting the $300 million.  The airline bailout after 9/11 used that same tactic to net the government $130 million.

On the other hand, here we are 29 years later and thinking about bailing out Chrysler again.

Watch the Chrysler tribute to Iacocca on YouTube.