The 2009 bankruptcies at General Motors and Chrysler were a historic moment for the Midwest economy. But a new memo published this week by The New Yorker shows that they were in danger of happening even sooner.
The insight can be found starting on page 36 of a 57-page memo by Lawrence Summers, written to President-elect Barack Obama on Dec. 15, 2008. The memo provides an in-depth look at the thinking that went into drafting Obama’s economic recovery plan.
At the time of the memo, Congress was considering emergency financing for car companies, who had been unable to borrow money from the nation’s banks. The Bush administration also was considering whether to use money from the Troubled Asset Relief Program, originally intended to rescue struggling banks.
Summers wrote, “Given GM and Chrysler’s current cash positions, it is overwhelmingly likely that one or both would be forced to file before or immediately after the New Year.” The Treasury Department, under President Bush, estimated the two companies would need $100 billion in bankruptcy financing.
“We believe that number to be wildly inflated,” Summers wrote.
In the end, the Obama administration provided $82 billion to finance the bankruptcies at GM and Chrysler, and pay for other assistance to dealers, suppliers and communities affected by the auto industry crisis.
Summers’ memo makes for interesting reading for anyone who’s followed the car companies’ bankruptcy and restructuring.