I am not generally in favor of bailing out businesses. In general, businesses should be allowed to live or die as the market dictates. But I was in favor of some kind of bailout for the financial sectors, largely because I believed that the credit market really was in a dangerous place, dangerous enough to take down the rest of the economy. I think we are probably in the same place with GM.

First, it seems pretty clear that the automakers would not be ale to reorganize under Chapter 11 and would have to go to Chapter 7 — meaning liquidation. Not only would that kill those companies, it would kill all of the suppliers who depend on their business. And that would kill all of the companies that depend on those suppliers, and so on and so on down the line. Anywhere from one to three million people could lose their jobs from those effects. And that doesn’t even include the effects from the loss of millions of pensions or the fact that this would be the first major economic downturn with the new, draconian personal bankruptcy laws in place. It would now be harder for unemployed people to get back on their feet, increasing the economic damage. Some studies suggest that it could cost state, local, and federal governments up to 200 billion dollars just to mitigate the damage a collapse would cause. And that number doesn’t even include the cost in lost tax revenues, estimated to be in the neighborhood of 10 billion dollars over the next three years.

That all would be bad enough by itself, but we are already looking at the deregulation recession and it is looking to be a bad one. If the economy cannot survive without a functioning credit market, it can also not survive without consumers who are capable of spending and willing to do so. Unfortunately, consumers have not shared in the productivity gains of the last eight years and are, at best, making as much today as they were eight years ago. They are generally carrying too much debt and will see no increase in their income for quite some time. Consumer sentiment, already at record lows, could very well be crushed by the sight of such a sudden collapse. It could very will be the mental straw that causes consumers to tip the recession into a deep economic stagnation.

There is also no reason to believe that the bailout would be an act of charity. In addition to the savings in government outlays and increased tax revenues, a properly constructed bailout could and even should be a long term benefit to the country. First, any bailout would be an opportunity to force the Big Three to finally address the reality of energy independence and global climate change. That, and the breathing room to finish the management changes they have already undertaken that promise to turn them into better competitors, should make the Big Three much better job producers and tax sources in the years ahead. The last auto bailout actually made the government money, and there is no reason to believe that, eventually, this bailout could not do the same.

In ordinary times, for ordinary businesses, a bailout would not be the correct decision. But these aren’t ordinary businesses, and these certainly aren’t ordinary times.