I don't know if it's been said already, but this is a Hobson's choice for the government.
1) If the Big Three fail, it is true they won't cease operation, but a restructuring would likely result in large numbers of layoffs. These people will immediately file for and collect unemployment for an extended period of time, given the awful jobs market. This will cost the government a great deal of money.
2) Even if the Big Three go bankrupt, they can't shirk their pension obligation to their retirees (who in fairness, have worked and paid into the pension). The pension obligation would be transferred to the government's PBGC, which guarantees pensions. The PBGC is insolvent, and having to take the Big Three's pensions would push it over the edge, I suspect. Then we as taxpayer would have to figure out what to do with an insolvent PBGC.
3) Related to #1, large numbers of unemployed people are not only drawing unemployment, but not paying income taxes, payroll taxes, etc. Lots of states already in dire straits financially would lose even more revenue. That means higher taxes on their residents.
4) GMAC and other auto finance debt is widely held. A Big Three bankruptcy again slams the finance industry. The last thing we need is more stress on that industry, since it'll destabilize financial markets (which we just fixed) and I've lost enough on my 401k and IRAs, thanks.
On the other hand:
1) This continues a precedent of the government trying to protect the country from any and all economic pain. The government simply can't afford to backstop all bad financial decisions. You just can't bail out every bad American company just because there might be some economic suffering involved. How do you draw the line? Where does it end? Why would foreign investors continue to have confidence in capitalism or the US economy, and would foreigners start perceiving the US as the sick man of North America?
2) If the government extends this loan, expecting the Big Three to pay back half, and the other half repaid by giving the government a stake, this situation could be like invading Iraq: easy to get into, really, really hard to get out. How is the government supposed to wind down this stake?
3) A collapse of the Big 3 might be an opportunity for foreign automakers to expand market share and fill the vacuum created, and to do so, they would need to hire people and expand. This would cushion the blow somewhat.
4) American steel and airlines went through a crisis like this and they're still around. We still have a country and a non-3rd World way of life even though the government didn't really help them out that much. Plus, we bailed out Chrysler in 1979... and here we are again.
That said, I voted against the bailout because I think the country is approaching a day of (financial) reckoning. The bailouts only seem to postpone this day.... But I'm becoming of the guns, precious metals and bottled water mindset so what do I know?
