GM takeover part of broad federal role

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By Patrice Hill

Capping a series of bold government actions to rescue failing corporate giants, the White House has won approval of its restructuring plan for General Motors Corp., putting the government on track to take ownership of the storied automaker by the end of the week.

The takeover, which is the most extensive federal intervention into the operations of a major industrial company, follows in quick succession a government-assisted bankruptcy reorganization of Chrysler LLC, the assumption of partial ownership of two of the nation's biggest banks -- Citigroup and Bank of America -- and the seizure of mortgage giants Fannie Mae and Freddie Mac as well as insurance goliath American International Group Inc.

William Boyes, an economics professor at the W.P. Carey School of Business at Arizona State University, estimates that the government now owns or controls businesses that generate about one-third of U.S. economic activity.

Some economists say the free-market system is in danger. But almost all agree that the government's heightened presence in large sectors of the economy, even if necessary, will change the way markets and businesses function for many years to come.

"I didn't think I would ever see the United States move to a primarily government-controlled economy, and its happened in just a few months," Mr. Boyes said.

Mr. Boyes is among economists who say GM and some of the large banks should have been allowed to fail because of the poor decisions and management that led to their insolvency.

"The auto companies should have been able to file bankruptcy at the very beginning so contracts and other inefficient setups could have been resolved" without government intervention that led to a deal that disproportionately favors GM's autoworkers union, he said.

But other economists and President Obama insist that the government got involved only reluctantly and its intervention was necessary to prevent the greater harm to the economy that would have come from thousands more lost jobs in the middle of the deepest recession in modern times.

John Wolkonowicz, an economist at IHS Global Insight, said the government had to become GM's sponsor and rush the case through bankruptcy court to prevent the recession from getting worse this summer.

"A prolonged GM bankruptcy could significantly harm the U.S. economy just as it is starting to show some signs of recovery," he said. Under the government's plan for a quick reorganization, "GM has a high probability of eventually becoming a sustainable, successful business," he said.