Was the Bailout a Blunder?

Few recent issues involving American business have stirred more controversy than Congress's decision three years ago to grant federal guarantees on $1.5 billion worth of Chrysler Corp. loans. TIME asked a number of those who opposed the bailout whether, in light of the fact that it helped save Chrysler and its 59,200 jobs in the U.S., they had -changed their minds. None had. The reason, doubtless, is that the issue goes beyond the troubles of a single company and raises fundamental questions about whether the free-enterprise system should be allowed to work. Excerpts:

Milton Friedman, Nobel-prizewinning economist: "Obviously, it's a good thing for Chrysler and the country that the company seems to be surviving, but one bad byproduct is that it will lead people to believe bailouts are a good thing. A free-enterprise system is one of profit and loss. If you guarantee against losses by bailing out losing companies, you remove the major monitoring device of a free market."

Peter Peterson, chairman of Lehman Bros. Kuhn Loeb, the New York City investment banking firm, and former Secretary of Commerce: "Bailing out troubled companies is a broad-based policy, not an individual phenomenon. Lee lacocca has not only been a phenomenon, he has been phenomenal. But should we build a broad-based policy on the assumption that another lacocca would be at the helm?"

Alan Greenspan, economic consultant and former chairman of the Council of Economic Advisers: "Propping up failing companies with Government loans delays the shift of resources into more productive ventures. Policies focused on protecting jobs in moribund industries must eventually fail and, in the end, destroy more jobs than they save."

Thomas Murphy, former chairman of General Motors: "The Government should not be owning and running businesses. When it gives federal guarantees, it is in effect embarking on a course that could lead to Government ownership. The marketplace should determine success or failure."

William Proxmire, Democratic Senator from Wisconsin: "We'll have far better business management in the long run if we allow the tough, cold, cruel system of free enterprise to work. It's served us very well. In the year that Chrysler came to us, there were 6,000 business failures. But because Chrysler was big, with a lot of employees, and because it was a presidential election year, we bailed them out. Where do you draw the line? You could make a much better case for helping little firms than big ones. When you start bailing out obsolete industries, you keep us in the horse-and-buggy stage."

Phil Gramm, Republican Congressman from Texas: "I still feel the loan guarantees were wrong. I never accepted the premise that Chrysler would be unable to deal with its problems without federal aid. I think Chrysler would be stronger today if it had been forced to make the tough adjustments itself."

David Stockman, director of the Office of Management and Budget and a former Republican Congressman from Michigan, the only member of his auto-oriented state's delegation on Capitol Hill to vote against the bailout: "I'm not sorry about that vote. The issue was a type of Government assistance that cannot and should not be generally available to private industry in this country. I couldn't see the philosophical principle for it then, and I can't now."

Lowell Weicker, Republican Senator from Connecticut, who at one point threatened to filibuster the loan-guarantee bill to death but allows how he now owns "a little Chrysler stock" and "there's a very good chance I'll buy a Chrysler car pretty soon": "Would I vote against it again? Yes. As a matter of principle and precedent, I do not feel the Government should bail out companies. As chairman of the Small Business Committee, I have lived through two years of seeing little companies go down the chute in record numbers. Having said that, do I feel Chrysler and lacocca have done a superb job? No question about it. I'm delighted to see Chrysler succeeding." This file is automatically generated by a robot program, so viewer discretion is required.