Fred’s prescription is exactly what the economics of innovation would tell us:  In a collapsing business ecosystem, the whole is not worth more than the sum of the parts.  The whole is worthless.  The sum of the parts is worthless.  SOME of the parts may be worth SOMETHING.  The way to determine if a part is worth something is to see if someone sees enough value to be willing to buy it.  Maybe Donald Trump wants the GM building in Detroit.  Or not.  Maybe Toyota wants volt–or not.  See enthusiastic support on Twitter here.

What is powerful about this solution is that it makes the breaking up and reconnecting of the ecosystem tractable.  And the pieces are selected for their value to a future that actual entrepreneurial leaders believe in enough to fund THEMSELVES and to try to accomplish through their own efforts.

The nation still has the problem of how to stabilize Detroit.  The collapse of GM, Ford and Chrysler will be an economic Katrina for people in the city.  On the other hand, perhaps better to rebuild Detroit directly.  1.  Encourage new, viable future-focused transportation companies (see Fred’s suggestion above and below).  2.  Encourage suppliers who can survive to grow within the new economic ecosystem that will be led by the new lead companies.  3.  Negotiate mortgage payment holidays to keep people in homes and to stabilize neighborhoods.  This is philosophically similar to how student loans do not have to be paid down while students are still in school.  Detroit will be in school. 4.  Tap into the strike funds, layoff funds, and possibly the pension funds of the unions to provide pay for workers.  Insist on a kind of “workfare” and have folks work on infrastructure, policing, schools and education.

Now that I think about it, an economic Katrina has ALREADY happened to Detroit–a slow, multi-year Katrina.  No bailout can change this fact.  Indeed, just as an actual bucket-brigade  “bailout” of the water in New Orleans would have been obviously futile, so a financial bailout of the auto makers is futile.  What we face is a rebuild. Let’s rebuild something worthwhile, something that is part of a future we can embrace and be proud of.

Here below is Fred’s terrifically clear suggestion. Click the link to read the whole thing:

Bust-Up, Not Bailout – Seeking Alpha
‘Bust-up, not bailout’ should be our rallying cry. Once upon a time busting up big companies was a populist movement. It’s time for that movement to rise up again. Not so much to rid our society of monopolies, but to rid our society of financial minefields that are ‘too big to fail’. I read a quote on twitter yesterday that said ‘too big to fail means too big to exist’.

And yet the government’s answer to our problems is to push for more consolidation. It’s nutty. Scale and complexity are the enemy of innovation and what ails most of the large businesses in this country, auto in particular, is a structural lack of innovation in the industry architecture.

It takes something like five years to get a new car designed and built in most large auto companies. That’s too long. I realize that designing and building a new car platform is not like hacking up a new web app. But five years? C’mon We have to do better than that.

And we need to completely neuter the auto industry’s ability to lobby our government to stop important initiatives like clean/alt energy and mass transit. It’s borderline criminal what the auto industry’s political efforts have done to our global competitive position right now.

The same is true of the financial services business, the airline business, electric utilities, and a host of other industries.

I am sympathetic to the argument that we cannot allow the entire supply chain of the auto industry to fail and I am certainly aware of how many plants will close and jobs will be lost if we let General Motors GM, Chrysler, and Ford F fail. It’s a tough call and Obama has already staked out a pro bailout auto position.

So I hope someone from his incoming team reads this and the conversations on this topic that went on via twitter yesterday. If we give taxpayer money to the auto business, it should be to finance a wholesale bust-up of the business. One PE firm should buy Volt. Another should buy Buick. A third should buy Jeep. A fourth should buy Lincoln. And if a brand can’t find a buyer at any price with a boatload of taxpayer money behind it, then it should fail.