IT WILL BE GOOD MONEY AFTER BAD. At least two of the legacy car companies are DOA.

General Motors Corp. and Chrysler LLC technically are bankrupt and Chrysler is a step away from death, said Sean McAlinden, chief economist for the Center for Automotive Research in Ann Arbor.

"GM and Chrysler are insolvent. Without federal funding they are bankrupt," McAlinden said at a conference today at the joint office of The Detroit News and Detroit Free Press. If the government took half of all of the bailout money away, they would go back to being bankrupt, he said.

"GM will not meet the initial conditions of the loan. But the conditions will change so GM can keep them," McAlinden said.

His prognosis for Chrysler is not as rosy.

"Chrysler will go away," he said. "Most cats don't have that many lives."

McAlinden described the company as being in hibernation, operating at a "one beat per minute level." Chrysler idled all North American manufacturing plants this month and entire floors in its Auburn Hills headquarters are empty in the wake of recent 5,000 white-collar buyouts.

The company has been, for some time, working to consolidate staff from other locations in Auburn Hills and continues to do so, said spokeswoman Shawn Morgan, who took exception to comments that the purchasing department has all but been eliminated.

McAlinden said Chrysler needs $6 billion to pay its suppliers for last quarter's parts and he suspects the full $4 billion loan went towards these payments. Chrysler initially sought $7 billion from the government.

McAlinden said Chrysler may threaten to keep its factories closed longer as a bargaining tool in negotiations with the new Obama Administration.

The subgame perfect Nash equilibrium might be for the administration to call Chrysler's bluff.

SHARING THE RISKS.

Paul Krugman channels his inner regional economist to call for sensible responses to Detroit's municipal bankruptcy.

Sometimes the losers from economic change are individuals whose skills have become redundant; sometimes they’re companies, serving a market niche that no longer exists; and sometimes they’re whole cities that lose their place in the economic ecosystem. Decline happens.

True, in Detroit’s case matters seem to have been made worse by political and social dysfunction. One consequence of this dysfunction has been a severe case of “job sprawl” within the metropolitan area, with jobs fleeing the urban core even when employment in greater Detroit was still rising, and even as other cities were seeing something of a city-center revival. Fewer than a quarter of the jobs on offer in the Detroit metropolitan area lie within 10 miles of the traditional central business district; in greater Pittsburgh, another former industrial giant whose glory days have passed, the corresponding figure is more than 50 percent. And the relative vitality of Pittsburgh’s core may explain why the former steel capital is showing signs of a renaissance, while Detroit just keeps sinking.

So by all means let’s have a serious discussion about how cities can best manage the transition when their traditional sources of competitive advantage go away. And let’s also have a serious discussion about our obligations, as a nation, to those of our fellow citizens who have the bad luck of finding themselves living and working in the wrong place at the wrong time — because, as I said, decline happens, and some regional economies will end up shrinking, perhaps drastically, no matter what we do.

The important thing is not to let the discussion get hijacked, Greek-style. There are influential people out there who would like you to believe that Detroit’s demise is fundamentally a tale of fiscal irresponsibility and/or greedy public employees. It isn’t. For the most part, it’s just one of those things that happens now and then in an ever-changing economy.

The small nitpick is that Pittsburgh is surrounded on all sides by rivers and mountains, while there are miles of alluvial plain to the north and west of Detroit to aid the job sprawl.  The greater nitpick is that now and then has been ever-changing for over fifty years.

As almost always happens in booms, people began thinking it would never end. The Big Three let labor costs climb until by the end of the decade the average car's price had tripled from two decades before. Two-car families began to look for a cheaper, no-frills purchase for that second car.

Their solution came in a funny-looking but economical and reliable German car, the Volkswagen Beetle. By 1960, annual foreign car sales in the United States jumped tenfold to nearly 500,000 as Detroit exports fell by 100,000. The loss of those sales to foreign competition gave the auto industry its first jolt in a decade. Detroit lost 50,000 jobs by 1960. Smaller domestic manufacturers like Packard and Hudson went under.

Even the Big Three were affected. The workforce at Chrysler's four Detroit plants dropped by half to 23,000 by the end of decade. The boom was over.

More precisely, Packard and Hudson became part of American Motors, with George Romney attempting to differentiate his company's products from the Big Three's gas-guzzling dinosaurs, but that company never had the funds to build a proper assembly plant on a Wisconsin cornfield rather than make use of cast-off mattress factories and Nash plants.