Business: Big Loss, Bigger Bailout

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> Preferred stock: up to $200 million, representing a kind of financial prestidigitation whereby dealers and suppliers can lend the company money in return for the stock; also, banks that have already reached their lending limit to Chrysler might be persuaded to swap loan notes in return for preferred stock so they can take on more of the company's debt.

Should the Administration have resisted the temptations to extend a hand to Chrysler? Many businessmen and economists say yes, partly because they believe that the rescue effort will fail. Says Alan Greenspan, President Ford's chief economic adviser: "I forecast that the aid package will be insufficient to solve the problems of Chrysler. I further forecast that the company will be back for more."

Carter aides concede that they are not sure that Chrysler can be restored to health. But they argue that the rescue effort had to be made. Any economic downturn would surely become steeper if the nation's tenth largest industrial enterprise (1978 sales: $13.6 billion) had to close its doors. Chrysler employs 137,000 workers directly and supports another 400,000 people on the payrolls of suppliers and dealers. By the White House's reckoning, perhaps 50,000 jobs would be lost immediately if Chrysler went bankrupt. Within twelve months, according to the Data Resources research firm, the unemployment rate, now 6%, might rise by .5%. In financially beset Detroit, where Chrysler is the largest private employer, joblessness might double from today's 8% level. The cost to taxpayers could be large in terms of unemployment compensation and increased welfare and food stamp payments —and a Government takeover of Chrysler's $1 billion pension obligations.

But the permanent impact of a Chrysler collapse on the economy could hardly be described as calamitous; even if the firm were to go bankrupt, many of its profitable components would certainly be taken over by other companies. Furthermore, expanded production not just by Ford and G.M. but by American Motors and even the U.S. operations of Volkswagen might quickly offset some of the jobs impact of a Chrysler shutdown.

The real question in the bailout is whether it chips away dangerously at free enterprise itself, a system that cannot survive without the discipline of competition brought on by the threat of failure. Speaking specifically about Chrysler, General Electric Chairman Reginald Jones has said: "One of the aspects of the free enterprise system is that you should be allowed to succeed, and you should also be allowed to fail."

It is true, as the White House argues, that the U.S. auto industry would be more competitive with three healthy giants than two, but that is not an entirely persuasive argument for trying to keep afloat a company that may not be able to survive on its own. Secretary Miller insists that the Chrysler crisis is a "unique situation," in that it will cost much less to help the firm than to let it fail. Nonetheless, there is a hazard that a bailout could be read by other big companies as a signal that if collapse looms, they too can count on a rescue.