A bankruptcy filing by even one of the Big Three would probably set in motion a cascade of smaller bankruptcies by suppliers of car parts, as the money the company owed them (which would be classified as an unsecured claim) could not be paid until it exited bankruptcy. And this loss of suppliers would almost certainly overwhelm the other two carmakers. There would also be a severe contraction in the availability of trade credit from suppliers, which amounts to tens of billions of dollars.

And as surely as day leads to night, bankruptcy proceedings would be followed by liquidation. In a flash, the American carmaking business, representing about 10 percent of the nation’s retail sales, would begin to disappear.

For those concerned about the potential price of a federal bailout for Detroit  and I’m one of them  the reality is that this cost would be dwarfed by the long-term spillover costs of bankruptcy and liquidation. Nearly three million jobs would be lost in the first year if all three car companies closed and their suppliers absorbed the shock, according to the Center for Automotive Research. That would mean tens of billions of dollars in pension liabilities would be transferred to the Pension Benefit Guaranty Corporation, the federal insurance fund that protects the pensions of nearly 44 million American workers but already has a $10.7 billion deficit.

We’d also see an influx of Americans who have lost their health insurance onto the rolls of Medicare and Medicaid, costing billions of dollars more. And the budgets of the so-called “auto states,” mainly in the Midwest, that depend heavily on the domestic car manufacturing industry would be wrecked, and that would likely lead to both higher taxes and depressed economic growth.

Bankruptcy would also deliver a painful shock to the country’s already damaged financial system, which draws significant revenue from, and has significant credit exposure to, auto loans. For the past decade, an average of roughly eight million vehicles made by General Motors, Ford and Chrysler have been sold annually. That translates into about $190 billion in auto financing each year. Given that the average life of an auto loan is two years, an estimated $350 billion to $400 billion worth of exposure is thrashing around our financial system. And the value of this paper would drop along with the value of the cars.