General Motors: The Bailout In The End Of Detroit

In late 2008, General Motors was in financial distress due to some major financial liabilities. These included

The government stepped in and bailed out the banks for making poor decision and providing home loans to individuals who could not afford those loans. The government also bailed out large vehicle business like Ford and Chrysler that would not change their business modern to keep up with foreign vehicle companies that could produce low efficiency vehicle at a lower price. America had outsourced most of the manufacturing jobs and we no longer had the ability to fully employ our own workforce. Businesses could operate in foreign counties and make a profit. The hard-working American workers were pushed aside, because the company could make more profit by operating overseas and utilizing foreign

On December 18th 2014 the auto industry bailout ordeal came to a close when the US Treasury Department sold the last of its stock in General Motors, for 19 billion dollars, in the end recouping about 39 billion out of 50.1 billion that was pumped into the Big Three automakers at the tail end of 2008 by the Bush and Obama administrations (Muller). The big question that comes up in the end of this ordeal by many people on both sides of the party line is that, was all this worth it? What would have happened if we didn’t bail out the automotive industry?

Government help was seen as the only way to avoid a total economic collapse in the United States, although many thought it could result in a worldwide economic recession. On September 18, 2008 the 700 dollar bailout plan was proposed to congress. Fed Chairman Ben Bernake is quoted telling congress, “If we don’t do this, we may not have an economy on Monday” (The Housing Market Crash of 2007, 2011). This is when it became apparent that the government had a stake in this situation. When people begin questioning whether the United States economy will still exist, the government then has a huge role in the survival of not just the economy, but the entire country. The government is in a situation where it must decide how to protect the American economy, the citizens, the businesses, and the future of the United States of America. On October 3, 2008 congress passed “Emergency Economic Stablization Act” (H.R. 1424- 110th Congress, 2008) which led to the lending of 700 billion dollars’ to

In the United States there has been times of economic hardships for Americans. One of those hard times was during the Great Depression. This place in history was when agriculture, the banking system and our nation’s purchasing power was in turmoil. For many farmers droughts had taken a toll. Their farms were turned in large dust bowls and growing crops was almost impossible. The banking system was very volatile because of bad investments. Many of the banking institutions had invested a lot of money in the stock market and loaned businesses money in which they invested into the stock market. The stock market crashed on Black Tuesday in 1929. Billions of dollars were lost on this day. The conditions of the Great Depression called for some new

In 2007, the U.S. economy experienced one of the greatest downturns since the Depression era, and furthered by the collapse on a global scale. The bubble burst on the housing market and the house of cards called the mortgage industry tumbled down, no longer able to sustain charade of success. This caused the collapse of some of the largest financial institutions, once thought to be immortal. This rippled into a massive tightening of the belts of many companies, as they found themselves without lines of credit, lack of business, and the daisy-chain collapse of their support networks. Who paid the final price? Companies cut costs through pay cuts, layoffs, and closings. While this may have saved jobs for many, the feeling of loss and

The Great Recession inflicted abundant harm in the U.S. and global economy; 8.7 million jobs vanished (Center on Budget), 9.3 million Americans lost their homes (Kusisto), and the U.S. GDP fell below what the economy was capable to produce (Center on Budget). The financial crisis was unforeseen by millions and few predicted that the market would enter a recession. Due to the impact that the recession had, several studies have been conducted in order to determine what caused the recession and if it could have been prevented. Government intervention played a key role in the crisis by providing the bailout money that saved those “Too Big to Fail” institutions. Due to the amount of money invested in the bailout and the damage that the financial crisis had on the U.S. population, “Too Big to Fail Banks”, and financial regulation are two of the biggest focuses of the presidential candidates. Politicians might assure voters that change will occur, but is it to late for change to be efficient, are the financial institutions making the same mistakes that led to the financial crisis?

The refusal of the bailout is sure to end with huge job losses. The automakers are likely to go bankrupt if they do not get the bailout. Millions of Americans are going to be affected. Not only the auto workers will suffer retrenchment, but people who sell cars and car dealerships are going to feel the impact. People who work in companies providing automakers with car parts are also going to suffer.

The government decided to take an equity stake at GM and thus was facing the possibility that a substantial amount of these funds would never be repaid. The government has already written off or realized losses of over $7 billion as of April 2012[2]. More losses will come as the government sells its remaining stake in GM and Ally Financial. The Congressional Budget Office estimates that the auto bailout will ultimately cost taxpayers a total of about $20 billion[3]. The Treasury Department is even more pessimistic, projecting that, at GM’s current stock price, taxpayers will lose $23 billion[4].

In the latter part of 2008, the United States’ economy was rapidly plummeting - the stock market crashed, the housing bubble burst and gas prices skyrocketed. The majority of U.S. based firms faced the reality that they would not be able to survive during such desperate economic times. The U.S. automobile industry, in particular, began to buckle under the depressed economy. The government stepped in proposing a multi-billion dollar bailout to stimulate the economy and restore economic balance. The possibility of this unprecedented government intervention was condemned by many economists. If the government helped the ailing automotive industry, this industry would have to tighten their expenditures and plan for the future to prove to

There is little argument among national policymakers that the American economy was severely horsewhipped by the Great Recession of 2008, and that the country has only recently recovered sufficiently for economists to breathe a sigh of relief that the corner has been turned. Likewise, there is virtually no argument among national policymakers that a healthy maritime industry is also an essential component of the American economy. Finally, there is significant historic precedent. The U.S. government has "bailed out" other industries and sectors in the past that were viewed as being "too large to fail" because of the potential adverse impact on the American economy. For instance, in his editorial, "Rebuilding America and Creating Jobs - A Jones Act Initiative," Munoz (2011) writes, "After bailing out the auto industry with $25 billion in loans and guarantees, the government turned around and provided another $25 billion for the industry to retool its plants to compete on world markets. The experiment succeeded, and American cars and trucks are now among the best in the world" (2).

In my opinion, I think the central bank should not be involved in bail outs. Yes they should try to fix recession, but not bail out banks because that is not fair that many Americans had to suffer for banks irresponsibility. With the central bank bailing these banks out is like slap on the hand and a slap on the hand does not do much, meaning those irresponsible actions will repeat itself again. In this case it did because “there was at least 4 bails out for AIG and CITI group two times” (video) that is not really fixing the recession but actually trying to keep those businesses up. Like why was it that they didn’t have money to keep the other bank open, but instead loan money to keep AGI and the banks that were involved in the housing

The moral hazard of bank bailouts is a very simple idea enveloped in a very complex issue. Back in late 2007 to mid-2009 the United States and the global economy faced one of the worst recessions the world has ever seen. In fact the time period has been dubbed the Great Recession. Now at a broad level this recession was caused essentially by our large banks buying and positively rating thousands upon thousands of mortgage backed securities and collateralized debt obligations. In addition, the banks started getting to a point where they were leveraged sometimes in excess of 30 to 1. The Federal Reserve initially recommended banks try to stay around 10 to 1.(d) When the mortgages started to foreclose the value of those securities plummeted and the banks started to lose solvency. With the issue of possible banks going into bankruptcy the government of course got involved. Instead of letting the banks fail, taxpayers instead bought up many of those toxic securities along with toxic bank stock and set the banks free without so much as a slap on the wrist. This is what many have come to consider a moral hazard. It is hard to tell if our actions really even helped as the economy didn’t start getting to back to normal until around 2012.

The decision to bail out these companies was a controversial one, and much of the spotlight was focused on the then President Obama. Many criticized his support of these companies, and felt that loaning them money only led to negative economic outcomes. The Big Three used the opportunity they had been given to make a number of profitable changes to their companies. Not only did they idle factories across the nation that weren’t producing efficiently, they also greatly reduced the number of employees that required a payroll every month. Slowly but surely, the automotive industry began to recover.

Forwarded here with a term paper report on “General Motors Bankruptcy” submitted by Siddharth Dixit Enrollment No A7004611108 student of