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August 25th, 2008

Should the Gov. Bail Out Detroit Automakers?

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At least one person thinks so. Phil LeBeau of CNBC explains in his blog “Behind the Wheel” that if the “Big Three” — Ford, General Motors, and Chrysler — were to fold “the implications for the broader economy will be significant.” LeBeau goes on to make the point that the US auto industry “has perhaps the broadest impact on the economy of almost any industry.”

The resounding question that should be asked first is “What form would the ‘bailout’ take?” I use the term “bailout” loosely, since back in 1980 Chrysler received a $1 billion loan from the US government. Lee Iacocca and company paid back the loan in full, allowing the auto maker to get back on its feet with thousands of jobs intact — the US manufacturing wheels kept rolling:

(July 13, 1983) What saved Chrysler, we are told, are the 1.2 billion in loan guarantees provided by the federal government–so successful was the timely injection of cash that the company could announce today that it will pay off the remaining 800 million by September. And it didn’t cost the taxpayer a penny, did it, they ask gloatingly. Chrysler chairman Lee Iacocca, who came to Washington four years ago with begging bowl in hand, is now in the vanguard of the push for more government intervention in American industry.

Allow me to take off my rose colored glasses for a minute and ask “What, or how much, would the big three be asking for? And what guarantees could the companies provide that they could and would stay in business to pay back the loan?” Economics 101 teaches us that private companies should be allowed to fail, the very reason Fannie Mae and Freddie Mac became quasi-government entities — so they could never fail, they are too big to fail.

And there lies the deciding factor. Are the Big Three too big to fail? Will the effects from one, if not three, folded US automakers be devastating to the economy and the citizens as a whole? Discussion on this topic will be quite lively. Would a bailout once again save a struggling manufacturer, or are the government and its tax payers saving private companies who have made poor business decisions?

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4 Responses to “Should the Gov. Bail Out Detroit Automakers?”

  1. dan Says: September 18th, 2008 at 7:20 am

    Who cares if my company fails? Why should I be forced to bail those bastards out, any of them, AIG, Bear, FMAE, FMAC, GM, FORD or ANYONE? If I run a crappy business, provide an overpriced product that anyone can replicate and improve with amazing ease, then WHY should I be allowed to remain? Please, someone wake up and cease to support the hurts with what will ultimately be TRILLIONS of dollars of TAXPAYER money!!! Somehow, someway, we the people no longer view ourselves as the government and vice versa and we feel that a government bailout for the elite wealthy of America is the disassociated and unrelated Government. Remember, We The People ARE the government and We The People ARE paying the extremely wealthy and elite miniscule percentage of VENTURE CAPITALISTS for their stupidity and drunkeness during the all let’s get high times over the past 20 years! I say, we need another revolution and all america needs is a leader to step up and lead the revolt!! I share the whisperings of thousands that nobody dares state but we are simply looking for a leader to begin a MAJOR REVOLUTION AND MARCH ON WASHINGTON!!! We have had it with this lunacy.

  2. dan Says: September 18th, 2008 at 7:26 am

    BTW, I have learned a difficult lesson over and over again in my life. If you find yourself stuck in the bottom of a hole…STOP DIGGING!!!!

  3. Tim Manni Says: September 19th, 2008 at 3:27 pm

    Dan — We appreciate your comments, and thanks for reading! Unfortunately if you or I ran a business and it went under, we would no doubtetly be deemed “not big enough to fail.” These institutions that the government are bailing out have been deemed “too big to fail” — either too many jobs depend on them, or their demise could cripple our financial infrastructure. Yet, you’re right, these bailouts are at the expense of taxpayers, an unsettling scenario indeed. Capitalism combined with democracy creates a complicated playing field.

    Thanks for reading,
    Tim

  4. Eric Johnson Says: September 29th, 2008 at 1:58 pm

    Iacocca received government guarantees for loans, not direct loans from the government.

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Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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