If General Motors had been allowed to fail, somebody would have acquired it at a bankruptcy sale. If it had been acquired by the Chinese, what would have been the difference, except they would have been using their own money?

The simple answer is “No.”

As a former employee of AIG, we must acknowledge that there are too many stakeholders involved in a large company’s survival than anything else. While we all hear much grumbling about the US Government coming in and bailing out big business as well as the inordinate stupidities that are conducted in the name of bonuses and profit sharing, it would bring too much chaos to allow those businesses to fail outright.

In the case of AIG, it was too much of a domino effect as it had its fingers in too many business pies to die without extreme ramifications. We must remember that AIG was the fifth largest firm in the world and underwrote a large portion of business that are still solvent. It is impossible to run any business without some kind of insurance. AIG, being the largest player, would have taken too many people down with them. Let alone the strain this country would have endured when thousands of unemployed professionals claimed UI benefits – with that much less in consumers buying goods and services.

The AIG / US Government deal involved a 2 to 3 year loan which had a high interest rate attached to it. Upon its payback the taxpayers would be the ones who would benefit.

In GM’s case, I think it was a little different. The successful brokering of a deal with GM and the US Government should have had a stipulation regarding executive pension plans. It is well documented that the pension reserves would have covered all employees not working at an executive level. There should be a cut off point and a option to contribute to a 401K matching program.

We should also remember, given the problems of global warming and fuel efficiency standards that the US is one of the worst offenders. The US Government’s indirect involvement, we may be able to “request” the design of more fuel efficient greener technologies for future car models. That’s opportunity.

But I digress.

GM employs a total of 207,000 employees worldwide. 103,000 are North America alone. That’s a lot of people out on the street – unemployed and not buying things. When we also look at the amount of raw materials GM purchases to make cars and trucks as well as industries that support those, that makes a crisis for those companies.

What about the banks as well? Should they have been bailed out. I don’t think they should have. I work for a small company. Sales are low. I did not get a raise or bonus last year. Maybe we can get a bailout?

NO. Same answer. There were (and still are) plenty of stable banks (both U.S. and foreign) who would have acquired the troubled banks. Remember the “good old days” when the people who caused the banks to fail would jump out the windows or throw themselves in front of trains? Now, we give them “bail-outs.”

Yes.
The USA (and the UK) government should only save banks and insurance companies.
Everybody else should just drop dead, for this or that reason it is better not to have them around – noise, polution, unions, people, ….

I’ve heard and read a lot of commentary about the bail out of the auto and finance industries. Most of us agree that these industries, in reality, should’ve been allowed to fail. However, these same people don’t have clue of the devastating impact these failures would have the U.S. economy.

My grandfather was a young man during the great depression and my father grew to adulthood during this period in our history. Only World War II stopped the great depression. From the stories I’ve heard from these two men, you don’t want to live through a time like that again. If these industries had been allowed to fail, the impact to this country would have made the great depression seem like a cake. Before you criticism the bailout, do some in depth research about the great depression and then decide if you’re willing to put your families through an economic upheaval like that.

My parents did an excellent job of informing me of how difficult the depression made their lives. My mother lived under a porch for a short period of time, when my grandmother had no work and they had no place to live. My father’s father shot squirrel so that there would be meat on the table.

My question on these bailouts is where did the money come from? We already have a huge national debt, they effectively printed money to save these banks. Who is going to face the burden of this new debt? Our children. No I think the bailout has setup a worse disaster that is looming on the horizon when all of this debt comes due. Someone will have to pay the piper.

Ronnie: That is only partially true. The economy was already pulling out of the Depression, when FDR started all of his “big government” programs, and stalled the recovery. After that, World War II ended the Depression.

Similarly, the government interference is only delaying the inevitable, sort of like re-arranging the deck chairs on the Titanic.

My maternal grandfather taught his two sons to hunt and fish, and that helped them during the Depression. My mother grew up eating squirrel and rabit, among other things (I had squirrel cacciatore once, not bad).

The answer is: Your children will not pay this off, maybe not even your grandchildren. My sister’s kids will probably end up paying 80% of their earnings in taxes (if they can ever find a job).

This is going to get a lot worse before it gets better,

Expect another major market “adjustment” before October.

OBAMA SHOULD NEVER, NEVER GIVEN OUR MONEY TO THEM!!!

Absolutley. It’s a slippery slope when government gets entangled in the affairs of a corporation. a) they aren’t capable as evidenced by everything BIG governement breaks, b) they make decisions based on political advantage, and c) it is un-American.

Wendy,

The banks can not fail?
Why the governments (many) bailed only banks using the ‘good old USSR way’?

It looks like the banks are governing our governments?

May be our governments are not so BIG, but puppets who look at their Bberrys for the instructions?

The question asserts the presupposition that the U.S. Government could allow General Motors to fail – I feel that corporations fail if they get to the point where they need a bailout.

The corporation has failed, bailout notwithstanding.

In my view, a useful question might be – How has U.S. Government policy been a causative factor in General Motors failure?

As a business owner you should have a hard time with a bailout. Especially if it’s not going to be applied across the board and equally to everybody! However, egregious situations occur that aren’t always black and white or cut and dry. Sometimes you have to WEIGH and make a decision based on choosing between a HEAVY BURDEN that tipped the balances of equality and the WEIGHTIER MATTER where – in an ideal world the scales would always be balanced. The “weightier matter” might have been hoping that the bailout would help the company employees – the lowly workers, not the CEO – as far as keeping a job and supporting their families. I suspect or would like to believe that the bailout was based on a “noble good intention” in the hope that the fruits it yielded would be for the good of all the people. One thing’s for sure. I sure wouldn’t want to be the President of the United States right now!

Are you expecting the government to provide a way to assist you out of the recession? You had better not wait as the only thing you’ll get is old. I’ve gone as much as 5 years without a raise and never got a bonus. I also know a lot of people that went through that with me. At various times in the 70s, 60s and 90s we have gone through milder versions of what we are experiencing now.
The only one that cares if you make it is you.

I had made suggestions to construction companies and large firms to create their own way out. If you see a neglected building which could be used for housing, manufacturing or retail space do the work to locate the owner(s) and talk to them. Get the people together that can have the ability and resources to undertake the project. I also told them that it would take a lot of work and there is a good chance they will not end up being compensated to the level they feel they should.

I’d rather do something for nothing than to do nothing at all.

If GM goes down so does the rest of the region, country and it will have global ramifications that we can’t imagine at this time. Its not just GM that would fail, it would be the suppliers and that includes tier 1 – 6 level suppliers. It would also ruin all of the small shops, diners and various vendors that support the area.

Under no circumstance should GM be allowed to fail. I will be in line for the IPO in hopes that a great company will emerge from this difficult time and come back a re-invented firm that can help this country get back in its feet.

Entrepreneurs do not have the bandwidth to grow the economy at a scale that a GM can. The entrepreneur are the idea generators that help grow the mega organization grow our economy.

One can make a case for either position, although I suspect that the Government’s prediction that a failed GM would have devasted the country was intentionally overstated. And when you consider that the bankruptcy laws were turned upside down, that creditors were ignored in order to favor the UAW, and that shareholders got nothing, I believe the more convincing argument is that GM should have been allowed to fail. The fallout would have been ugly for sure but in the long run, perhaps as many jobs would have been created over time by allowing successful companies to pick over the bones rather than by the current ownership, a Government who has a wonderful record of mismanagement and of looking to the taxpayers, particularly future taxpayers, to clean up the mess it creates. What to do about it? Buy a Ford……………………………….. and try to come up with a way to get Federal aid for the Detroit Lions. Now that I could live with.

Yes. Tax money is suppose to be spent for the public good, not for private interests. For every GM job saved how many jobs could have be created if that capitol had been availible to startups?

what Steve said….

Well it seems that the government has selected winners and losers in this entire situation. Dealers losing their franchises to other dealers without proper compensation. I don’t know what the perfect answer is but as a small business person it is rough out there getting loans. I would love to open another business but I’ve had a difficult time getting financing and I have an excellent track record. I also have had friends in small businesses that were in business over 20 years have their credit line yanked from them and have had to close even though they were profitable and paid back their prior loans timely.

Where’s the bailout for we former shareholders? As a long past employee, I had money deducted to buy shares to show my faith in the company. Subsequently, due to greed and rampant mismanagement by board after board and CEO after CEO, it all caved in like a house of cards. It didn’t deserve another chance. We shareholders had to then again pay out of our tax money – adding insult to injury!

Our Governor Jennifer Granholm was on MEET THE PRESS today extolling the virtues of government working with the private sector to support and grow the new industries of the future. And saying that other countries work with there private companies to develop and strategically go after manufacturing and other sectors that make a difference. While I too have second thoughts about the bailout, GM and Chrysler both have a chance after the ‘new and improved’ – gov’t version of filing for bankruptcy. It is possible that those of us in Michigan may have seen out home prices suffer EVEN MORE had
the feds not bailed out GM, and Chrysler (with the help of FIAT) and more people would be looking to leave the state to find jobs elsewhere. I only hope that our next Gov…
Snyder has some answers on how to grow businesses and jobs in Michigan. I also
agree with Chris… buy a Ford, or at least something assembled here in the states!

Over the long term, I believe U.S. economy would be better off had organizations like GM and AIG not been bailed out. Despite many “experts” opinions, the reality is that no one really knows exactly what would have happened if GM and other organizations like AIG were allowed to fail. Have we not set the precedence that the government will bail out organizations if it is believed that enough people will have a short period of suffering?

Dan, I hear your argument, but you have to think about the effects that GM failing and having to shut its doors. Not just from the perspective of GM, but the suppliers of GM. The trickle down effect of a GM shutting down would have been tremendous. If GM would have been the only organization effected by its not being bailed out, I would agree, but you have to remember all the suppliers to GM. Granted they are getting squeezed by GM, but they are still in business. Imagine the engine valve producers, the airbag manufacturer, the door handle producer, etc. Then imagine all those organizations (that may not be multi-billion dollar organizations), but organizations big enough to win the account with GM, big enough to be traded on stock exchanges, big enough to need and internal audit or SOX compliance requirement, but utilizes an outside firm to keep them compliant. No GM, the trickle down might end up with them having to shut its doors thus not continueing to be a revenue source for a consulting firm helping them to stay compliant. Then you have to consider the timing of when this occurred. During what many consider to be the worst recession since the “Great Depression”. Imagine that fall-out.

AIG’s issues were self inflicted by greed. Making all the bad loans to people who had no means of paying it back was bad business. For that I don’t believe they should have been bailed out. Look at the tongue lashing GM got from the government for its situation while all the financial firms got was more money. Who had their pockets lined for that? What business person in their right mind would loan someone $300k and not verifying income is ridiculous. Organizations like that are the reason small business people can’t get loans today. I believe that we as a country have lost one of its most important assets in business and that is common sense.

In the short to mid term, yes there would be significant fallout if those organizations were allowed to fail. However, the social costs of handoutouts being expected will last for over a generation. Ten years from now, there will be many a PHD thesis on this point.

David, you need to study U.S. history a little more. During his first hundred days in office, FDR launched major legislation and many executive orders that became known as the New Deal. The New Deal was a set of programs designed to produce relief for the unemployed, economic recovery and financial reforms. The economy improved rapidly until 1937, but then went into a deep recession. A Conservative Coalition that formed in 1937 prevented the passing of much needed legislation. That’s why the recovery stalled.

I don’t like this huge national debt any more you. But, I’m not willing to subject our country to 12, 15 or more years with a depressed economy and 3 to 4 times the current unemployment rate. And, I believe that is just what would’ve happened without the bailout.

As far as your sister’s kids probably paying up to 80% in taxes, the key word there is probably. It’s just an opinion. In my opinion, we’ll never see an 80% taxation rate in this country. But, I could be wrong.

One problem I see with the debate over the current issues impacting our country is the emotional charge. I’m a data driven person. I let the facts direct me to the conclusion. Many people are coming to a conclusion and then, choosing data that support their argument while ignoring data that doesn’t. Then again, we can all agree and disagree over what the data means. But, it does lead to some interesting discussions.

There is no one thing that causes a business to fail or lose revenue. All I know about AIG and other financial that were hit hard in 08 & 09 is they were more concerned about making their bottom line look good than having the overall business maintain a strong business plan. If memory serves me correct this was predicted as far back as 2001 saying that the lending process going on was filled with danger because the loans they were making were not secured. I’m an HR guy not a financial wiz but I do know that common sense and long term planning wins out every time in the long run.

@Steve Do you think that the sole reason for AIG’s meltdown was poorly serviced bad loans? I think that there may have been other contributing factors e.g. sarbox mark-to-market and asset ratios. Always open to discussion. I am curious as to which for profit companies are not driven by greed? I only pointed out AIG because Ren was having such a hard time with GM – A manufacturing company rather than AIG, a finance company

I think that Steve has provided good arguments about abuse of the system.
I’m not a financial expert; however, I don’t think that there has to be a
complete restructuring of the U.S. financial system as some in government
would like us to believe. It might be better to actually enforce the laws
that are in place, and then address problems that are found along the way.
From what I understand from previous readings, and again I’m not a financial
expert, but it appears that a number of government agencies were not doing
there jobs properly, and probably still are not doing it.

I actually watched clips of Congress, not mentioning people’s names but
one brings to mind a certain purple dinosaur, arguing against stopping loans
like NINJA(No Income No Job or Assets) loans, because financial companies were
making money and people were able to buy homes. But, at what cost? The argument
was stated that these finance companies would not be able to producing creative
ways of providing people loans, who would normally not be able to receive them.
In the end, I think that there is a difference with being given the room to be
creative in comparison to just creating scams in order to make large amounts
of money.

I think that as Chris said there were other factors, and I would agree with him…
especially when companies are able to operate as they did in relation within the
mortgage loan industry. Don’t you think that it would spill over into others?
What will be the next “creative way” to prosperity…trading carbon credits?
Who knows.

Yes, it should have been allowed to fail on it’s own. The sad thing is that the government take-over did not in fact stop GM from entering bankruptcy. All it did was change the ownership of the company from bond holders (who got royally shafted) to the government and to the unions.

This kind of soft fascism corrupts the free market and blurs the true value of a company. It’s things like this that have many in business scared of what the government will do next.

But, that’s just my opinion.

The fact is that the federal government does not have to maintain federal government mandated debt to equity ratio’s and can hold on to investments to fruition. The GM and Chrysler bailouts (as well as the other 98% of the “bailouts”) will make money for the investors. The investors being the US Government. This is bitter pill for many small business owners, but good economic sense when viewed pragmatically. This opinion is from a true supporter of Laissez-faire economics. I rationalize this dichotomy this by thinking “hey the government is making a profit”.

Economically Conflicted in Detroit

Those that feel GM and Chrysler should have been allowed to fail must also feel that the financial / banking systems should have been allowed to collapse so that entrepreneurs could take over?

Maybe you’re having a hard time with it, Ren; but I doubt that the thousands of “intrapreneurs” whose jobs were saved at GM while they transformed the company back to profitability feel the way you do about it. Incidentally, repayment of the stimulus loan made by the federal government to GM is ahead of schedule.

Hi Sandy. Repayment would be nice but I googled the initial publicity generated by the Govt and GM when they first announced GM was repaying the bail out money early. First the payment was only a small portion of the total funds given to GM. Second and more disturbing, the repayment was apparently being made with more governyment money. If accurate, then the taxpayers were repaying themselves with taxpayer money and GM was getting the credit. Which leads me to question: Who would I trust more, a spokesman for GM and the Govt or the con man at the carnival who tells me I can’t miss winning the Cupie doll? Chris

No way. If GM had gone under and failed thousands and thounds of workers would have been out of job across theUnited States. There isn’t one state thanGM doesn’t have a presence.

Amen to Mike Morrison!

Chris, you are correct in that GM’s first bailout payment of $6B was made with bailout funds! Then they had the gall to celebrate and pat themselves on the back for being such good corporate citizens and waste more of our tax dollars repeatedly boasting in TV ads. Bottom line, the company did not deserve to be saved. They had chance after chance over the past several decades to save themselves but GM, Chrysler and the UAW decided to continue being greedy and unreasonable right up to the end. They couldn’t even create a solid business plan like Ford when required by Congress. Both companies are a joke. Likewise, the financial institutions that exercised poor judgment and greed should have had to save themselves.

We taxpayers have been asked (forced) to pay the bill for all this. I for one am tired of it. Shame on anyone who is selfish enough to vote “yes” for these actions just to save your job or contract at the jeopardy of our entire nation’s welfare.

Terry… with that logic we should have let the banks fail and take us down to a 3rd world nation so we can get it right the next time? Manufacturing is not just jobs… which are important… it’s strategic unless you one day want to also buy our nukes from China because it’s cheaper?

Some facts on the GM loans/investments: The bailout included just $6.7B in actual loans from Canada and US combined. Those loans have been paid off. The remaining $41B was provided for an equity stake and at least half of that will be repaid with the pending IPO. Yes, the initial $6.7B was largely paid out of cash from the $41B, but the key is that they could have kept that $6.7B for another 2 years but did not need to do that. The cost to the economy if they had be let to fail (unemployment and loss of taxes for the 270,000 GM employees and the other 500,000 employees that depend on GM, etc.) would have been approximately $92B. Not a bad gamble.

Boy – this topic has gotten some attention……….which is good. What leaves a bad taste in my mouth is that a centerpiece of the bailout was to give the shaft to the shareholders and the creditors and to favor the union. No one has bothered to calculate or publicize the monetary loss to those two groups. So the decisions were not all economic. Politics, as always, rears its ugly head.

In case everyone didn’t notice, the government did not save GM. They went through bankruptcy anyway! The only difference is that Obama and the Democrats were able to keep the campaign coffers flush with union money for the next campaign. They transfer our tax money to the union and then the union gives it back to Democrats through campaign contributions. What a deal!