| GM/Chrysler Bailout Saves over 1 million jobs
The facts regarding the Auto Bailouts are clear and positive. The Wall Street Journal has reported
industry experts at the Center for Automotive Research in Ann Arbor, Michigan, (CAR) as finding the Auto Bailout "appears to be a win for Americans" and "was clearly a very successful policy intervention at a critical time."
Indeed, has estimated the bailouts saved over 1.4 million jobs over 2 years, prevented over an additional $97 Billion in downstream lost income, saved GM and Chrysler from closure, and will allow the government to break even depending on future stock prices.
The government loaned Chrysler $12.5 Billion, of which $11.2 Billion was repaid. Chrysler recently reached a contract with the UAW and is hiring.
The government loaned GM $49.5 Billion, and currently owns 30% of the company. Since the GM IPO the value of that stock has been fallen and taxpayers are underwater $10-15 Billion depending on daily fluctuation, the fact is the GM's current product line is strong, quality is up, and long term forecasts for the company are good.
The result of the auto bailout, while not complete, clearly are a success.
AIG Set to Repay 100% of $182 Billion in Bailout Loans
According to contemporaneous accounts during the height of the financial crisis the Wall Street Journal reported, after attempting to obtain private financing to bailout AIG, and fearing the collapse of the worldwide insurance giant would cause a ripple effect that would bring down the entire worldwide banking and insurance sectors, the federal reserve took over AIG in what was described as a "hard bargain" that guaranteed both short term stability in the marketplace, and had significant safeguards for taxpayers. Initially, the taxpayer expenditure was $85 billion, but the final outlay totaled $182 Billion.
However, the cost was worth it, not only was the financial sector stabilized, but AIG has returned to profitability. Approximately a year ago AIG still owed $100 Billion to the federal government when the parties announced final plans for the taxpayers to receive 100% repayment , of all loan amounts.
These payments continued and as of May 2011,AIG's net debt to the fed had been reduced to $60 Billion with AIG paying interest and principal on time. " As of 2011, according to Forbes AIG is the 29th largest company in the world. Until all loans are paid off, to protect US Taxpayers, AIG remains majority owned by the US government.
Past Bailouts Worked and Were Bipartisan
Historically in US Mainstream Economic Theory, which until recently was embraced by both the GOP and Democrats, when an entire industry faced failure, and the cost of that failure was economically untenable, it was well recognized that the economic duty of government was to serve as a lender of last resort to save that industry and the jobs in it.
Accordingly, for decades the US government has bailed out entire industries when the industry was otherwise capable of returning to solvency, but was facing a crisis beyond the capability of Capital markets. Thus, although the amount of public support differed, past government bailouts have been both bipartisan and successful.
Chrysler Bailout - Saved an Industry; Loan Repaid; Taxpayers Profited
We have had the Chrysler Bailout, under Jimmy Carter in 1979, which saved a major American company, its suppliers, allowed it to return to profitability, and profited the national treasury $350 Million , when Chrysler paid back the loan in full.
To be clear, conservative think tanks suggested Chrysler should be allowed to fail, and that saving Chrysler feudalism. Even so, the legislation received bipartisan support.
The Savings and Loan Bailout - Saved an Industry - Prevented Market Collapse
The savings and loan bailout of 1989 under George H.W. Bush saved the financial sector and prevented the market collapse of the thrift industry and related effects in the entire financial sector.
Although the reasons and the lessons learned pdf] vary, the total costs to taxpayers was $124 Billion [pdf.
Unlike the Chrysler bailout, where the txpayer's made a profit, the benefit to taxpayer's from the S&L Bailout was that the contagion causing the failures of thrifts was contained and did not spread any further to the rest of the financial industry.
Airline Bailout of 2001
After the 9/11 attacks, the airline industry faced a severe crisis. Like his father's bailout of the Thrift Industry, the George W. Bush Administration offered a $15 Billion of the airline industry that was so successful, even the Wall Street Journal lauds it as an example of effective government intervention to save an industry.
At the end of the program, the airline sector had been saved, and the government had made loan profits of over $300 million.
CONCLUSION
The world is real, not nirvana. In the real world, we need police officers, judges, bank examiners, central banks, anti-trust laws, and yes, lenders of last resort.
Although we all wish Capitalism worked without the need of government bailouts, the historical and present fact is that sometimes bailouts are needed. When they are, government intervention in the form of financial bailouts, when performed with proper safeguards, and in a manner that takes into account market realities, have proven to be successful in saving industries, preserving millions of jobs, preventing market contagion or collapse, and often making taxpayers money in the process.
Although unpopular, Mainstream Capitalists should admit that, when necessary, and when done with proper safeguards, being the lender of last resort to prevent the collapse of major industries is a proper economic and moral duty of government in a modern world. |
