The Government Bailout Saved the Automobile Industry Essays

Detroit, Michigan grew up around the automobile industry. At its peak, Detroit was the fifth-largest city in the United States, becoming the home to over 1.8 million people by 1950 (Davey, Monica 2013). The prolific population was due greatly to the success of the auto industry in the city. At that time, Detroit was flying high, its name coined “The Motor City” (americaslibrary.gov), and automobiles greatly impacted commercialization. From transporting goods to hastening production, to selling parts, to manufacturing and selling new automobiles, the auto industry completely transformed Detroit. Things seemed

Our economy is a machine that is ran by humans. A machine can only be as good as the person who makes it. This makes our economy susceptible to human error. A couple years ago the United States faced one of the greatest financial crisis since the Great Depression, which was the Great Recession. The Great Recession was a severe economic downturn that occurred in 2008 following the burst of the housing market. The government tried passing bills to see if anything would help it from becoming another Great Depression. Trying to aid the government was the Federal Reserve. The Federal Reserve went through a couple strategies in order to help the economy recover. The Federal Reserve provided three major strategies to start moving the economy in a better direction. The first strategy was primarily focused on the central bank’s role of the lender of last resort. The second strategy was meant to provide provision of liquidity directly to borrowers and investors in key credit markets. The last strategy was for the Federal Reserve to expand its open market operations to support the credit markets still working, as well as trying to push long term interest rates down. Since time has passed on since the Great Recession it has been a long road. In this essay we will take a time to reflect on these strategies to see how they helped.

During 1997-2006, house prices rose 85 percent. This led to an irresponsible consumer spending spree. Millions of people bought a house that they could not afford. Government regulatory agencies and mortgage lenders became less strict with credit restrictions so that people could buy homes without making any down payment. In 2007, however, the home values and sales began to decline. Due to the loss of trillions of dollars in home value, a record number of borrowers defaulted on their mortgage payments. America was put into a recession in 2008 because of the contraction of corporate spending and consumer purchased. The prices of consumer goods spiked, while employment declined. On October 3, 2008, former President Bush signed the Troubled Asset Relief Program; however, the bill did not restore the economy as a whole. By June 2009, America's economic recovery was at its weakest since the end of the Second World War. I chose this event in history because it had a major effect on America’s economy and changed the course of history. Historians need to study the Great Recession because America should learn from their mistakes. The Great Recession was due to different factors; however, if the regulations on credit restrictions were not tampered with, then the severity of the recession could have been

“Today I face you and say the challenges are real. They are serious and many,” Obama stated on inauguration day. Obama need to pull things together with bold and quick actions. Yet it seemed that borrowing was the only answer to this out of control situation. And he did just that, taking hundred of billions to bail out the banks and other institutions; tens of billions more for the auto industry; $275 billion for homeowners and the mortgage lenders; and $787 billion stimulus package to jump-start an economy spiraling downward. Much like the Bush administration, Obama and his administration are borrowing just as much, added to the deficit. It is unclear what exactly the future will look like for America as the economy is spiraling downward and other countries are becoming stronger.

First, I want to give you a little background on the Financial Crisis of 2008/2009. The Financial Crisis began in December of 2007, and by the fall of 2008 the economy was in a huge downfall. This all began in August of 2007 because of defaults in the subprime mortgage market, which sent a shudder through the financial markets. The former chairman of the Federal Reserve described the crisis of 2008/2009 as a “once-in-a-century credit tsunami”. Many firms, including commercial banks, Wall Street firms, investment banks, all suffered significant losses and eventually went bankrupt. This caused households and smaller businesses to have to pay higher rates on the money that they borrowed. This downfall wasn’t just

In the midst of the current economic downturn, dubbed the “Great Recession”, it is natural to look for one, singular entity or person to blame. Managers of large banks, professional investors and federal regulators have all been named as potential creators of the recession, with varying degrees of guilt. No matter who is to blame, the fallout from the mistakes that were made that led to the current crisis is clear. According to the Bureau of Labor Statistics, the current unemployment rate is 9.7%, with 9.3 million Americans out of work (Bureau of Labor Statistics). Compared to a normal economic rate of two or three percent, it is clear that the decisions of one group of people have had a profound affect on the lives of millions of

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.

Under the Bush Administration, General Motors and Chrysler auto companies were stuck in a situation that had 2 options; get a loan, or file for bankruptcy and lose 3 million employees. Due to the carelessness of General Motors CEO’s and the failure to create a viable business plan were the reason why they must make this choice that could affect millions of people worldwide. General Motors and Chrysler went to President Bush to look for a loan where Bush then went to the Troubled Asset Relief Program, (TARP) to lend General Motors 9.4 billion and $4 billion to Chrysler. The loan of $13.4 billion (Ikenson) lasted long enough for General Motors and Chrysler to get the next future president convinced that they were worth funding. Although he admitted there was not a viable business plan, President Obama was convinced through the fear of traditional bankruptcy and he decided to help fund General Motors and Chrysler. The Obama Administration decided to have the taxpayers pay for 60% of General Motors and 10% of Chrysler. Obama told a group of General Motor workers, “Your survival and success of our economy depended on making sure that we got the U.S. auto industry back on its feet.” (Ikenson) The greatest concern of the auto bailout is the consequence that could affect people worldwide - “the undermining of the rule of law, the property confiscations, the politically driven decisions and the distortion of market signals” (Ikenson)

The financial crisis that happened during 2007-09 was considered the worst financial crisis in the world since the great depression in the 1930s. It leads to a series of banking failures and also prolonged recession, which have affected millions of Americans and paralyzed the whole financial system. Although it was happened a long time ago, the side effects are still having implications for the economy now. This has become an enormously common topic among economists, hence it plays an extremely important role in the economy. There are many questions that were asked about the financial crisis, one of the most common question that dragged attention was ’’How did the government (Federal Reserve) contributed to the financial crisis?’’

Blumberg, Alex, dir. “The Giant Pool of Money – Episode 355.” Dir. Davidson Adam, This American Life. NPR News: WBEZ,

During Reagan's administration, Continental Illinois, the 8th largest commercial bank at the time, was bailed out because there was a fear that if International bond holders saw a large bank failing, they would pull money out of all American bank. So, after Continental Illinois was bailed out, large banks started to become dependant on the government. They began to act riskier with investments because they knew the government would bail them out. During Bill Clinton’s presidency a similar situation occurred, further clearing the message that if you are a large bank and are about to fail, the government will take tax payer’s money to bail you out. Again, during Bush’s last year as president, because of a fear of a recession, Bush once again bailed out large banks. It is a continuous cycle that unnecessarily and negatively impacts everyday people. Government has now got itself trapped in a bubble where they will constantly bail out large banks due to the fear of a economic collapse, but each time the government bails out the banks, the potential crisis worsens. The government is not responsible for saving the banks, only our

In 2008, the US experienced the traumatic chaos of a financial downturn, whose effects rippled throughout Europe and Asia. Many economists consider it the worst crisis since the Great Depression, and its alarming results are still seen today, a long six years later. Truly, the recession’s daunting size and formidable wake have left no one untouched and can only beg the question: could it have been prevented? The causes are manifold, but can be found substantially rooted in illogical investments and greedy schemes.

Overall, the Canadian government’s bailout of these automobile manufacturers was a mistake. Not only is it illogical to financially reward a company that reacted poorly to economic uncertainty, it also creates an immense moral hazard. Since the rescue package has done very little to protect Canadian jobs and goes against public and expert opinions, it only seems to be benefitting the executives that created a need for the bailout in the first place. As a result, automobile manufacturers as well as other corporations will begin to believe that no matter how many bad

challenges, however, are the most difficult ones to face and overcome. Some environmental issues that

The financial crisis starting in 2008 and the following recession hit hard the US auto sector. Traditional car makers had to realise that substantial changes were needed in order to maintain their strong position in the