Corporate Bailout And The Law Essay

1487 words - 6 pages

The climax of the 2008-2009 financial crises, the largest ever since the Great Depression of the 1930s, witnessed the near collapse of multibillion-dollar industries in the United States. Concerns over the economic impact of the possible collapse of these industries compelled the then administration and Members of Congress to seek legislative options to salvage them. Consequently, two of the industry biggest players in the auto industries, General Motors and Chrysler, were offered financial support by the government and in return, shareholders and other stakeholders had to make necessary sacrifices in order to fundamentally restructure their businesses and commit to the tough decision of ...view middle of the document...

For instance, in 1816, the government initiated the protection of the sugar industry against market forces (Bovard, p.71).
Despite the fact that taxpayers stand a chance of losing close to $14 billion in the bailout of GM and Chrysler, supporters of the bailout, mostly the pro-Obama’s government, argue that it still should be seen as a success. According to an analysis released by the Centre for Automotive Research (CAR) on December 9, 2013, the auto industry bailout generated an 8 to 1 savings. This means that for every dollar spent by the taxpayers, there was a return of close to eight dollars in savings. The reason for terming the bailout as a success is that it was successful in averting a wave of massive Chapter 11 filings that could have led to the wipe out of at least $280 billion in household income and a further $105 billion drained from the federal coffers as a result of a hike in demand for services like unemployment insurance (McAlinden and Menk, p.13). According to McAlinden and Menk, the authors of the research memo, the intervention of the government should be viewed as one of the most successful ones in the economic history of the United States (McAlinden and Menk, p.12).
Basing on the economic modelling presented in the research memo, minus the bailout, it is clear that GM and Chrysler would have closed their operations permanently come January 2009. The consequences would have been catastrophic, as it would have meant that almost 600,000 retirees from the two companies would have seen a delay, a reduction in their pensions, and or a cancellation of their health benefits. Furthermore, many supporters of corporate bailout have stuck to the argument that the loss of such big companies would have led to an effect similar to the Lehman Brothers’ Effect in the industrial sector. This would have meant that the world’s largest economy would have been forced to operate minus an industrial safety net with the exception of the financial sector (McAlinden and Menk, p.13).
On the other hand, opponents of the corporate bailouts find it a little bit galling for the current administration to consider the bailouts as success. They consider the move to be utilitarian and one that has opened the possibility for future governments to whitewash the unauthorized diversion of Troubled Assets Relief Program (TARP) funds for the purposes of redistributing claims against the assets of the largest companies from shareholders and creditors to pensioners. They hold a strong opinion that such tactics are questionable as they endeavour to bully investors into accepting government terms that only seek to facilitate politically motivated outcomes (Ikenson, p.1).

Besides, what would have happened if there were no corporate bailouts? One major criticism directed towards those who advocate for bailout is that they are blind to the future economic impacts of such bailouts. They accuse the bailout supporters of limiting their arguments on the jobs that...

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