If We Bail out Citicorp, Why Not Bail Out GM, Too?

We need to consider what the ramifications would be to the economy if GM were to collapse.

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By Bonnie Erbe, Thomas Jefferson Street blog.

It will be years before we know whether government bailouts of financial and other institutions were a good idea or not. My Thomas Jefferson Street colleague Michael Barone has some crackling commentary on the topic.

While we're in the midst of bailing out the planet (or so it seems) one question comes to mind. If Citicorp, why not GM? Congress will hear from the big three automakers this coming Tuesday on whether to bail out the auto giants and their executives, meanwhile are devising a business plan to explain to members of the House and Senate how taxpayers' dollars will keep the companies, including GM, alive. But if the U.S. government is going to bail out Citicorp, the once-largest bank in the country, why not do the same for GM, the once-largest automaker in the world?

Former Labor Secretary Robert Reich has some riveting thoughts on the topic. In a commentary for Marketplace he notes Citicorp has lost a huge chunk of market valuation, which hurts the company's executives, shareholders and creditors. But if it went into Chapter 11, mutual fund shareholders and people holding Citicorp CDs would have their assets protected. If GM tanks, on the other hand:

...General Motors has a far greater impact on jobs and communities than Citigroup. Add parts suppliers and their employees, and the number of middle-class and blue-collar jobs dependent on GM is many multiples of Citi. And the potential social cost of GM's demise, or even major shrinkage, is much larger—including entire communities whose infrastructure and housing may become nearly worthless.

As we have heard by now, the ramifications through the U.S. economy would be massive if GM were to collapse. Jobs—high-paying factory jobs—would leave our now service-oriented economy never to return to the United States. Job losses, with parts suppliers and other subcontractors included, would number more than 2 million. Those jobs would be resurrected in developing nations where labor is much cheaper. Why help other countries to feast on the carcass of our once-strong manufacturing sector?

Next: If we bail out GM, how do we do it?

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