You Got to Be Kidding Me!

Update on GM “Too Big to Fail”

Posted in Economics, Politics by Stacy McMahon on August 22, 2008

Detroit’s Big Three (Ford, GM, Chrysler for those living cliffside) is now asking the Feds for a bailout.

Besides recievership (a government takeover) here are a couple ways the government can save a company from financial armageddon. The most common one is a “loan guarantee”. Basically, the government cosigns a (private) loan for the company – which costs nothing as long as the company pays back the loan. Then there’s a government loan, which costs a little more because it’s usually made with a lower interest rate than the open market would charge. Still, that kind of cost is on paper and doesn’t put taxpayers out of pocket unless the company defaults. Of course the thing to keep in mind with either scenario is that there’s a reason the company can’t get a loan from a bank.

Then there’s the proposed Big Three bailout (emphasis mine):

lobbyists for the car makers are taking their pitch for direct federal loans around Washington, with a goal of unveiling the plan after Labor Day — conveniently in the frenzy of the fall election campaign. They’ve briefed Congressman John Dingell, the dean of Michigan Democrats, as well as officials in the Bush White House… The plan is for the government to lend some $25 billion to auto makers in the first year at an interest rate of 4.5%, or about one-third what they’re currently paying to borrow. What’s more, the government would have the option of deferring any payment at all for up to five years.”



One Response

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  1. Clint said, on August 23, 2008 at 1:18 pm


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