The Gm Bailout

Topics: Economics, Federal government of the United States, Adam Smith Pages: 9 (3153 words) Published: January 4, 2013
Table of Contents

2.The Phenomenon3
3.The theories / the literature6
3.1 Different economic theories6
3.2 How would Locke, Smith and Marx evaluate the various events in this case?7
4.The Reality8

1. Introduction

The moon is an orbital albino, and it gets tons of sunlight, so I propose Operation Sunscreen, where astronauts coat the surface of the moon with a protective layer of sunscreen. If you care about albinos and the environment, you’ll see this is a good idea. And hey, it’s a better use of taxpayer funds than bailing out private banks.
 ― Jarod Kintz 

Bailing out people who made ill-advised mortgages makes no more sense that bailing out people who lost their life savings in Las Vegas casinos.”  ― Thomas Sowell
Those two, rather cynical, quotes on bail outs reflect how most American economists think of those. It’s not a bail out from prison they mean, it is the consciously directed spending of tax money to save a company that is about to go bankrupt because of reasons as bad governance or economic-misplaning. It is easy to judge, it always was, but how ethical is the judgment? How ethical is the action itself? What moral right and justification does a company have to ask for money from the Government? And how should the Government reply? We would like to discuss this issue in the following case – at the Example of the Bail out of General Motors by the US Government.

2. The Phenomenon

A bailout is a colloquial pejorative term for giving a loan to a company or country which faces serious financial difficulty or bankruptcy. It may also be used to allow a failing entity to fail gracefully without spreading contagion. A bailout could be done for mere profit, as when a predatory investor resurrects a floundering company by buying its shares at fire-sale prices, for social improvement, as when, a wealthy philanthropist reinvents an unprofitable fast food company into a non-profit food distribution network. The bailout of a company might be seen as a necessity in order to prevent greater, socioeconomic failures. Bankruptcy is a legal status of an insolvent person or an organisation, that is, one who cannot repay the debts they owe to creditors. In most jurisdictions bankruptcy is imposed by a court order, often initiated by the debtor. It is not the only legal status that an insolvent person or organisation may have. The principal focus of modern insolvency legislation and business debt restructuring practices no longer rests on the elimination of insolvent entities but on the remodelling of the financial and organisational structure of debtors experiencing financial distress so as to permit the rehabilitation and continuation of their business. It is important to assess the underlying problems and to minimise the risk of financial distress to re-occur. Financial crisis of 2007 / 2008

The financial crisis of 2007–2008 is considered by many economists to be the worst financial crisis since the Great Depression of the 1930s. It resulted in the threat of total collapse of large financial institutions, the bailout of banks by national governments, and downturns in stock markets around the world. In many areas, the housing market also suffered, resulting in evictions, foreclosures and prolonged unemployment. The crisis played a significant role in the failure of key businesses, declines in consumer wealth estimated in trillions of US dollars, and a downturn in economic activity leading to the 2008–2012 global recession and contributing to the European sovereign-debt crisis. The active phase of the crisis, which manifested as a liquidity crisis, can be dated from August 7, 2007 when BNP Paribas terminated withdrawals from three hedge funds citing "a complete evaporation of liquidity". The recent market instability was caused by many factors, chief among them a dramatic change in the ability to create new lines of credit, which dried up...
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