CNN Money has a story on the Big 3 auto firms and their request for $50 billion in low cost loans. They say, now Wall Street has been bailed out. Please bail us out too.
The Feds' rescue of AIG has the firm paying over 11% interest for a 2 year, $85 billion loan. The Federal Reserve gets a warrant for an 80% stake in the company - if/when they choose to exercise it, they get 80% of AIG just like that. Basically, the loan enables AIG to liquidate large portions of itself just like that. If AIG survives, the Federal Reserve - and US taxpayers - get most of the upside in the share price. This isn't a bailout. Shouldn't US taxpayers get the same deal for a loan to the Big 3?
Additionally, AIG liquidating itself in a controlled fashion is already causing a lot of damage. If AIG were to go under in an uncontrolled fashion, that would be disastrous. I've heard that compared to an extinction level event in the financial sector. Letting the Big 3 go under would be very bad for the state of Michigan, but the US as a whole would survive. And given their history of mismanagement and lobbying against better fuel economy, maybe the US would be better off in the long run.
Lastly, the US government already bailed Chrysler out once in 1979. The company was in financial distress. The government gave them a loan. Chrysler had been jealous of GM and Ford and their rapid expansion in international markets. Chrysler took a lot of risks in emulating them, only to get hit by a recession in the 1970s. Chrysler obviously didn't learn its lesson, and neither did GM and Ford. In fact, the Reagan administration had to restrict Japanese auto imports in the early 1980s.
David Leonhardt, writing for the New York Times, suggests that perhaps it's best not to bail the automakers out. I agree.
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