Corporate Bailout and the Law

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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 returning the companies to financial viability. In fact, close to 700 companies, which also included companies in the banking sector, were bailed out by the government and the total amount of taxpayers’ money that is supposed to be spent on the bailouts is about $12.5 trillion (New York Times, 2011). So far, the U.S Treasury has spent at least $2.5 trillion (2011). In exchange, the government became the owner of significant shares in these companies.
However, this move by the U.S government has over the past attracted heated debates among ordinary citizens and politicians. It is an issue that has so far left many wondering whether by doing so, the Bush’s government and the subsequent Obama’s administration opened the Pandora’s Box. Proponents argue that the government’s decision to save the auto and the financial sector was more than just about dishing out hard-earned taxpayers’ billions to these companies, but a better way of standing behind the millions of workers, businesses, and communities. In addition, they appear to not understand the rea...

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...ilout a troubled industry.
Furthermore, from the many research papers as well as opinions generated from the 2008 bailout, one objection that clearly stands out is the diversion of TARP funds to help the auto industry, especially considering that these funds were specifically passed by Congress in 2008 to stabilize the troubled financial sector in a successful attempt to avert an economic meltdown. Notably, lawmakers purposefully excluded the inclusion of the auto industry from the program. So, did the Obama’s administration disregard the law by committing at least $50 billion to rescuing GM and Chrysler? To some, such a move was costly to the taxpayer bearing in mind that there was a loss of at least $10 billion. But then again, the lessons learnt from this dark chapter in America’s economic history point out to the real economic costs of government interventions.