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Let's say in 2008, the government decided to let the chips fall where they may. They let Fannie and Freddie fail. They let GM go bankrupt and they let Bank of America fail along with AIG and Citigroup. Let's say there were no bailouts. What do you think would have happened to the economy? Would our country have been able to recover? Would it have been as bad as the Great Depression or worse?
OK. Lets just say we went the route of letting the chips fall as they may.
At a guess? We'd be at 15% employment right now, and reaching a bottom of the great depression. The recovery would take time, but be stronger in the long run then our current one. A little sub par on average, but with less levels of recession/recovery.
Longer term consequences unrelated to the economy however would be of great concern.
Let's say in 2008, the government decided to let the chips fall where they may. They let Fannie and Freddie fail. They let GM go bankrupt and they let Bank of America fail along with AIG and Citigroup. Let's say there were no bailouts. What do you think would have happened to the economy? Would our country have been able to recover? Would it have been as bad as the Great Depression or worse?
We would have all been broke together and the wealthy among us wouldn`t have been able to gobble up assets (real estate, etc.) at fire sale prices only to sell it back to the rest of us later at full retail.
The profitable parts of those businesses would have been bought up just like they always are when a company fails. We would be out of the bleak economy already. Just like we did in the early 1920's when government stayed out and we went from from 12% unemployment to under 4 in two years time.
Why does anyone want the same entity who ruined the economy, to fix it?
Let's say in 2008, the government decided to let the chips fall where they may. They let Fannie and Freddie fail. They let GM go bankrupt and they let Bank of America fail along with AIG and Citigroup. Let's say there were no bailouts. What do you think would have happened to the economy? Would our country have been able to recover? Would it have been as bad as the Great Depression or worse?
GM should have been allowed to go bankrupt. It would have reverted back to its individual brands and reformed.
AC Delco
General Motors
Pontiac
Buick
Chevrolet
Etc.
The middle and lower classes wouldnt have fallen further behind.
That's about it.
P.S. G.M. did go bankrupt. The world didn't end like predicted.
It was a guided bankruptcy backed by federal money that has since been paid back. A normal bankruptcy would have resulted in a loss of the entire operation and all the jobs and retirees it supports today. It was a gutsy thing for Obama to do and it turned out great, keeping the domino effect from taking place and taking down all the suppliers, etc. etc.
Let's say in 2008, the government decided to let the chips fall where they may. They let Fannie and Freddie fail. They let GM go bankrupt and they let Bank of America fail along with AIG and Citigroup. Let's say there were no bailouts. What do you think would have happened to the economy? Would our country have been able to recover? Would it have been as bad as the Great Depression or worse?
The mistake here is thinking that there were only two options: Either bailouts, or "letting the chips fall where they may." A crisis response was certainly necessary, I just don't think that all these people who drove us into the crisis should have been protected like they were.
The Federal Reserve Bank should have taken steps to encourage lending and liquidity to everyone during the crisis, and maybe engage in some of the asset swaps that they did. But (A) FASB suspending accounting rules to protect financial firms, and (B) The Treasury / Fed keeping shareholders, executives, and board members of insolvent firms intact, were huge mistakes.
As far as the fate of these firms -- GM, Bank of America, AIG, and Citigroup are nothing more than brands. Brands survive, and the assets from those firms would have fallen in value until they were cheap enough to be bought up by other people.
Fannie and Freddie are another animal. They pretty much are the mortgage finance system. Without them, the housing market does not function. Reform during a stable time is reasonable, but reforming them in the middle of a crisis would be biting off quite a bit more than Congress can chew.
It was a guided bankruptcy backed by federal money that has since been paid back. A normal bankruptcy would have resulted in a loss of the entire operation and all the jobs and retirees it supports today. It was a gutsy thing for Obama to do and it turned out great, keeping the domino effect from taking place and taking down all the suppliers, etc. etc.
Baloney. Companies seek bankruptcy courts to SAVE their company, not KILL it.
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