Bailouts the Issue of Bailouts Research Proposal

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In some ways, the AIG bailout is viewed more favorably -- bonuses not withstanding -- in part because of the ownership stake. With a substantial, profitable business the taxpayers may yet break even on AIG. With the automakers, taxpayer ire is higher because there is little chance that this will happen. The government has less control over the automakers, and as a result there is less likelihood that the industry will reform itself sufficiently. Even if it did, the taxpayers would not see any benefit since they have no stake.

In light of this, the government treatment of the auto industry compared to financial institutions seems reasonable. Both have received bailouts, in proportion to the amount of damage that would be wrought on the U.S. economy if they failed.

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The lack of ownership stake in automakers makes for more public application of leverage than with AIG, were the 80% ownership stake allows the government to work its machinations behind closed doors. If anything, government bailout of the auto industry seems generous, given that they have little in the way of viable businesses. That bailout seems more like a proxy for the bailout of the auto suppliers industry that would otherwise be required, if the Big Three failed. In essence, the government is less inclined to bailout the automakers but does so to help the support industries. Were it not for that consideration, the bailout might not happen at all, which accounts for the differences that do exist in these similar bailout situations.

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