Sunday, December 21, 2008

Market Failure and the Big Three

It was much debated on whether the Federal Reserve should bailout the U.S auto industry or not. Many were of the opinion (with a conservative view) that the Big Three could probably survive and be competitive if the U.S government would let them go into Chapter 11 bankruptcy instead of bailing them out with taxpayers’ money.

In a capitalist economy, government intervention is less likely and less welcome unless there is a market failure which has far reaching effects. The fall of the Big Three would have been an imminent danger to the U.S.A's national economy. President Bush's order for an emergency bailout of the U.S auto industry offering $17.4 billion have risen mixed feelings. The autoworkers union complained the deal was too harsh on its members, while Bush's fellow Republicans in Congress said it was simply bad business to bail out yet another big industry.

To my opinion the Fed's decision is perfect as it could not afford to allow the massive auto industry to collapse when the economy is already in the middle of an economic downturn. The Big Three's fall could send the U.S economy into a deeper and longer recession. But, it is also high time for the U.S auto companies to reform bad management practices and begin the long-term restructuring to safeguard the millions of jobs it provides.

4 comments:

Lisa said...

If anything happened to those companies, there would be thousand ppl without work by 2009

this pose a threat to the economy too

Anirban Dutta said...

You are absolutely right Lisa. This is the ethical dilemma the policy makers were faced with - either they allow the Big Three to go bankrupt and thereby lend millions of workers jobless or bail them out at the cost of the tax-payers' money.

Unknown said...

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pisku said...

Well, the latest thinking is that it may have come a little too late already! Check this link.

http://www.bloomberg.com/apps/news?pid=20601087&sid=av.u9DlwXQIo&refer=home

btw interesting blog. Linked u up!