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Auto bailout resources?

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MDay1985 Posted: Mon, Feb 20 2012 3:00 PM

I'm from the Detroit area. Talking bad about the Big 3 is like blasphemy. Many people I speak with here are under the impression that the bailout money was paid back. The local TV and radio people, some who are conservative, are also of that belief.

However, I recall reading an article over at Reason, that basically said the money wasn't paid back. It used the analogy of paying one credit card off with another.

Does anyone have any good article that discuss the facts of how the bailout money was not paid back?

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z1235 replied on Mon, Feb 20 2012 4:03 PM

The average person doesn't understand that even if a bailout is paid back in full, there still remains a free subsidy (gift) which can/will never be repaid. Imagine going to Las Vegas with a simple strategy: (1) always bet black on roulette (2) double your bet after each losing bet. Without a "backer of last resort" willing and able to lend you however much you ask from him at any time, you would quickly give all your money to the casino. However, with such a backer, your chances of winning suddenly converge to 100% because assuming infinite backing (liquidity) you can always afford to wait for that winning bet which pays for the sequence of losing ones preceding it regardless of the length of the losing streak. This optionality (insurance) is not free even if you always end up paying your backer back. 

A vast majority of analyses and articles on the bailouts (especially of the banks) completely neglects the value of this optionality. At its core, the central banking system -- with the Fed as the lender/backer of last resort -- fascilitates an enormous wealth transfer to the beneficiaries of this optionality even if/when all bailout loans are paid back in full


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minataft replied on Tue, Apr 24 2012 3:51 AM

With regard to this I have read just recently that the GOP presidential candidate Rick Santorum wants voters to know he would never have approved a car bailout. He thinks that the car makers might have solved their troubles without federal intervention.Can this be feasible? I've read it here: GOP presidential candidate Rick Santorum blasts automotive bailouts

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a) It's ex GOP presidential candidate now, so it doesn't really matter now (not that what the guy said mattered much before anyway)

b) You're asking if it's possible the car makers might have solved their troubles without federal intervention?  The answer is "maybe.  Maybe not."  It doesn't really matter.  The point is it's not like all that capital would just disappear into thin air just because a firm declared bankruptcy.  That's what everyone was talking about "what about all those people and their jobs" if the auto plants they worked in would just vanish, and they would have no place to work.

Sure they might be out of work for a bit, but there's valuable capital there.  The only thing that would change is who owns and/or controls it...meaning, a company mismanages the resources it has, so it ends up producing losses.  Before long, it has to declare bankruptcy, and either restructure it's obligations, or sell off assets to try to repay creditors...which means that people who probably can actually produce a car that people actually want to buy, and turn a profit at a price those people will pay.

There is absolutely never any reason for some kind of statist intervention.  Capital is misallocated it has to reallocated to areas and in ways that are more desired by the market.  And there is absolutely nothing the government can do to help that process.  It can only hinder and disrupt that process and make it that much longer before the malinvestments are purged.  (I suppose it can also make a few political entreprenuers wealthy at the expense of others (i.e. it take stuff from some people and hand it over to others by force)...but I think when you put it that honestly, there isn't really anyone who would argue that's a moral or rightious or just or ethical thing.)


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