Changes

The '''Financial Crisis of 2008''', continuing into 2009, is an ongoing worldwide financial crisis that is the worst the world has seen since 1933 with the [[Great Depression]].  The National Bureau of Economic Research<ref>NBER is a private organization that follows its own standards as set by eminent economists such as [[Milton Friedman]]; its dating of business cycles is widely accepted by conservatives.</ref> has identified the peak of the last expansion in December 2007; the U.S. economy has been in decline ever since.<ref>See "Text of the NBER's statement on the recession and FAQ's" [http://www.usatoday.com/money/economy/2008-12-01-recession-nber-statement_N.htm ''USA Today'' Dec 1, 2008]. "The U.S. economy entered a recession in December 2007, a committee of economists at the private National Bureau of Economic Research said," at [http://www.marketwatch.com/news/story/US-recession-began-December-2007/story.aspx?guid={7DCF90E4-D61A-4014-83CE-45E938CD632C} Rex Nutting] - MarketWatch</ref>  [[Image:CRASH08.JPG|thumb|330px|Oct 11, 2008 editorial; cartoon by Horsey stresses the global collapse]]  The crisis has caused the [[Recession of 2008]], which continues to worsen in 2009 into a worldwide economic decline that is the most severe since the 1930s.

The '''Financial Crisis of 2008''', continuing into 2009, is an ongoing worldwide financial crisis that is the worst the world has seen since 1933 with the [[Great Depression]]. Drastic measures to confront seemingly insurmountable financial calamity resulted in the creation of '''TARP''' (Troubled Assets Relief Program), $700 billion without interest authorized by the U.S. Government.  The National Bureau of Economic Research<ref>NBER is a private organization that follows its own standards as set by eminent economists such as [[Milton Friedman]]; its dating of business cycles is widely accepted by conservatives.</ref> has identified the peak of the last expansion in December 2007; the U.S. economy has been in decline ever since.<ref>See "Text of the NBER's statement on the recession and FAQ's" [http://www.usatoday.com/money/economy/2008-12-01-recession-nber-statement_N.htm ''USA Today'' Dec 1, 2008]. "The U.S. economy entered a recession in December 2007, a committee of economists at the private National Bureau of Economic Research said," at [http://www.marketwatch.com/news/story/US-recession-began-December-2007/story.aspx?guid={7DCF90E4-D61A-4014-83CE-45E938CD632C} Rex Nutting] - MarketWatch</ref>  [[Image:CRASH08.JPG|thumb|330px|Oct 11, 2008 editorial; cartoon by Horsey stresses the global collapse]]  The crisis has caused the [[Recession of 2008]], which continues to worsen in 2009 into a worldwide economic decline that is the most severe since the 1930s.

==Overview==

==Overview==

In 2008 a series of damaging blows drove the "Big Three" (GM, Ford and Chrysler) to the verge of bankruptcy. Part of the cause was very high labor costs (much higher than the foreign plants in the U.S.), which prevents lower prices. The Big Three had in recent years stressed expensive, fuel-guzzling SUVs and large pickups. They were much more profitable than smaller, fuel-efficient cars. When gasoline prices shot past $4 in 2008, Americans stopped buying the big cars, and the Big Three saw their sales plummet.  The Financial Crisis played a role as no one was willing to loan GM the money to buy Chrysler. Consumer credit has tightened and it became much harder for people with average or poor credit to obtain a bank loan to buy a car, so sales fell further.  Stock prices plummeted as shareholders worried about bankruptcy; GM's shares fell to 1946 levels. Intense debate is underway about a massive bailout, that would be in addition to a $25 billion loan Congress passed in September 2008 to assist in increasing fuel efficiency. President Bush has proposed changing the terms of that loan so it could be used to cover daily operating expenses, but Congress rejected that. Republicans in Congress in mid-November blocked Democratic proposals to underwrite a new bailout of the auto industry, as industry leaders made an unconvincing case before Congress.  President elect Obama and Democrats in Congress have demanded the Big Three come up with a highly specific plan with some chance of long-term viability, with the expectation that Congress will address the issue again in January 2009.

In 2008 a series of damaging blows drove the "Big Three" (GM, Ford and Chrysler) to the verge of bankruptcy. Part of the cause was very high labor costs (much higher than the foreign plants in the U.S.), which prevents lower prices. The Big Three had in recent years stressed expensive, fuel-guzzling SUVs and large pickups. They were much more profitable than smaller, fuel-efficient cars. When gasoline prices shot past $4 in 2008, Americans stopped buying the big cars, and the Big Three saw their sales plummet.  The Financial Crisis played a role as no one was willing to loan GM the money to buy Chrysler. Consumer credit has tightened and it became much harder for people with average or poor credit to obtain a bank loan to buy a car, so sales fell further.  Stock prices plummeted as shareholders worried about bankruptcy; GM's shares fell to 1946 levels. Intense debate is underway about a massive bailout, that would be in addition to a $25 billion loan Congress passed in September 2008 to assist in increasing fuel efficiency. President Bush has proposed changing the terms of that loan so it could be used to cover daily operating expenses, but Congress rejected that. Republicans in Congress in mid-November blocked Democratic proposals to underwrite a new bailout of the auto industry, as industry leaders made an unconvincing case before Congress.  President elect Obama and Democrats in Congress have demanded the Big Three come up with a highly specific plan with some chance of long-term viability, with the expectation that Congress will address the issue again in January 2009.

In addition to the Big Three hundreds of large suppliers of parts are in financial crisis as well; most would go under if the Big Three go bankrupt.{{fact}}

In addition to the Big Three hundreds of large suppliers of parts are in financial crisis as well; most would go under if the Big Three go bankrupt.

Intense debate in December 2008 focused on allowing bankruptcy or injecting billions more of federal aid in a massive bailout; it would be in addition to a $25 billion loan Congress passed in September 2008 to assist in increasing fuel efficiency.  The Democrats in Congress supported president Bush's proposal to use the fuel-efficiency loans to help with the immediate problem. It passed the House but Senate Republicans brioke with Bush and it failed.  The opponents called for a bankruptcy that would allow GM to get out of its contracts to pay union members high wages, as well as generous pensions and medical benefits to retired workers.  Bush then acted unilaterally and decided to use [[TARP money]] to bail out GM and Chrysler, on December 19. GM and Chrysler will get $13.4 billions in loans they can use to pay their suppliers.<ref> GM and Chrysler will receive $4 billion each when they sign the loan agreements with the Treasury. GM will have access to an addition $5.4 billion on Jan. 16 and another $4 billion on Feb. 17 provided that Congress has released the remaining $350 billion for the Treasury’s TARP rescue program. </ref> GM can receive another $4 billion in February, but by then the Obama administration will be in charge, and it is emphasizing the need for a long-range solution.<ref>David E. Sanger, David M. Herszenhorn and Bill Vlasic, “Bush Aids Detroit, but Hard Choices Wait for Obama,” [http://www.nytimes.com/2008/12/20/business/20auto.html?hp ''NewYork Times'' Dec. 19, 2008]</ref>  

Intense debate in December 2008 focused on allowing bankruptcy or injecting billions more of federal aid in a massive bailout; it would be in addition to a $25 billion loan Congress passed in September 2008 to assist in increasing fuel efficiency.  The Democrats in Congress supported president Bush's proposal to use the fuel-efficiency loans to help with the immediate problem. It passed the House but Senate Republicans brioke with Bush and it failed.  The opponents called for a bankruptcy that would allow GM to get out of its contracts to pay union members high wages, as well as generous pensions and medical benefits to retired workers.  Bush then acted unilaterally and decided to use [[TARP money]] to bail out GM and Chrysler, on December 19. GM and Chrysler will get $13.4 billions in loans they can use to pay their suppliers.<ref> GM and Chrysler will receive $4 billion each when they sign the loan agreements with the Treasury. GM will have access to an addition $5.4 billion on Jan. 16 and another $4 billion on Feb. 17 provided that Congress has released the remaining $350 billion for the Treasury’s TARP rescue program. </ref> GM can receive another $4 billion in February, but by then the Obama administration will be in charge, and it is emphasizing the need for a long-range solution.<ref>David E. Sanger, David M. Herszenhorn and Bill Vlasic, “Bush Aids Detroit, but Hard Choices Wait for Obama,” [http://www.nytimes.com/2008/12/20/business/20auto.html?hp ''NewYork Times'' Dec. 19, 2008]</ref>  

===Bankruptcy scenario===

===Bankruptcy scenario===

Bankruptcy of the Big Three would be very expensive to the economy as a whole and the federal government. It would mean loss of 240,000 very high paying jobs at the Big Three, a loss of 980,000 high-paying jobs at the suppliers and local dealers, and 1.7 million additional jobs throughout the economy.  It would cause a decline in personal income of $151 billion the first year, and $398 billion over three years.  The federal, state and local governments would lose tax revenue and spend on welfare programs a total of $156 billion over three years.<ref>CAR Research Memorandum. "The Impact of the U.S. Economy of a Major Contraction of the Detroit Three Automakers" (Nov 2008) [http://www.cargroup.org/documents/FINALDetroitThreeContractionImpact_3__000.pdf online edition]</ref>

Bankruptcy of Chrysler and GM took place in the second quarter of 2009. Chrysler's sale to Italian automaker Fiat has been placed on hold for Supreme Court review. GM received billions more dollars to prevent bankruptcy but fell none-the-less. In addition, GM will require $30 billion in the first stage of bankruptcy. The Obama Administration is the single largest shareholder with the UAW second at 17% ownership. Also, many auto dealerships have been shuttered, thousands of workers have been [[laidoff]], assembly plants closed, and product lines dissolved or sold.

 

==Obama Administration==

==Obama Administration==

[[Image:Geithner1.jpg|thumb|330px|Critics feared Geithner's vague plans would crash]]

[[Image:Geithner1.jpg|thumb|330px|Critics feared Geithner's vague plans would crash]]

With major banks on the verge of failure, Treasury Secretary [[Timothy Geithner]] unveiled yet another massive bailout program in mid-February. Trillions would be spent to move toxic assets out of the banks, but few details were provided. The widespread reaction was very negative, and Geithner lost more of his credibility as a problem solver.  Geither finally came back with a plan on March 23 that will not need additional funding or approval by Congress.  The Treasury will use $100 billion from the Troubled Asset Relief Program (TARP), as well as new capital from private investors, in order to generate $500 billion in purchasing power to buy toxic loans and assets. The program could potentially expand to $1 trillion over time.

With major banks on the verge of failure, Treasury Secretary [[Timothy Geithner]] unveiled yet another massive bailout program in mid-February. Trillions would be spent to move toxic assets out of the banks, but few details were provided. The widespread reaction was very negative, and Geithner lost more of his credibility as a problem solver.  Geither finally came back with a plan on March 23 that will not need additional funding or approval by Congress.  The Treasury will use $100 billion from the Troubled Asset Relief Program (TARP), as well as new capital from private investors, in order to generate $500 billion in purchasing power to buy toxic loans and assets. The program could potentially expand to $1 trillion over time.

==See also==

==See also==