Changes

===Deepening recession===

===Deepening recession===

By early December the entire economy was heading downward with no bright spots. The recession that began in Dec. 2007 intensified, as retail sales plunged. In November 2008 Americans, their confidence shaken, saved their money and sharply reduced their credit card purchases. Auto sales were down 37% in November (compared to Nov. 2007) to the lowest rate in 26 years. GM sales fell 41% Ford fell 31% and the foreign cars were down just as much, with Toyota down 34%, Nissan down 42% and Honda down 32%.<ref> Stephanie Rosenbloom, "In November, Shoppers Cut Spending Even More," [http://www.nytimes.com/2008/12/03/business/economy/03shop.html?ref=business ''New York Times'' Dec. 2, 2008]; Nick Bunkley, "Another Month of Miserable Auto Sales," [http://www.nytimes.com/2008/12/03/business/03sales.html?ref=business ''New York Times'' Dec. 2, 2008].</ref>  Retailers rang up the lowest November sales in more than 30 years, as holiday shopping not only failed to lift the economy but showed that the crisis is further distressing everyday consumers. Thirty major companies -- including Macy's, Sears, Abercrombie & Fitch and Target -- posted sales declines; Wal-Mart, anchoring the bottom of the price chain, sawincreased sales.  Retail sales in November fell 2.7 percent compared with the same month last year.<ref> Ylan Q. Mui, "Retailers Report a Crisis in All Aisles: November Sales Slump as Shoppers Stow Credit Cards," [http://www.washingtonpost.com/wp-dyn/content/article/2008/12/04/AR2008120404347.html?hpid=topnews ''Washington Post'' Dec. 5, 2008]</ref>

By early December the entire economy was heading downward with no bright spots. The recession that began in Dec. 2007 intensified, as retail sales plunged. In November 2008 Americans, their confidence shaken, saved their money and sharply reduced their credit card purchases. Auto sales were down 37% in November (compared to Nov. 2007) to the lowest rate in 26 years. GM sales fell 41% Ford fell 31% and the foreign cars were down just as much, with Toyota down 34%, Nissan down 42% and Honda down 32%.<ref> Stephanie Rosenbloom, "In November, Shoppers Cut Spending Even More," [http://www.nytimes.com/2008/12/03/business/economy/03shop.html?ref=business ''New York Times'' Dec. 2, 2008]; Nick Bunkley, "Another Month of Miserable Auto Sales," [http://www.nytimes.com/2008/12/03/business/03sales.html?ref=business ''New York Times'' Dec. 2, 2008].</ref>  Retailers rang up the lowest November sales in more than 30 years, as holiday shopping not only failed to lift the economy but showed that the crisis is further distressing everyday consumers. Thirty major companies -- including Macy's, Sears, Abercrombie & Fitch and Target -- posted sales declines; Wal-Mart, anchoring the bottom of the price chain, sawincreased sales.  Retail sales in November fell 2.7 percent compared with the same month last year.<ref> Ylan Q. Mui, "Retailers Report a Crisis in All Aisles: November Sales Slump as Shoppers Stow Credit Cards," [http://www.washingtonpost.com/wp-dyn/content/article/2008/12/04/AR2008120404347.html?hpid=topnews ''Washington Post'' Dec. 5, 2008]</ref>

 

The Federal Reserve reported on Dec. 3, 2008, that every region reported sales declines, drops in manufacturing activity, weakening real estate markets, tighter lending, and deteriorating labor marketsThose sectors that had been strong until recently -- especially as agriculture and energy -- also softened as commodity prices declined. November saw 533,000 jobs disappear in the worst one-month decline in 34 years.

The Federal Reserve reported on Dec. 3, 2008, that every region reported sales declines, drops in manufacturing activity, weakening real estate markets, tighter lending, and deteriorating labor marketsThose sectors that had been strong until recently -- especially as agriculture and energy -- also softened as commodity prices declined.

 

 

==Collapse of #6 and #4 largest banks, rescue of #1==

==Collapse of #6 and #4 largest banks, rescue of #1==

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.

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.  Congress and the White House worked out a compromise on December 6 that will temporarily tide over the Big Three with $15 bilions in loans, allowing the new Congress and Obama administration to come up with a solution.

===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 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>