Assume all of the big three are liquidated. What would be the total cost be to the economy? First we'd lose income tax revenues from an estimated 3M people. Let's assume an average pre bankruptcy wage of 50k/yr (a little less than 30$/hr). And let's assume a conservative tax rate of 10%, or 5k/yr. That's 5k * 3M = 15B. Assuming each employee is unemployed (on average) for 6 months, we can assume 7.5B in lost income tax revenue alone. Add in 6 months of unemployment at 362/week = 8688/person * 3M = another 26B. That's 33.5B, and we haven't even factored in all sorts of intangible costs related to the massive unemployment and deflation that would result (crime, medicare, etc...)
There may be other factors I haven't counted, but on the face of it a 25B bailout is the cheaper option. I understand the argument that the same problem will just recur a year later or whatnot, and they'll need another bailout, but there are reasons to hope that at least some of these companies will have a better chance in the future: the Chevy Volt, the release of some of GM's pension obligations in 2010, Ford's 65mph diesel, etc...
I quite understand the "punish them for being stupid" sentiment (and share it), but I think it's somewhat reflexive and not always the most rational approach.
Assume all of the big three are liquidated. What would be the total cost be to the economy? First we'd lose income tax revenues from an estimated 3M people. Let's assume an average pre bankruptcy wage of 50k/yr (a little less than 30$/hr). And let's assume a conservative tax rate of 10%, or 5k/yr. That's 5k * 3M = 15B. Assuming each employee is unemployed (on average) for 6 months, we can assume 7.5B in lost income tax revenue alone. Add in 6 months of unemployment at 362/week = 8688/person * 3M = another 26B. That's 33.5B, and we haven't even factored in all sorts of intangible costs related to the massive unemployment and deflation that would result (crime, medicare, etc...)
There may be other factors I haven't counted, but on the face of it a 25B bailout is the cheaper option. I understand the argument that the same problem will just recur a year later or whatnot, and they'll need another bailout, but there are reasons to hope that at least some of these companies will have a better chance in the future: the Chevy Volt, the release of some of GM's pension obligations in 2010, Ford's 65mph diesel, etc...
I quite understand the "punish them for being stupid" sentiment (and share it), but I think it's somewhat reflexive and not always the most rational approach.