Friday, December 26, 2008

History of U.S. Government Bailouts.

Pro Publica cleverly composed an interactive (the colored circles, if clicked at the originating site will take you to the corresponding date) display chronicling the history of U.S. government bailouts. The circles below, arranged in chronological order represent the size of each U.S. government bailout.

Industry/Corporation Year What HappenedCost in 2008 U.S. $
Penn Central Railroad 1970 In May 1970, Penn Central Railroad, then on the verge of bankruptcy, appealed to the Federal Reserve for aid on the grounds that it provided crucial national defense transportation services. The Nixon administration and the Federal Reserve supported providing financial assistance to Penn Central, but Congress refused to adopt the measure. Penn Central declared bankruptcy on June 21, 1970, which freed the corporation from its commercial paper obligations. To counteract the devastating ripple effects to the money market, the Federal Reserve Board told commercial banks it would provide the reserves needed to allow them to meet the credit needs of their customers.

$3.2 billion
Lockheed 1971 In August 1971, Congress passed the Emergency Loan Guarantee Act, which could provide funds to any major business enterprise in crisis. Lockheed was the first recipient. Its failure would have meant significant job loss in California, a loss to the GNP and an impact on national defense.

$1.4 billion
Franklin National Bank 1974 In the first five months of 1974 the bank lost $63.6 million. The Federal Reserve stepped in with a loan of $1.75 billion.

$7.8 billion
New York City 1975 During the 1970s, New York City became over-extended and entered a period of financial crisis. In 1975 President Ford signed the New York City Seasonal Financing Act, which released $2.3 billion in loans to the city.

$9.4 billion
Chrysler 1980 In 1979 Chrysler suffered a loss of $1.1 billion. That year the corporation requested aid from the government. In 1980 the Chrysler Loan Guarantee Act was passed, which provided $1.5 billion in loans to rescue Chrysler from insolvency. In addition, the government's aid was to be matched by U.S. and foreign banks.

$4.0 billion
Continental Illinois National Bank and Trust Company 1984 Then the nation's eighth largest bank, Continental Illinois had suffered significant losses after purchasing $1 billion in energy loans from the failed Penn Square Bank of Oklahoma. The FDIC and Federal Reserve devised a plan to rescue the bank that included replacing the bank's top executives.

$9.5 billion
Savings & Loan 1989 After the widespread failure of savings and loan institutions, President George H. W. Bush signed and Congress enacted the Financial Institutions Reform Recovery and Enforcement Act in 1989.

$293.3 billion
Airline Industry 2001 The terrorist attacks of September 11 crippled an already financially troubled industry. To bail out the airlines, President Bush signed into law the Air Transportation Safety and Stabilization Act, which compensated airlines for the mandatory grounding of aircraft after the attacks. The act released $5 billion in compensation and an additional $10 billion in loan guarantees or other federal credit instruments.

$18.6 billion
Bear Stearns 2008 JP Morgan Chase and the federal government bailed out Bear Stearns when the financial giant neared collapse. JP Morgan purchased Bear Stearns for $236 million; the Federal Reserve provided a $30 billion credit line to ensure the sale could move forward.

$30 billion
Fannie Mae / Freddie Mac 2008 The near collapse of two of the nation's largest housing finance entities was yet another symptom of the subprime mortgage and housing market crisis. In an effort to prevent further turmoil within the financial market, the U.S. government seized control of Fannie Mae and Freddie Mac and guaranteed up to $100 billion for each company to ensure they would not fall into bankruptcy.

$200 billion
American International Group (A.I.G.) 2008 When AIG was unable to secure a private-sector loan, the federal government intervened by seizing control of the insurance giant. Less than one month after the initial bailout and just days after AIG announced it had already drawn down $61 billion of its loan, the Fed stepped in with an additional $37.8 billion to bolster AIG's securities lending business. In November, with the insurance giant continuing to report heavy losses, the Feds revised the terms of the bailout and purchased $40 billion in AIG preferred shares.

$150 billion
Auto Industry 2008 In late September 2008, Congress approved a more than $630 billion spending bill, which included a measure for $25 billion in loans to the auto industry. These low-interest loans are intended to aid the industry in its push to build more fuel-efficient, environmentally-friendly vehicles. The Detroit 3 -- General Motors, Ford and Chrysler -- will be the primary beneficiaries.

$25 billion
Troubled Asset Relief Program 2008 The Bush administration has proposed a rescue plan to ease the current crisis on Wall Street. If approved by Congress, the Treasury Department will be authorized to purchase up to $700 billion of distressed mortgage-backed securities and other assets and then resell the mortgages to investors.

$700 billion
Citigroup 2008 After Citigroup lost half its value in the stock market last week, the government decided to throw a hefty life ring to the drowning bank. The government will back roughly $306 billion in loans and securities and will inject about $20 billion in capital. This is in addition to the $25 billion the bank received not too long ago. As part of the agreement, Citigroup will freeze dividend payments at one penny per share per quarter for three years, restrict executive compensation and absorb the first $29 billion in losses and 10% of subsequent losses. The government could absorb up to $247.5 billion of Citigroup’s losses.

$247.5 billion
Chrysler/G.M. 2008 Chrysler, General Motors and the Treasury Department have agreed upon terms for a bailout package to rescue the drowning automakers. The package consists of $13.4 billion in emergency loans; another $4 billion will be made available if needed. But it comes with strings. The auto giants must reduce their debt by two-thirds, and restore profitability, possibly by lowering wages and benefits. Limits on executive pay and a ban on the use of executive jets have also been imposed. Should the Obama administration determine that the two automakers have not reached the agreed upon goals, they will be required to repay the loans and face bankruptcy.

As for what happens after a U.S. government bailout, you can judge for yourself.


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