Is it the business of government to bail out Big Business?

In 1970 the Federal Reserve bailed out the Penn Central railroad by guaranteeing creditors payment at a 2008 cost of $3.2 billion. Penn Central argued their existence was crucial to national defense. The loan was never fully repaid.

In 1971, Congress authorized a $1.4 billion bailout to Lockheed, an airline manufacturing company. The companies’ failure would have affected GNP and national defense it claimed. The loan was fully repaid with interest.

In 1980, Congress authorized a Chrysler bailout of $4.0 billion. By 1984 the loan was paid back and earned a $660 million dollar profit from the bailout.

In 1989, the Savings and Loan bailout cost taxpayers $179 billion. None of the money was ever recovered.

In 2001, after 9/11 Congress bailed out the airline industry for more than $18 billion. The deal netted a government profit of over $150 million.

In 2008 Fannie Mae and Freddie Mac were bailed out for $400 billion. None of it will be repaid to taxpayers.

In 2008 there were many other bailouts, included in the TARP program, and many have results still open to loss or recovery.

So the government has been in the business of bailing out Big Business and Banking for decades, right or wrong. It has sometimes earned profit from the bailouts and sometimes, like the Savings and Loans bailouts, lost everything invested.

One thing we do know … consumers have never liked the idea of government bailing out industry. But, in spite of that government has stepped forward when it believed the public interest to be at stake.

And while presidents of both political parties have supported the bailouts the recent history is that Republican presidents have more often been in favor of such government actions.

So when government bailed out General Motors and Chrysler, should it have instead allowed them to fail?

Well, at the time of the collapse, the auto industry was quickly being sucked into the whirlpool of the banking failures, and selling cars without loans became virtually impossible. Industry sales collapsed as did the entire economy.

The deepest recession since the Great Depression took down the entire industry. Ford, who survived without government money, only did so because it anticipated the catastrophic business climate and mortgaged itself to the hilt in advance.

Auto sales fell from a high of more than 16 million annually to just over 10 million annually.

But what would have happened had GM been allowed to fail? Some assumptions seem safe to consider. Given their debt ratio the only bankruptcy would have been liquidation, ending the direct jobs of more than 211,000 employees.

But beyond GM employees, suppliers would have also failed, costing as many as a million jobs and placing the supply lines for remaining auto makers in jeopardy.

Given an unemployment rate that would eventually reach 10 percent, these job losses could well have plunged the nation into depression, triggering other industries failures and job losses.

So the government invested $61 billion in GM and $8 billion in short-term (5 year) loans. What has happened? GM promises to repay all of the five-year loans this year, four years ahead of schedule.

And GM expects to be profitable this year, perhaps permitting the company to make an Initial Public stock offering (IPO). Should that happen investors currently think GM could be valued at more than $50 billion, enough to begin a serious payback of the public investment in the company.

Public sentiment aside, the bailout was in the public interest and President Bush and President Obama both made the right decisions.

Jim Crawford is a contributing columnist for The Tribune and a former educator at Ohio University Southern.