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This paper will examine the issue of the GM bailout. There are economic and social consequences to both bailing out GM and letting it fail. There is also the third option the one the government appears to be leaning towards of propping the company up, doing some restructuring and finding a buyer. The economic theories will be outlined and applied to the situation in an attempt to come to a conclusion about the value of bailing out General Motors. The companys situation is unlike that of bailed-out financial firms like AIG. Those companies were profitable enterprises brought down by the actions of one unit. General Motors is more of a systemic basket case. The government took an equity stake in AIG, one that it will likely be able to sell for a profit after the company has been turned around. The government is not taking an equity stake in GM, so there is no profit opportunity. These facts are at the heart of the controversy

History

General Motors began in 1908 when a manufacturer of horse-drawn vehicles moved into automobile production. Soon Oldsmobile, Cadillac and the future Pontiac were absorbed into Buick, providing the foundation for General

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