Where is the US economy headed?

In economics, a bailout is when someone loans or gives capital to a failing business in order to save it from total ruin. [1] [2]

A bailout is a matter of circumstance, so the possible motives behind one are unlimited, though typically the bail-er demands some influence over the company he bailed out. A bailout could be done for mere profit, as when a predatory investor resurrects a foundering company by buying its shares at fire-sale prices; for social improvement, as when, hypothetically speaking, a wealthy philanthropist reinvents an unprofitable fast food company into a non-profit food distribution network; or the bailout of a company might be seen as a necessity in order to prevent greater, socioeconomic failures: For example, the US government assumes transportation to be the backbone of America's general economic fluency, which maintains the nation's geopolitical power. [3] As such, it is the long-held policy of the US government to protect the biggest American companies responsible for transportation--airliners, petrol companies, etc-- from failure through subsidies and low-interest loans, or, in other words, through bailing them out. These companies, among others, are deemed "too big to fail" because their goods and services are considered by the government to be constant universal necessities in maintaining the nation's welfare and often, indirectly, its security.[4] [5]

Emergency-type government bailouts can be controversial. To name an instance in current events, there are debates raging over if and how to bailout the failing auto industry in the United States. Those against it, like pro-free market radio personality Hugh Hewitt, see this bailout as an unacceptable passing-of-the-buck to taxpayers. He has denounced any bailout for the Big Three, arguing that mismanagement caused the companies to fail, and they now deserve to be dismantled organically by the free-market forces so that entrepreneurs may arise from the ashes; that the bailout signals lower business standards for giant companies by incentivizing risk, creating moral hazard through the assurance of safety nets (that others are responsible in paying for) that should not be, but unfortunately are, considered in business equations; and that a bailout promotes centralized bureaucracy by allowing government powers to choose the terms of the bailout. Others, such as John Stewart of The Daily Show, and Nobel Laureate in Economics Jeffrey Sachs [6], have characterized this particular bailout a necessary evil, arguing that the probable incompetence in management of the car companies is insufficient reason to let them fail completely and potentially disturb the current delicate economic state of the United States, since up to three million jobs rest on the solvency of the Big Three and things are bleak enough as it is. In any case, the bones of contention here can be generalized to represent the issues at large, namely the virtues of private enterprise versus those of central planning, and the dangers of a free market's volatility versus the those of socialistic bureaucracy.

Governments around the world have bailed out their nations businesses with some frequency since the early 20th century.

In general, the needs of the entity/entities bailed out are subordinate to the needs of the state.

We are in the middle of a very severe recession that's going to continue through all of 2009 - the worst U.S. recession in the past 50 years. It's the bursting of a huge leveraged-up credit bubble. There's no going back, and there is no bottom to it. It was excessive in everything from subprime to prime, from credit cards to student loans, from corporate bonds to muni bonds. You name it. And it's all reversing right now in a very, very massive way. At this point it's not just a U.S. recession. All of the advanced economies are at the beginning of a hard landing. And emerging markets, beginning with China, are in a severe slowdown. So we're having a global recession and it's becoming worse.

Things are going to be awful for everyday people. U.S. GDP growth is going to be negative through the end of 2009. And the recovery in 2010 and 2011, if there is one, is going to be so weak - with a growth rate of 1% to 1.5% - that it's going to feel like a recession. I see the unemployment rate peaking at around 9% by 2010. The value of homes has already fallen 25%. In my view, home prices are going to fall by another 15% before bottoming out in 2010.

For the next 12 months I would stay away from risky assets. I would stay away from the stock market. I would stay away from commodities. I would stay away from credit, both high-yield and high-grade. I would stay in cash or cashlike instruments such as short-term or longer-term government bonds. It's better to stay in things with low returns rather than to lose 50% of your wealth. You should preserve capital. It'll be hard and challenging enough. I wish I could be more cheerful, but I was right a year ago, and I think I'll be right this year too.

GMAC Is Lacking Additional Investment
Bondholders Balking At Bank Holding Plan

By Binyamin Appelbaum
Washington Post Staff Writer
Thursday, December 11, 2008; Page D01

Auto financing giant GMAC said yesterday that its investors were refusing to participate in a plan to save the company, darkening its prospects and increasing the strain on General Motors, whose dealers and customers rely on GMAC for loans.

GMAC, which has been forced to cover rising losses, wants to become a bank holding company so that it can tap funding sources including the Treasury Department's financial rescue program. But the company said in a securities filing that its investors are refusing to provide necessary financial support for the transformation, and that it will abandon the effort if the investors do not sign up by Friday

Bank of America to cut up to 35,000 jobs

(Reuters) " Bank of America Corp said on Thursday it plans to cut up to 35,000 jobs over the next three years.

Highlights:

* Says expects to have a final plan early in 2009

* Says reductions are coming from both companies and affect all lines of

business and staff units

* Says reductions to eliminate redundancies due to merger with Merrill Lynch

and reflect current recessionary environment

* Says continues to actively originate loans through all of its credit product

lines

JPMorgan Chase Is Having A 'Terrible' Quarter

JAMIE DIMON, JPMORGAN CHASE, ECONOMY, EMPLOYMENT, HOUSING
CNBC.com | 11 Dec 2008 | 04:50 PM ET
JPMorgan Chase CEO Jamie Dimon told CNBC that the banking giant has had a "terrible" November and December, sending its stock down sharply and prompting a selloff in financial shares.


In a live interview, Dimon said the worse-than-expected quarter resulted from the "normal culprits""mortgages, credit, and high-yield bonds and loans. Dimon didn't give any projections on results, but his comments sent JPMorgan's stock down more than 10%.


Still, the CEO was upbeat about the bank's future. "We continue to grow," he said. "Earnings themselves may go up or down, but if you continue to grow the franchise, you'll do in the long run a very good job."

Still, financial stocks tumbled in reaction to Dimon's comments.

"It reiterates how difficult this market is and how the real economy is weighing down on financial stocks," said Giri Cherukuri, head trader at OakBrook Investments in Lisle, Illinois, referring to Dimon's comments. "It's continuing news that the world really hasn't changed. It's still a tough world out there."