because of the severe condition of the automotive industry the President and

Because of the severe condition of the automotive

This preview shows page 7 - 9 out of 16 pages.

because of the severe condition of the automotive industry the President and the Treasury Secretary thought it appropriate to use their executive power to aid the car companies. When Congress failed to enact the Auto Industry Financing and Restructuring Act, the executive branch had to take action. Driven by the fact that he did not want to have the closure of two iconic companies during his last months, President Bush confirmed the Treasury's plan to establish the Automotive Industry Financing Program (AIFP) through TARP (OMB, 2012). President Bush agreed upon the terms that the Treasury laid out for Chrysler and GM - who required the infusion of cash. Steven Rattner, one of President Obama's appointees for the automotive industry assignment, helped explain the complex process of how the Obama administration took up the challenge of turning around the automobile industry laid out in his inside account, Overhaul (2010).The Emergency Economic Stabilization Act of 2008 (EESA), made the “bail out” of the automotive industry possible. EESA was passed on October 3, 2008 in response to the financial crisis that had resulted in the abrupt shutdown of Lehman Brothers and the lack of financial stability in various other large banks in the United States. The act enabled the U.S. Treasury to purchase troubled assets in order to bolster the troubled financial institutions. Specifically the
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8Secretary of the Treasury was given immediate authority of $350 billion to be used to purchase troubled assets of financial companies (H.R. 1424, 2008). The second installment of $350 billion permitted by EESA – a total of $700 billion for the program – would be granted upon a request to Congress (H.R. 1424, 2008). A large reason that many of these financial institutions had an abrupt shock was because of the imploding of the housing market bubble. Furthermore, the act effectively authorized the Secretary of Treasury to designate financial institutions as financial agents of the federal government and establish vehicles to purchase and sell toxic assetsand issue obligations. It also directed the Secretary to prevent unjust enrichment of participating financial institutions including and sale of any troubled asset (with certain exceptions) to the Secretary at a price higher than the price which it was originally purchased (H.R. 1424, 2008).Many Americans found it odd that a Republican president began the initiative of an automobile industry bailout. President Bush, however, responded to a question about the automotive industry at the American Enterprise Institute, a conservative think-tank: “under ordinary circumstances failed entities, failing entities, should be allowed to fail. I have concluded these are not ordinary circumstances” (Rattner, p. 41, 2010). They, indeed, were not ordinary circumstances. GM was the second largest industrial company, only to General Electric, and it was widely accepted that the failure of the company could have done much to further diminish an already fractured economy. Therefore, President Bush announced that the Treasury would bail out two of the American automakers with a combined $17.4 billion of TARP
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