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Why GM is More Bailout-Worthy Than Citigroup

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JohnWxy Donating Member (1000+ posts) Send PM | Profile | Ignore Fri Dec-05-08 03:33 PM
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Why GM is More Bailout-Worthy Than Citigroup /

Why GM is More Bailout-Worthy Than Citigroup
By Martin Hutchinson
Contributing Editor
Money Morning/The Money Map Report

Financial journalists, most of whom spend more time writing about derivatives than carburetors, have been scathing about the possibility of an auto industry bailout, even though theyve happily accepted multiple bailouts for the financial sector.


The financial services industry got far too big during the 1995-2007 bubble. Its growth accelerated in the 1990s on the back of innovative new financing techniques such as derivatives and securitization, as well as a huge expansion in areas such as leveraged buyouts. As a result, its share of United States gross domestic product (GDP) has approximately doubled since the late 1970s.

It is now clear that many of the new financing techniques were misapplied or even spurious. The problem of separating loan origination from credit-risk assumption has become obvious, and so securitization will have a much more limited future.

The automobile industry, on the other hand, has no obvious need to become smaller. With global warming now high on the political agenda, its products need to change radically, employing new technologies that greatly reduce carbon emissions. However, the basic demand for personal transportation has not gone away.

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