Automobile giant Chrysler has paid back the billions of dollars that were loaned to it during the economic bailout of 2009. The bailout money, with interest, amounts to approximately $7 billion, most of which came from the American government and the remainder of which came from the Canadian government. Chrysler, however, has not yet repaid the almost $4 billion loaned to it by the U.S. federal government shortly before the bailout. Still, Chrysler’s complete repayment of its bailout loan has sparked much conversation about economic bailouts.

Many Democrats are using Chrysler’s milestone repayment as evidence that the bailout is a sound economic policy that should remain on the table for future recessions. They note that Detroit’s economy would have been much worse off had Chrysler not rebounded from its financial woes. Moreover, Chrysler was able to repay its bailout loan six years earlier than anticipated, which would indicate that the bailout may have jumpstarted the company’s recovery.

Many Republicans, in contrast, argue that future bailouts should be avoided in order to protect taxpayers. For example, even after taking into account the interest paid to the U.S. government and the anticipated revenue from the government’s selling its final 6.6 percent ownership of the company, Chrysler’s repayment is still not sufficient to fully repay taxpayers for their earlier loans to the struggling company. Moreover, even if Chrysler does pay back its earlier loans, that would still not account for all of the money given to the company in the form of subsidies.

In addition, some Republicans argue that future bailouts should be avoided in order to preserve the American capitalist system, which relies on competition, survival of the fittest and separation between the government and the private sector. If failing companies are constantly being bailed out by the government, competition in the free market will no longer control which companies succeed and which companies fail.

On a related note, some pundits argue that Chrysler is back on its financial feet because of its 2009 bankruptcy and restructuring, as opposed to the bailout itself. By going bankrupt, Chrysler was able to avoid paying back some of its debts. Bankruptcy, in effect, allowed the company to pay back the debts that it could and then “reset” its accounts to zero dollars as opposed to carrying forward a negative balance from its remaining unpaid debts. This avoidance helped the company to swing back from red to black (i.e. owing money to making money) much more quickly than it would have been able to absent declaring bankruptcy.

Speak Your Mind