With the economy in a steep nosedive in 2009, the U.S. government took many stabilization measures, some of which were highly controversial. The decision to use taxpayerʼs funds to bail out General Motors, which was teetering on the edge of bankruptcy, was among the most controversial. To keep the company afloat, the U.S. government gave it $49.5 billion in loans that were then converted into stock, giving the government temporary ownership of 61% of the company.

General Motors — or GM, as it was often called in its heyday — was once a U.S. icon, so dominant that in the 1950s the companyʼs president, who had been nominated as Secretary of Defense, famously claimed that any conflict of interest was inconceivable: “I thought what was good for our country was good for General Motors, and vice versa.”

By 2009 the fate of GM and the fate of the United States seemed less intertwined. Still, the case for the bailout rested crucially on the belief that GMʼs problems werenʼt entirely self-made, that the company was in trouble because the U.S. economy was in trouble, and that national recovery would make a big difference to the automakerʼs fortune, too.......

QUESTIONS FOR THOUGHT

1. Why did a national slump that began with housing affect companies like General Motors? 

2. Why was it reasonable in June 2009 to predict that auto sales would improve in the near future? 

3. How does this story about General Motors help explain how a slump in housing — a relatively small part of the U.S. economy — could produce such a deep national recession?