Resolved: Federal government bailouts of 3
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Table of Contents RESOLVED: Federal government bailouts of 3 major corporations are just. 3 SECTION 1: TOPIC OVERVIEW 3 A. History and Background 3 B. Philosophical and Moral Concepts 6 C. Affirmative Strategy 6 D. Negative Strategy 9 SECTION 2: RESOLUTIONAL ANALYSIS 11 SECTION 3: ANNOTATED BIBLIOGRAPHY 16 SECTION 4: SAMPLE AFFIRMATIVE CASE AND EXTENSION 19 MARKET BAILOUT WAS AN ECONOMIC NECESSITY 23 MARKET BAILOUT WAS AN ECONOMIC NECESSITY 25 MARKET BAILOUT WAS AN ECONOMIC NECESSITY 26 MARKET BAILOUT PREVENTED A CREDIT LIQUIDATION CYCLE 27 A U.S. ECONOMIC COLLAPSE WOULD BE DISASTROUS 28 ECONOMIC GROWTH IS ESSENTIAL FOR DEMOCRCY AND SURVIVAL 29 MARKET BAILOUT WAS IN THE PUBLIC INTEREST 31 CORPORATE BAILOUTS ARE ESSENTIAL TO A GOOD ECONOMY 32 CORPORATE BAILOUTS DO NOT UNDERMINE DEMOCRACY 33 AN AUTO INDUSTRY BAILOUT PREVENTS ECONOMIC COLLAPSE 34 DEMOCRACY PROMOTION IS A FAILED ENTERPRISE 35 ADVANCING THE INTERESTS OF DEMOCRACY IS DISASTROUS 36 UTILITARIANISM/CONSEQUENTIALISM SHOULD DETERMINE THE “JUST” 37 UTILITARIANISM/CONSEQUENTIALISM SHOULD DETERMINE THE “JUST” 38 UTILITARIANISM/CONSEQUENTIALISM PROTECTS RIGHTS 40 EXTINCTION AND NUCLEAR WAR SHOULD BE OUR TOP CONCERN 41 CAPITALISM IS JUST 42 CORPORATIONS ARE KEY FOR ENVIRONMENTAL PROTECTION 44 SECTION 5: SAMPLE NEGATIVE CASE AND EXTENSION 45 BAILOUTS ENCOURAGE UNJUST BUSINESS PRACTICES 48 UTILITARIANISM DOES NOT JUSTIFY CORPORATE BAILOUTS 49 UTILITARIANISM/CONSEQUENTIALISM IS A POOR STANDARD FOR MORALITY 50 UTILITARIAN SURVIVAL POLITICS DESTROY THE VALUE TO LIFE 51 MARKET BAILOUT BENEFITS ONLY THE RICH AND POWERFUL 52 MARKET BAILOUT WILL NOT HELP THE ECONOMY 53 BAILOUTS UNDERMINE DEMOCRACY 54 BAILOUTS UNDERMINE DEMOCRACY 56 BAILOUTS UNDERMINE DEMOCRACY 58 BAILOUTS ARE UNCONSTITUTIONAL 59 THE PUBLIC OPPOSES CORPORATE BAILOUTS 60 THE PUBLIC OPPOSES CORPORATE BAILOUTS 62 CORPORATE BAILOUTS ABUSE TAX PAYERS 63 CORPORATE BAILOUTS ABUSE TAX PAYERS 64 BAILOUT FUNDS SHOULD GO TO PUBLIC WELFARE 65 THE GOVERNMENT HAS AN OBLIGATION TO TAXPAYERS 67 THE GOVERNMENT SHOULD PRESS FOR REFORM, NOT BAILOUTS 68 DEMOCRACY IS ESSENTIAL FOR PEACE AND STABILITY 70 SECTION 5: ESSAY NOTES 71 RESOLVED: Federal government bailouts ofmajor corporations are just.W. James Taylor Emporia State University “The question is how we will get there: Will we mindlessly follow the historical pattern of a violent collapse of the inflationary credit pyramid built up over the past thirty years, condemning an entire generation to the miseries, uncertainties, and dangers of another Great Depression? Or will we find the collective will and wisdom to manage our affairs well enough to avoid a repetition of that terrible time?”— Norman A. Bailey, Professor at the Institute of World Politics1 “Money does not just fall from the sky. Ultimately it comes out of people’s pockets. If the government pours money into some industry that is in distress, it must first take the money from some place else.”— Robert W. McGee, Director for the Center for Accounting, Auditing and Tax Studies at Florida International University2 SECTION 1: TOPIC OVERVIEWThis section begins with a general history of corporate bailouts. Afterward, I will outline general philosophical arguments involved under the topic, as well as arguments and strategies for defending both sides of the resolution. A. History and BackgroundWith the flurry of controversy surrounding the Wall Street and auto industry bailouts, it might be surprising to learn that our government has engaged in such activity many times. In 1917, the government outright seized the railroads to make sure goods, weapons, and troops were able to easily move across the country to support our efforts in WWI. After the war in 1920, the government returned the railroads to private ownership and compensated stockholders. However, this “bailout” was targeted at helping the war effort, not so much the railroads themselves. A similar effort was made during WWII when the government seized dozens of companies to secure wartime needs. In 1952, President Harry S. Truman seized most steel companies in the U.S. His rationale was premised on the notion that uncooperative owners would soon foster an industry wide strike that would cripple our efforts in the Korean War. The one common element in all of these that stands out is war. During these periods, the federal government “nationalized” these industries.3 Here we see that bailouts began under a rather expansive definition and scope, rather than the “corporate” bailouts we see being discussed in Congress today. Current bailouts, though, are not without precedent. The modern notion of “corporate bailout” began most prominently in 1979 when the federal government stepped in to aid Chrysler.4 On December 20, 1979, Congress passed the “Chrysler Corporation Loan Guarantee Act of 1979" (Public Law 96-185). This measure aimed to prevent the automobile manufacturer from declaring bankruptcy by providing $1.5 billion in loans. In the words of Karl Marx, “History repeats itself, first as tragedy, second as farce.”5 As I write this essay, Chrysler just closed down production today due to financial turmoil and a denied bailout request.6 Ten years later, the federal government stepped in to bail out failed savings and loan firms (dubbed the “S&L crisis”). This was a massive economic undertaking by the federal government to rescue 747 S&Ls.7 In the end, the government spent over $100 billion in loans. After these banks repaid their loans, the government still lost $40 billion in taxpayer funds.8 Given this year’s bailout of financial institutions, commentators have often drawn parallels between Wall Street and the S&L crisis. However, NPR analyst Eric Weiner sees an important distinction, In fact, the kind of bailout being discussed for the subprime lenders and borrowers is very different from the one that, say, was put together in the 1980s to rescue the failed savings and loan industry. That bailout involved taxpayer money; this one does not. Rather, under discussion are changes to the bankruptcy laws, the rules that govern the Federal Housing Administration or action by the Federal Reserve.9 Weiner argues that the current bailout is more extensive in that it affects the rewriting of major financial laws. In contrast, the government made direct loan guarantees to banks to resolve the S&L crisis. Either way, it was the taxpayer who ultimately paid the price. Shortly after the S&L bailout (although some contend it extended from the early 1980s to the 1990s), the government reached out to Continental Illinois Bank and Trust.10 In 1984, the FDIC guaranteed billions in loans. Even the bank itself warned the federal government that it stood to lose between $1.39 billion and $1.71 billion on the loans—and they did.11 What is most important about this example is the precedent it set for banking and loan procedures. Although it did not come to fruition for Continental Illinois, the idea surfaced to shed all the bank’s bad loans into a separate company that would be owned by Continental Illinois and the FDIC. A growing number of banks are utilizing a novel approach to shed their bad loans: They are putting them into a separate unit and then spinning the unit off to shareholders. With the Federal Deposit Insurance Corporation viewing the approach as a way to lessen the costs of dealing with troubled or failed banks, the creation of these new ''problem loan banks'' is almost certain to accelerate, according to banking officials and analysts. Because this approach could pave the way for otherwise unsalable troubled banks to be acquired by healthy institutions, hundreds of these banks might not have to be liquidated. That is good for the banking system, Government officials and analysts say.12 However, the idea was not as successful as those government analysts believed. Bank failures only continued during the 1980s and 1990s. Several other banks failed, but the approach helped soften the blow to the economy and taxpayer. The next major bailout came shortly after the terrorist attacks on September 11, 2001. The fact that terrorists used commercial airline jets to carry out their plan sent shockwaves that the airline industry. All flights in America were shut down for several days at a huge economic loss to the airlines. Airports were flooded with passenger unable to travel. Once they reopened several days later, lines for ticketed passengers were several miles long at most major airports. Over 100,000 employees were laid off. But the most overwhelming cost came in the form of immediate and subsequent security upgrades. The government stepped in with a $15 billion bailout. This included $5 billion in cash and $10 billion in loan guarantees.13 It is important to recognize that the airline industry was not in financial trouble because of bad business practices. Alan Gottlieb, President of the Center for the Defense of Free Enterprise, explained that the industry was not responsible for its financial status and that the industry was absolutely essential to national security. Our feeling is that, since airlines were ordered out of the skies by our government, we don't have a problem with the intent of this, philosophically…This act of terror – you could call it a war – used the airlines' property as a weapon, and they should not be made to suffer financially for that…. the commercial air fleet in this country is the reserve military air fleet at the same time, under federal law. So I understand the importance of the commercial air fleet to our national defense system.14 Bailing out the airlines after a terrorist attack seems like an excellent example for the Affirmative. Since the federal government ordered them to shut down, one can argue that the federal government has a clear obligation to offer financial remedies. This is similar to the nationalization schemes undertaken for wartime purposes previously mentioned. All of these efforts combined pale in comparison to the 2008 bailout of financial institutions (“Wall Street”). The Emergency Economic Stabilization Act of 2008 authorized the U.S. Treasury to spend up to $700 billion to purchase failing assets from major lending institutions (“subprime mortgages”) such as AIG, Fannie Mae and Freddie Mac. According to government officials and some leading economists, allowing these firms would send a ripple effect through the entire economy—like knocking over dominoes until the entire system collapsed into another Great depression.15 Secretary of the Treasury Henry Paulson’s plan was to buy up all the bad assets, thereby reducing financial uncertainty and restoring confidence in the market. Paulson’s plan of action passed under the Emergency Economic Stabilization Act of 2008 included setting up the Troubled Assets Relief Program (TARP). This program allows the federal government to purchase failing targeted assets of businesses, such as banks and other financial institutions to prevent bankruptcy and default. Additionally, TARP allows the Treasury to directly inject these firms with equity investments and purchase bad loans.16 In using taxpayer funds, TARP functionally makes every American an investor in the market. At the time of the bailout, the U.S. economy was already suffering from unusually high gas prices, which in turn, raised the price of almost everything. The economy was a hot button issue as well in the presidential campaign. The American public was enraged to think they would have to pay for shifty banks and poor business practices, with just cause. But Fannie and Freddie, driven by the ever-present profit motive, were able to exploit their regulatory privileges to an extraordinary degree, and in ways predicted by no one. They have also been able to duck and weave through their negative publicity over the years in order to maintain this regulatory privilege. And they will continue to do so until there is a major financial crisis or until Congress focuses sufficiently on the massive risks that these entities pose to the federal budget and the American taxpayer.17 Since institutions like Fannie Mae and Freddie Mac caused this crisis by artificially creating excess credit and debt, many argued that infusing more credit and debt through the bailout was the wrong answer.18 But if these actions helped stave off a cycle of credit liquidation (businesses selling off assets out of dire financial need) we would be repeating the same dynamic that occurred during the Great Depression. While many Americans looked at the bailout as a blank check to bad businesses, this is misleading. The bailout package included what is known as a “sunset clause.” This refers to provisions of laws that terminate a portion of the law after a specific date. Only further legislative action can extend those actions defined in the law. The Emergency Economic Stabilization Act of 2008 contains a three year sunset clause in which the government would no longer access funds from TARP. Steven Lohr of the New York Times explains, Will the move presage a more forceful government hand to control financial markets or will it be a brief stint as capitalism’s protector? The package does call for the government investments to be in three-year securities that the banks can repay at any time, when markets settle and conditions improve. “This is clearly a crisis measure in crisis times, but it’s a good thing there is a sunset provision that limits the length of the government’s investment,” said Richard Sylla, an economist and financial historian at the Stern School of Business at New York University. So while the government uses taxpayer funds to bailed out failing banks and lending institutions, there was no blank check. Moreover, these institutions are required to repay the loans. After a long history of corporate bailouts, America is in the midst of yet another impending bailout, this time for the automobile industry. Detroit automakers Ford, Chrysler LLC, and General Motors (sometimes referred to as “the Big 3” or simply “Detroit”) have petitioned Congress to access $15 billion of the TARP funds to prevent their collapse.19 Congress denied a bailout package for the Detroit automakers in early December, but President-elect Obama has promised immediate action after his inauguration if the current Administration cannot reach a deal. Why bail out Detroit? These three automakers play an intrinsic role in the U.S. economy.20 Debaters should pay close attention to the events of the next few weeks and months to developments on this issue. Download 343.42 Kb. Share with your friends:
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