Financial Times U.S. Editor Questions Wisdom of GM Bailout
With General Motors in serious trouble, Speaker of the House Nancy Pelosi, D-Calif., and Senate Majority Harry Reid, D-Nev., are making a push for the government to intervene and rescue the auto giant as they did with AIG. However, Francesco Guerrera, U.S. editor for the Financial Times, isn't so sure a GM failure would be as bad as some are letting on.
Guerrera appeared on CNBC's Nov. 10 "Power Lunch" to weigh the pros and cons of the newly revised AIG (NYSE:AIG) rescue package. He was asked if this type of government intervention should be offered for General Motors (NYSE:GM).
"That's what they say," Guerrera said. "I'm not sure I buy that. I think there'll be a lot of job losses if GM fails, but there's nothing systemic in the sense that if AIG goes or if, you know, one of the other banks goes - there'll be a ripple effect throughout not just the U.S. economy, but global financial markets. I don't see how you can make the systemic risk argument for a car company."
Pelosi and Reid, in a letter dated Nov. 8, urged Treasury Secretary Henry Paulson to intervene and rescue the ailing auto giant - part of which meant to aid in "the creation of green jobs for the future."
One of the arguments made by legislators, as CNBC's Michelle Caruso-Cabrera pointed out to Guerrera, is that the lending arms of the automakers, including GMAC and Ford Consumer Credit, pose "systemic risk" to the global economy. She also cited the fallout from the failure of Lehman Brothers earlier this year and its effect on the credit markets. Guerrera explained bailing out GM would not be the same thing."I think they're less interconnected than Lehman in terms of their exposure to parts of the credit markets that froze when Lehman went," Guerrera said. "And, I think that those arguments are valid. I just think that they're less clear cut than you would have them for an AIG."