Too Big to Fail

Abstract AIG, General Motors, and Chrysler are as embedded in American business as the people that work for them. Along side companies such as AIG, these corporate giants have been deemed “too big to fail” by the United States government. This text will explore the impact these companies have had on the US housing market and the Circular Flow in the U.S. and global economy.

TOO BIG TO FAIL American Companies Deemed “Too Big to Fail”

1

If there is any question as to what kind of impact a company such as General Motors (GM) Corporation has on the U.S. economy, one needs only to look at some of the statistics that are associated with the financial responsibilities this company has. Some examples of how much GM affects our economy are as follows: During a labor action in 1998, GM closed for fifty four days, causing a full percentage point to drop off the U.S. economic growth rate for its respective quarter (Welch). GM also pays out to its 900,000 employees about $8.7 billion a year (Welch). The figures associated with these statistics are very humbling in light of the enormous downsizing it’s had to endure in the past year. Not only is our country’s national economy felt by massive corporate restructuring throughout the auto, banking, and insurance industries, but our local economies are feeling these actions as well. Our nation’s economy as well as the global economy is also feeling the impact of large businesses failing. With economies restructuring and the US dollar value changing, the national and global economy is changing. It has been argued that the companies that have conducted business poorly should be allowed to just simply shut their doors and not be assisted in any way by the government, but live in a town such as Anderson, Indiana which was once ranked right behind Flint, MI., as the city with the largest concentration of GM operations, and that argument may not come so easy. Towns, such as Anderson, all across America have more than felt the impact of downsizing that many companies have had to deal with (Chapman). As more companies that are the main source of employment in small towns across America close their doors, the economic burden is not only placed on the shoulders of those who once worked there, but the owners of small business within those communities as well. Populations are growing smaller as well as average household budgets, and small businesses are seeing their client base as well as their profits shrink. The decrease in demand for goods and services means that even small businesses need to supply a smaller quantity, this creates a domino effect that is spread nationwide and even globally. Companies that supply small business are forced to limit their own inventories and therefore are forced to alter the

TOO BIG TO FAIL

2

ways in which they conduct business. Less inventory, lowering prices to entice business owners to buy their products and other more clever marketing promotions are ways that a lot of corporations are getting as creative as they ever have in order to maintain a solid source of revenue and keep their workforce employed. Along with the impact felt by business retail, the housing market in small town America is also being put to the test. As more and more people are losing their jobs and being forced to relocate, home prices are being affected by large foreclosure rates as well as competitiveness among home sellers. People are simply just trying to “break even” on their homes these days as opposed to making tens- of thousands of dollars upon the selling of their homes. Most people, if they’ve bought a home in the past five years, are lucky to be able to sell their homes without having to worry about any negative equity (Weston). On the other side of selling homes, you have those who are looking to buy homes. The economic stability associated with a town or city could attract potential homebuyers to live within certain rural areas that surround