The national security bailouts
In 1971, Lockheed had made a series of ill-advised decisions, making overpriced planes for which there was little demand. Facing bankruptcy, its leaders sought a rescue from Congress.
A key part of their argument: The demise of the nation’s largest defense contractor and maker of airframes would threaten national security, eliminating supplies the Pentagon needed during the Vietnam War.
That argument was enough to secure a $250 million loan guarantee, despite the strategic errors by the company that led to that predicament.
It sounds remarkably similar to the situation facing now Boeing, the nation’s premier aerospace company. It was already facing a crisis from its crash-prone 737 MAX plane. And now its main customers, airlines, are canceling orders and mothballing existing planes, threatening to cause its revenue to plummet in the coming months.
If Boeing finds itself in a financial hole, expect to hear a national security argument for saving it, given that it is the United States’ second-biggest defense contractor. No. 1? That would be Lockheed Martin, the descendant of the firm President Nixon bailed out five decades ago.
The obligatory bailout
Sometimes the government has less leeway than it might seem.
When Fannie Mae and Freddie Mac experienced huge losses on faltering mortgage loans in 2008, the Bush administration certainly didn’t want to let them fall victim to the whims of the marketplace. But it also didn’t have much choice.
Those firms were “government sponsored enterprises,” entities that may have lacked an explicit legal guarantee, but existed in a gray area where federal backing was widely assumed by owners of the firms’ debts. If the administration had allowed them to go bankrupt, it could well have caused global investors to question the credibility of the United States to honor its obligations.
Article source: https://www.nytimes.com/2020/03/19/upshot/coronavirus-comparing-bailouts.html
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