A Summer of Consequences

A steady cascade of consequential headlines flowed across the nation this summer, each one highlighting a different aspect of our current predicament. Rather than comment on each development specifically, I offer them here in cascade instead.

General Motors, which once controlled more than 50% of the domestic auto market, filed for bankruptcy protection on Monday – an action once considered unthinkable. It was the third largest bankruptcy filing in U.S. history (the collapse of Lehman Brothers last fall was #2). It happened after years of market share decline, capped by a dramatic plunge in nationwide auto sales this year, which fell to a 26-year low. In a vain attempt to stave off bankruptcy, the federal government pumped $19 billion into GM directly, and will likely pump another $30 billion into the automaker before all is done. Altogether, the tab to taxpayers for the entire U.S. auto industry could reach $100 billion. After emerging from bankruptcy the government will own a 60% stake in GM, with the union and creditors owning the rest. GM will shed its Pontiac, Saturn, Hummer and Saab brands and eliminate 2000 of its 6000 dealerships. The result could be 100,000 job losses if those dealerships are forced to close. GM stock will be reissued at a fraction of its original value, essentially wiping out investments. As a consequence of bankruptcy, GM will be removed from the Dow Jones industrial average, where it has been listed since 1925. It will be replaced by Cisco Systems, a technology company.