UPDATE: Why Can't We Let GM Fail?


The Bush administration, worried about a further blow to the US economy, said it was ready to step in and prevent the auto industry from collapsing. It's widely believed that means they will tap into the $700 billion Wall Street bailout fund to help auto makers.

President Bush had originally refused to use the bailout fund to help GM , Ford or Chrysler, insisting that aid come from Congress. But the White House said it must reconsider after the Senate failed to agree on a $14 billion rescue plan late Thursday night.

Why Can't We Let GM Fail?

According to Moody’s chief economist John Lonski, a GM bankruptcy would trigger a chain of events like nothing we’ve ever seen.

Lonski says if automakers go into bankruptcy, demand for GM, Chrysler and Ford vehicles will drop. As a result layoffs will ensue not only at the automakers but at their suppliers.

That, in turn, would lead to a contraction in the economy, boosting foreclosures, loan charge-offs and bond defaults.

However not everyone sees the situation the same way. In fact, both Dylan Ratigan and Karen Finerman don’t entirely agree with Lonski. They can’t understand why a controlled bankruptcy would not allow the automakers to restructure, successfully.

And that leads to our Fast Money Reader Poll. Do you think allowing the auto companies to go bankrupt would cripple the US economy?

What You're Telling Us

The issue has become a real point of contention with the American public.

Polls show Americans split on bailing out the U.S. automakers, a highly visible troubled sector in a country grappling with recession. Fast Money viewers are split too.

Melvyn W. writes, "They must not be bailed out with my tax dollars. Let them fail, restructure and send the executives and union goons to find new jobs!!!"

Mike K. takes the opposite view. "Bankruptcy court is a bad idea in this case.... We are talking about availability of credit that started a domino effect that was not the fault of the auto companies. I hope you can understand that."

Meanwhile, the auto companies say one in 10 jobs in the United States are linked to their industry. But the companies are widely criticized for poor model designs that have left them with products losing popularity with consumers.

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Trader disclosure: On Dec. 12th, 2008, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Adami Owns (AGU), (BTU), (C), (GS), (INTC), (MSFT), (NUE); Najarian Owns (FCX); Najarian Owns (DRYS) And Is Short (DRYS) Calls; Najarian Owns (NUE) And Is Short (NUE) Calls; Najarian Owns (UYG) Calls; Najarian Owns (XHB) Calls; Finerman's Firm Owns (DSX), (MSFT), (UNH), (IBB); Finerman's Firm Is Short (USO), (BBT), (COF), (IYR), (IJR), (MDY), (SPY), (IWM); Seymour Owns (AAPL), (BAC), (F), (INTC), (MER); Seygem Asset Management Owns (EEM)

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