Better of 2 Evils

A question on every one's mind this Monday must have been that how did Citi manage to bag a $20 billion commitment from the congress when a week earlier the Big Auto were denied $25 billion and asked to chalk out a business plan about how to plan to utilize the money.

The answer is very simple though bitter. Its a matter of picking the better of 2 evils. If the auto industry goes down, then no doubt it will have a significant impact on the employment numbers in US, but if the second largest bank in US does down, then it will take with it much more than just employment. The impact could forestall an even worse shock to the already fragile financial system.

In the words of David Resler, chief economist with Nomura Securities International, "You can't have a financial world without the major banks".

But will there be a Detroit without the Big Auto?

Is GM Next?

Detroit is nothing less than the backbone of the US industrial base and the giant of Detroit, General Motors says that without the government's help in terms of a rescue loan for the industry, it will run out of cash by early next year and might have to file bankruptcy which is turn will start a domino effect that will hit thousands of jobs and hundreds of its suppliers and dealers as well as its Detroit rivals.

The help expected is in terms of a $25 billion rescue loan which several members of the congress are opposing while some others are supporting. One thing is for sure that if GM dies, then so will several other of its rivals and the auto companies in US which are already in a soup will no longer be in a position even to keep the shop floors operational. Recently GM's stock worth based on the predictions for the next 2 quarters and industry outlook for auto manufacturers in US was valued at around $1.
If this does happen, we might have a catalyst which could multiply the current economic crisis several folds.