Final Article

"OTTAWA TELLS GM: CUT MORE", National Post, Tuesday, March 31, 2009

This article talks about how the car companies, GM and Chrysler, have one last chance to fix the mess that they are in. Otherwise, they will have to face bankruptcy. The two car companies pleaded for as much as US $32 billion in new loans to keep them alive in this auto industry crisis, but the Canadian and U.S. governments refused. Instead, they promised to back them up with temporary aid and demanded that they make more drastic changes or else be pushed into bankruptcy court. U.S. president, Mr. Obama, says the government cannot let the auto industry vanish, but it cannot continue to excuse poor decisions. GM now has 60 days to develop a more aggressive plan. The article further talks about how the governments are coming up with ways to try to save the auto industry.

In the chapters of the textbook, we learned about how a business tries to maximize revenue and minimize expenses to get the maximum profit. We also learned about how cash flow is crucial for a company to do well. Without cash, a business would not be able to run. This article relates to the chapters of the textbook by showing how the two companies are failing without enough cash. Furthermore, we learned about analyzing financial statements to see how well a company is doing. In that chapter, we learned about the debt ratio and leveraging. The two car companies are depending on leveraging to keep their businesses running; therefore their debt ratio is poor.

In my opinion, I think it is correct that the government is adding some pressure to the two car companies. The governments do not want the auto industry to fail, but they must make the car companies understand that they cannot always depend on the government for money. If the car companies kept on making bad decisions and not come up with a good plan, they would just keep coming back to the governments to borrow new loans. Moreover, it is very important that the companies come up with better plans because it involves a lot of people and their jobs. If GM and Chrysler went bankrupt, it would cause many people to lose their jobs and affect their families. It would drag the economy down ever more.

http://www.nationalpost.com/news/story.html?id=1445830

Chapter 16 Media Article

"B.C. records largest increase in EI recipients", Vancouver Sun, February 25, 2009

This article talks about how all of Canada's provinces had increases in Employment Insurance recipients, but British Columbia had the country's largest increase amount. Compared to the same month in 2008, B.C's EI (Employment Insurance) recipients went up by a large amount of 33.2%; Alberta's increased by 30.3%, and Ontario's by increased 29.6%. From December 2007 to December 2008, there was a 79 100 increase in the number of Canadians receiving EI benefits. The number of men receiving benefits increased more than women. Gilles Groleau, an economist, said that B.C's numbers showed a "U-curve", beginning with a high number of EI recipients in 2005, then dropping quite a bit, and then increasing a lot in 2008. Since the economic crisis in 2008, the numbers have been steadily increasing.

Chapter 16 talks about payroll accounting and the different deductions made from payrolls. Chapter 16 relates to this article by showing how employers and employees each pay for portions of Employment Insurance. Deductions are made from the employees’ pay cheques into an Employment Insurance fund. If a worker who sufficiently contributed to the fund becomes unemployed, they are able to receive payments out of the fund. Employers are also required to contribute in paying for portions of the Employment Insurance fund. Employers contribute 1.4 times the amount contributed by employees.

I think that the country’s unemployment rates will continue to increase as the economy continues to fall. In my opinion, the government should try to improve this situation by providing more jobs and opportunities for people so that they do not have to become unemployed. Such a huge number of Employment Insurance recipients will take out a lot of money from the government every month, causing the economy crisis to worsen. I think the best way to help the economy is to try to minimize the unemployment rates so that everyone has money to earn and spend, therefore heating up the economy. Hopefully those unemployed will try their best to look for new jobs, instead of waiting for the government to pay them their monthly amount of EI.

http://www.vancouversun.com/records+largest+increase+recipients/1326494/story.html

Chapter 15 Media Article

"Risky Business", National Post, Tuesday, March 03, 2009

This article talks about the accusation that Canadian banks are not lending enough money. The real problem, however, is actually the collapse of lending from banks outside Canada. Because the foreign banks have been withdrawing from Canada, Canadian banks are having problems with impaired capital. Banks are expected to price loans on cheap credit from governments, not risk. Many people are complaining that the banks are being unfair and denying credit lines, but they do not understand that the big problem is risk. Because of the current economy crisis with increasing unemployment rates, the banks need to be careful to whom they lend their money to. High interest rates are needed to cover for the future, in case people and/or businesses do not repay their loans.

In chapter 15, we learned about the importance of analyzing financial statements. We also learned about how financial statements are used by banks to evaluate borrowers’ abilities to repay loans. This article relates to chapter 15 by showing how Canadian banks are being cautious to whom they lend money out to, because the current economy is not doing very well, which increases the risk that loans will not be paid back. The banks need to look at a company’s ability to make a profit as well as the worth and marketability of the company’s assets in case they need to be sold to repay the loan before they decide to give out credit or not.

In my opinion, I think that the banks are correct to be careful when giving out loans. With increasingly high unemployment rates and businesses closing, there is a huge risk that loans lent out cannot be paid back. That will cause the banks to lose profit and make the economy even worst. I understand that no one likes to pay high interest rates for loans, but I think it is necessary for the bank to do so, just in case they do not get money back in return. Furthermore, I think that foreign banks withdrawing money from Canadian banks is another reason why Canadian banks need to be very cautious, since their capital is limited.

http://www.financialpost.com/story.html?id=1346372&p=1