The year was 1971. Richard Nixon was in the White House. And Texas Republican John Tower was butting heads with Wisconsin Senator William Proxmire over a bailout ... of Lockheed Aircraft.
In early August, the deal came together. The $250 million ($1.3 billion in 2008 dollars) loan guarantee squeaked by the House (192-189) on July 30, but the vote was too close to call as the Senate prepared to vote before a one-month recess. On 2 August, the bill passed the Senate, 49 to 48.
The Back Story
Lockheed was a major defense contractor (and the US was fighting an undeclared war in Vietnam). But it was also competing with Boeing and McDonald Douglas in the commercial aircraft market; in this effort, it was building a new superjet, the TriStar. It had partnered with Rolls-Royce, which was making the airplane engines.
Lockheed's supporters claimed that the company was hobbled by the financial problems of its partner, Rolls-Royce. After the British firm went into government-appointed receivership in February 1971, Lockheed's lenders said, "no more money from us, not without some sort of guarantee."
In May, Treasury Secretary John Connally announced a proposed $250 million line of credit.
The Case For A Bailout
If Lockheed crashed and burned, the argument went, then $1 billion already invested in the jet would be down the toilet. Lockheed estimated that also meant 60,000 jobs (multiplier effect). And the Democrats controlled both branches of Congress, so the jobs argument resonated there.
The Case Against A Bailout
Critics looked not at Lockheed but at TriStar: would it ever be profitable? (Answer: not really. The first plane was delivered to Eastern Air Lines in April 1972, six months late. Lockheed would abandon commercial aviation in 1981.)
And then there was the biggie: precedent. Nixon economic adviser Alan Greenspan "warned that if the Administration made private credit available to one privileged firm, the supply of credit that is available for all will be reduced."
Learn more about U.S. government bailouts.