GM: The Other Shoe Drops

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After having run ads in Michigan boasting of its “success” in rescuing GM and Chrysler, the Obama administration won rather narrowly in the general election. It now feels safe enough to let the other shoe drop: it has just announced that it will start selling off its remaining stock in Government Motors. It will sell 200 million shares immediately and the remaining 300 million over the next 12 to 15 months.

All of this allows us to assess the costs of the Great American Carmaker Nationalization Game. And the price is high, indeed, at least to the US taxpayer.

Start with the direct costs. The 200 million shares will be sold by Uncle Sap back to Greedy Motors for about $27.50 per share. Let’s charitably suppose — though it is not at all clear that this supposition is realistic — that the other 300 million shares will also fetch the same price. That returns to the taxpayer about $13.75 billion, out of the $30 billion the US is owed, so the loss is about $16.25 billion.

But wait. The sale of Chrysler stock last year netted a loss to the taxpayer of at least $1.3 billion. That brings the total loss to $17.5 billion.

But wait again. In the corrupt bankruptcy engineered by the Obama administration, the new GM was illicitly allowed to carry forward a tax writeoff of at least $15 billion. So that brings the total to $32.5 billion.

Those are only the direct costs to the taxpayers. Let’s follow Bastiat’s advice to look for costs that are not salient.

Fist, the very fact that bankruptcy law was corrupted and the top position of the secured lenders put aside in favor of the UAW (big Obama financial backers) doubtless led to at least some investors becoming reluctant to loan to business out of uncertainty whether the administration would stiff them, too. How much business activity this crony deal deterred we can only guess at.

Second, Ford Motor Company, which did not get crony bankruptcy treatment, is now at a disadvantage, because its profits will be taxed, while GM, with that tidy tax writeoff, will face no such disadvantage for quite a while.

As if to rub the taxpayers’ noses in the fiscal dirt, the UAW has grandly announced that its members will be getting $7,000 profit-sharing checks this year. This is on top of all the loot the UAW already pocketed. What are the chances the true patriots at the UAW will use their bonuses to make whole the secured creditors, much less the taxpayers? Absolutely zero — the UAW is only too happy to rip off fellow citizens.

One can understand why a corrupt administration should have waited until after the election to let the other shoe drop. It would have been difficult to explain the massive losses during the campaign. Harder to understand is why people put up with these things.




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Comments

Jon Harrison

The only question is, what would have happened in the economy as a whole had GM gone through a traditional bankruptcy? There would have been some indirect costs to taxpayers under a bankruptcy, though what they would have amounted to is anybody's guess, I suppose.

I sharply criticized the bailout on Liberty's pages back in 2009. But under the circumstances of the time, perhaps polioticians had no realistic choice but to bail out GM and Chrysler.

Certainly, Ford has suffered by standing on its own two feet. This is perhaps the worst aspect of the whole business.

Let's not forget that the bailout began with government guaranteed loans to GM and Chrysler that were made by the Bush I administration in 2008. I'm sure it was just an oversight on Gary's part that he neglected to mention this in his piece.

Johnimo

We'd certainly be interested in having you enumerate the "indirect costs to taxpayers" under a traditional bankruptcy. Politicians always find circumstances unique to the crisis in which they feel compelled to spend taxpayers money. Just what is it you feel compelled to apologize for here .... the fact that George Bush started this GM nonsense?

Gary Jason

I think that the history of bankruptcy in this country gives us a good idea what would have happened to the economy if the two rogue carmakers had been forced to go through a regular bankruptcy. The UAW would have seen their ridiculous contracts (which included forcing the auto companies to maintain at full salary those workers whose plants had been closed down because of lack of demand) nullified, and would have been forced to agree to more realisitic arrangements. Plenty of large companies have gone through the process, and emerged leaner and stronger, without taxpayers being forced to transfer tens of billions of their tax dollars to corrupt union bosses and inept business management.

Obama has created a new paradigm that will be used going forward: waste massive amounts of taxpayer dollars to keep horribly run union-dominated businesses from having to face the traditional centuries-proven remedy for badly run businesses.

As to Bush, yes, he gave them loans--which I opposed--but he did not nationalize those industries, nor did he engineer a corrupt and bogus bankruptcy. And, by the way, he never received UAW campaign money along the way. No, it was your idol, Obama, who chose to do those things, after pocketing massive amounts of UAW campaign cash. That he waited until after the election to finalize the loss (so keep it from being discussed in the election) shows how "proud" he is of his actions.

Jon Harrison

That's fair comment, I'd say -- except for your calling Obama my "idol". I certainly prefer him to Romney and the other Republican candidates of 2012, but as I've said here more than once, he's a mediocre president (though definitely the lesser of two evils).

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