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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