GM bailout still not a good deal, no matter the spin

‘The Tea Party and its predecessors, who eschewed federal loans to GM, simply got it wrong, failing to perceive that a ‘bailout’ can just as easily be called an ‘investment.’”

That was Newsweek’s reaction to the fact that General Motors’ stock did not immediately lose half its value at its IPO earlier this month. We are supposed to be impressed by the fact that the New GM, relieved of $65 billion in liabilities, infused with $50 billion from taxpayers, and given (against IRS rules) an additional $45 billion toward future federal taxes, eked out a quarterly profit despite posting a year-over-year decline in market share.

Yes, it could have been worse, but New GM could still become a costly repeat failure. And whether it does or not, there are intangible losses to the bailout that outweigh financial considerations.

Our government’s integrity was the first casualty. By precedent, we now bail out companies sunk by their own poor business practices. All they need is lots of U.S. employees.

Several companies — including Wal-Mart, UPS and General Electric — have more U.S. employees than GM. They may someday find themselves on the brink, so start saving now.

Another loss: the rule of law. When President George W. Bush threw GM and Chrysler lifelines (with Barack Obama’s assent), he did so unilaterally, despite a congressional vote against an auto bailout.

Obama continued the tradition of the Troubled Asset Relief Program slush fund when he finally committed $80 billion to the dual bailout. The U.S. government became a majority shareholder in an automaker, also without a vote in Congress. Naturally, Obama saw no need to have Congress approve his plan to back GM and Chrysler warranties.

Obama’s automotive task force, as former car czar Steve Rattner writes in his book “Overhaul,” made nearly every important decision about GM’s operations and future in the spring of 2009, while simultaneously trying to make it look like GM and Chrysler were making the decisions themselves.

The firing of CEO Rick Wagoner was just the tip of the iceberg. The company’s relationships with suppliers and foreign subsidiaries, the brands it would kill, the speed with which it would lose dealerships, and a host of other minutiae were being micromanaged from the White House, which felt (with good reason) that GM’s management wasn’t up to the task.

And that $45 billion tax benefit was made possible only through cheating. The IRS bars companies from carrying operating losses through changes in ownership, but it made a special exception in this case.

In the Chrysler bankruptcy, secured creditors were famously jilted so that a United Auto Workers benefits fund could take 55 percent of the new company’s equity. When the creditors objected, they were told by an Obama official: “I need workers to make cars, but I don’t need lenders.” Statements like that work wonders for credit markets.

A profit for the taxpayer is unlikely. It would require the government to sell its remaining GM shares for at least $50 on average (the current price is $34), or more if you factor in some portion of the tax break. And when you account for the intangible losses, even a long-term profit won’t necessarily be a sign that the bailout was worth it.

Columnist David Freddoso is The Washington Examiner online opinion editor.

Op Edsop-edOpinion

Just Posted

Niners defensive lineman Joey Bosa played a major role in stopping the Eagles in a Week 2 San Francisco victory. (Courtesy San Francisco 49ers)
What we learned from Niners beating the Eagles

By Mychael Urban Special to The Examiner Is your glass half-empty? Niners… Continue reading

If he secured a full term in the Senate, Newsom would become the most powerful Californian Democrat since Phil Burton at the height of his career, or maybe ever. <ins>(Kevin Hume/The Examiner)</ins>
Artist Agnieszka Pilat, pictured with Spot the Robot Dog from Boston Robotics, has a gallery show opening at Modernism. (Courtesy Agnieszka Pilat)
Screenshots of VCs, Kanye and tech parties by the Bay

In this week’s roundup, Ben Horowitz’s surprising hip-hop knowledge and the chic tech crowd at Shack15

San Francisco Giants manager Gabe Kapler, pictured in July at Oracle Park, says team members simultaneously can be “measured and calm” and “looking to push the accelerator.” (Chris Victorio/Special to The Examiner)
How Gabe Kapler sets the tone for Giants’ success with strategy, mindset

‘There’s no doubt in my mind that he’s the hands-down manager of the year’

Firefighters extinguish burning material near Lake Tahoe on Sept. 3 in the wake of the Caldor Fire; environmental scientists say the huge fire is bringing to light deficiencies in forest management. <ins>(Max Whittaker/New York Times)</ins>
Cal Fire, timber industry must face an inconvenient truth

We are logging further into the wildfire and climate crisis

Most Read