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.

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