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US Treasury Completes Bailout of General Motors
Hugh Pickens DOT Com writes "Jim Puzzanghera writes in the LA Times that the federal government has sold its remaining shares of General Motors stock, ending the controversial $49.5-billion bailout of the automaker begun in late 2008 under former President George W. Bush. Although the GM bailout ended with a $10.5-billion loss for taxpayers, Treasury officials say the goal never was to turn a profit. The rescue prevented further damage to the economy and the potential loss of 1 million jobs says Treasury Secretary Jacob J. Lew. 'This marks one of the final chapters in the administration's efforts to protect the broader economy by providing support to the automobile industry.' At its height, taxpayers had a 60.8% ownership stake in GM. The auto bailout will rank as 'one of the most important interventions, maybe the most important, in U.S. economic history,' says Sean McAlinden, chief economist for the Center for Automotive Research. Without it, 'the upper Midwest would still be a gaping, double-digit unemployment hole in the economy, 600,000 retirees would've lost their pensions.' ... The Cadillac CTS was picked as Motor Trend's car of the year and the Chevrolet Impala was the first U.S. car chosen as the best sedan on the market by Consumer Reports in 20 years. 'We will always be grateful for the second chance extended to us and we are doing our best to make the most of it,' says GM CEO Dan Akerson. 'Today is not dramatically different from the hundreds of preceding days during which we have worked to make GM a company our country can be proud of again.'"
Which, if history is any indication, will go to the existing companies with deep pockets, and will continue to restrict the market to a couple of huge players -- or one smaller one backed by someone with deep pockets.
A collapse of GM would not magically create a bunch of small startups to fill the void. It would mostly just redistribute among the big players.
Lost at C:>. Found at C.
Socialism for megacorporations (which, after all, are people too!) that have been managed into oblivion, but free-market capitalism for the rest of us slobs.
That if GM had collapsed, it would have created a huge vacuum, that would have rapidly been filled with new startups.
No it would not have. You clearly have NO idea how much capital is required nor how much infrastructure is needed to build an auto company and the supply chain that goes with it. Furthermore you seem to be forgetting that in 2008 there was ZERO capital available. Nobody could get capital from the banks because there was no liquidity to be had. Your notion that a bunch of startups could even begin to fill the void left by a suddenly missing GM is laughable. Even if we could have magically waived a wand and provided the capital the engineering would take years. It takes many years to even build a very small auto company like Tesla.
GM isn't just an assembly line. It is the keystone in an entire supply chain. GM goes under and so does virtually every Tier 1 supplier as well as Ford and Chrysler. Even the CEO of Toyota admitted publicly that GM being liquidated would have hurt Toyota badly because they depend on many of the same suppliers. My company would have been out of business entirely and we are a Tier 3 supplier to GM. And we would have been just one of thousands of firms that would have collapsed. Even Tesla would likely have collapsed because the supply chain would have imploded. Tesla depends on many of the same suppliers who would now be bankrupt.
The auto industry has a massive supply chain with dozens of companies involved at each stage from collecting raw materials all the way up to manufacturing finished parts, as well as a massive dealership organization. If any of the major automakers were to just shut down, their own employees would be a drop in the bucket compared to the overall employment effects. Many of those supporting companies would be forced to close altogether.
Damn Democrats always messing with the free market.
Um, this started under GWB -- it's even in the summary. I doubt it mattered who was in office at the time, as the major parties are basically the same on all but cosmetic issues, but if partisan trolling is your thing at least get it right.
And the birth certificate thing... Really? Still?
Gosh, thanks. That must be why the other ships call me Meatfucker -- GCU Grey Area (Eccentric)
I'm glad we had anti-union pushback to provide those 50 years of higher wages and prosperity after the depression! Who knows how much higher wages would have been without the unions messing stuff up and preventing business owners from paying more out of the kindness of their hearts!
We bailed out the automakers for the same reason we subsidize food production - there is a strategic value in being self-sufficient. If there was another world war or a global catastrophe, we'd be fucked if all our cars and trucks and armored vehicles and tanks were manufactured elsewhere. And what's $10 billion compared to the trillions we already throw away to make sure the oil keeps flowing.
No, if GM had collapsed it would have taken the rest of the auto industry with it. See, first GM goes down. Then the GM suppliers start falling, because they're close to the edge and GM defaulting on payments breaks them. There's no funding available to restructure, so they're all getting liquidated at pennies on the dollar (remember, we're in a massive banking crisis with a liquidity crunch). The failures cascade down the supplier chain, and then start taking out other automakers (because they can't get parts anymore). Pretty soon you've blown up most of the industry. The correct anology isn't a a tree falling, making room for new, younger trees. This would be more akin to a massive forest fire (or even a volcanic eruption). Sure eventually you'd recover, but it would take years to decades and meanwhile it leaves a massive patch of utter devastation to deal with.
The fundamental principle of capitalism is "good* companies succeed, bad companies fail". Without that, capitalism breaks down.
If a company is "too big to fail", that breaks capitalism. No company should ever get to such a position (even if it gets there legitimately), because when it does eventually fail, it's going to do too much damage.
That may not have been easy to see before the economy shit itself, but it was definitely something anyone could see while the bailouts were happening. It should have been MANDATORY for any company that accepted bailout money to be broken up into pieces that were small enough, individually, to fail without destroying the entire economy. The fact that this did not happen means that we're just waiting for them to fail and ask for a bailout again.
That said, I can think of a few situations where such a bailout would been justified. If the company's failure were caused by something truly unpredictable (meteor impact), or if it were not too-big-to-fail beforehand (eg. a military-equipment manufacturer could become essential to the nation if WW3 started up), it could make sense to do a bailout. It's not pure capitalism, but I'm not a pure capitalist. But these bailouts? None of them were at all unpredictable, and most of these companies have been "too big to fail" for longer than I've been alive (and that's not just because I'm young - AIG predates WW2, and GM predates WW1).
* I'm using a non-cynical definition of "good companies" and "bad companies" here - for my purposes, a good company is one that offers a product that is in demand at a price customers can afford while turning a profit (or at least breaking even), while a bad one either offers something nobody wants, cannot do so at a price customers can afford, or can only do those two things by burning through cash.
Unions provided higher wages back then. Corporations prospered, and CEO's didn't starve. We've had "prosperity" since 1980, but now, American workers aren't making shit for wages, and have to buy everything on credit, and also have to work two jobs, in order to stay afloat. There's no comparison.
The market has been fine since the beginning of human history. Leave it alone
The Free Market saves! The Free Market has no flaws! Trust in the Free Market, and you will be able to buy Paradise(tm) some day!
Market failure is both a hard fact of reality and, apparently, anathema to the dumbest religion in history.
That if GM had collapsed, it would have created a huge vacuum, that would have rapidly been filled with new startups. The automotive industry could have gotten a big injection of "new" and we'd have maybe dozens of Tesla-like automotive companies.
Try not to take this the wrong way, but I do find this common libertarian faith in capitalism to be very naive. The belief that letting the market decide everything is the best approach is just bizarre to me. It may be a good way of allocating resources efficiently, but it's also a recipe for economic inequality and environmental catastrophe.
If GM had collapsed, it's not just GM that would have disappeared. There were MANY perfectly solvent suppliers that would have also gone out of business. These companies employ millions of people. With no cash flow, they cannot survive until these "new startups" get off the ground. How long do you think it takes to create a car company from scratch?
And what would happen to all of these unemployed workers while all these startups are starting over from scratch? Economists were estimating the unemployment rate would have been around 15%-20% if the entire auto industry was allowed to fail. What effects would this have been on the remainder of the economy?
Any what makes you believe that this vacuum would be filled with startups in the United States? It's much cheaper to start a company in China where you can simply dump your waste in rivers, and where you don't have to worry about stuff like worker safety. It's been reported in National Geographic that 70% of rivers and lakes in China contain water unsuitable for ANIMAL consumption. Our environmental regulations put the United States at an economic disadvantage since Chinese companies effectively don't have to spend money on reducing their pollution. And their workforce is accustomed to living on slave wages, having to work 12 hours a day, 7 days a week to make enough money to survive. And if a worker gets hurt or dies, there's plenty of replacements ready and able.
However, from a pure libertarian perspective, you're essentially right. The market would have adjusted and allocated resources in the most efficient way. The winners would have been factory owners and investors in China, and to a lesser extent workers in China whose wages and working environment would have improved somewhat, but still much lower than that enjoyed by American workers. American workers would have been decimated because from a purely economic viewpoint, they simply cannot compete with cheap labor and lax regulation overseas.
So sorry, but screw your libertarian beliefs if they mean I need to work for slave wages 7 days a week to survive, only to die at a young age due to emphysema or cancer because of pollution.
The government should not have allowed mergers into just 3 companies anyhow. If there were say 7 or so car companies, then one or two failing wouldn't topple the whole north.
If you let oligopolies form, then you get Too Big To Fail. We still have banks that are Too Big To Fail. Nobody has the guts to slice them up.
Table-ized A.I.
They should have broken up the banks that needed bailouts and sold off the parts. That is what Paul Volcker (and other smart people) have suggested.
Theoretically the bailouts were necessary, but the survival of those banks was not.
"First they came for the slanderers and i said nothing."
social services for all those laid off employees would have been over $100 BILLION.
Considering over $1 TRILLION was spent bailing out the banks and Wall Street, that doesn't seem too bad.
We will bankrupt ourselves in the vain search for absolute security. -- Dwight D. Eisenhower