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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.'"
Union beard
$10B it's feared
Need a crony scrape
Or the market's a jape
Burma Shave
Get thee glass eyes, and, like a scurvy politician, seem to see things thou dost not.--King Lear
... does betting almost your entire pension on the fate of one single company seem like a really unwise idea?
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.
The Internet King? I wonder if he could provide faster nudity.
The government previously forgave $15.4 billion in loans to GM: http://www.reuters.com/article/2009/05/19/gm-bankruptcyplan-idUSN1943363120090519
In addition, the government would extend a credit line to the new company and forgive the bulk of the $15.4 billion in emergency loans that the U.S. has already provided to GM, the source said.
The government also made a "special ruling" for companies receiving bailout money... http://online.wsj.com/news/articles/SB10001424052748704462704575590642149103202
It [GM] won't have to pay $45.4 billion in taxes on future profits.
Not only is the taxpayer out over $70 billion to bail out GM, but the original bond holders who were illegally robbed are still waiting for their money too.
No, you're wrong.
There is a lot of supporting industry around automobile manufacturing. You can't just put it off to the side like you did. Also, if automobile manufacturing shut down the entire region would be thrown into deep economic turmoil that would spread to completely unrelated sectors.
" 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 [...] "
Funny how they don't think throwing 10 billion down a toilet didn't further damage the economy. Even if GM went out of business, which it wouldn't have, someone else would have bought the resources and done something with them. Just flatly stating that 1 million jobs would have been lost is so deceitful.
I also remember telling people over and over how this was going to be a huge loss since GM would never be able to pay it back and every liberal democrat crawled out from under every rock saying that this was going to be a great profit and win. NOW ... now its "Oh, we never meant to make a profit." Yeah, just like if I liked my health care / doctor I could keep it.
Just wait till the 2014 elections ...
Well done - maybe next time you could try and break even? (Depending on how you look at it, AIG was a profitable bailout, for example.)
Ken
Hell, in 1985, West Germany gave East Germany just a few billion Marks. And on that they ran another 5 years. Even with inflation taken into account, those commies were better managers than GM managers obviously are.
We used to have a Bill of Rights. Now, with the rights gone, all we have left is the bill.
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.
The Evil Corporations[TM] aren't the problem — GM was bailed out against the wish, desires, and the better judgement of executives and bankers nation- (and world-wide). No, the bailing out of the auto-industry profited unions — not corporations.
Freshly elected Bush, enjoying the support of the his party's majority in Congress, did not bail-out Enron in 2001. Likewise MCI got liquidated in 2006. What made GM and Chrysler different? Unionized work-force — that's what. But blaming "unionocracy" just does not have the same ring to it, does it?
In Soviet Washington the swamp drains you.
It is because we are economic slaves to the elite. Feudalism never died - it only changed form. Instead of being servants to the lords and masters, we are all servants to government.
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)
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.
Damn Democrats always messing with the free market.
Um, this started under GWB
To Tea Party Republicans, GWB was a Democrat.
the major parties are basically the same on all but cosmetic issues
Let's look at the facts:
Democrats: 205 in favor, 20 opposed
Republicans: 32 in favor, 150 opposed
½ right. Bush stared the process but Obama finsihed it - and Obama did make some of the decsions.
My biggest grip is that Obama reward the union by putting their claims ahead of the other unsecured borrowers and bullied those who opposed them. If you want to argue that pension benefits should be ahead of unsecured debt that’s fine – please change the bankruptcy law – don’t retroactively change the rules to benefit your constituents.
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.
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.
While few normal people would begrudge the bailout for saving everyone even greater costs down the road, Anglo Saxon style capitalism has a BIG problem holding while-collar bludgers and thieves accountable for taking profits in good times, dumping liabilities, socialising losses and making society pay for their fuckups.
Failure must be punished ruthlessly, but we fail to do so miserabley.
The government should've rounded up all the senior managers, and garrotted them all in public for their crimes.
He is a lot like Barrack Obama. The guy who created entirely new sections of government to rule over our freedoms.
They are different.George seemed to have a bit more respect for the people. Nice enough guy I would guess. But they both are responsible for spearheading a campaign to remove freedoms from the people. They both damaged the country. The real difference is that Obama still has time to screw more stuff up.
Why is it so hard to only have politicians for a few years, then have them go away?
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.
The Free Market is about profit and loss. Risk and reward. There is no such thing as "Too big to fail" in the Free Market. GM should have failed. Let it be refactored to be profitable without a big bailout, or even sell off it's assets.
Bailing out companies that make poor decisions because they are "Too big to fail" is crony-capitalism. It allows companies to make poor decisions and get away with them, and promotes brib^H^H^H^HPolitical Contributions.
if (it != oneThing) it = another;
Is memory that short? We were on the brink of global financial meltdown. GM was but one of the massive dominos teetering. Widespread bank failure seemed to be a real possibility. It's hard or maybe even impossible to prove a negative but, at the time, global depression seemed to be a very real possibility. The stimuli employed in averting that depression may have been our best investment since the Marshal Plan, or The New Deal. There is no scientific way to prove its effectivness but I am grateful we spent that money.
The USA is only 4X older than me...perspective
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.
As harsh as it is for those on the losing side of the ledger, capitalism requires failure for those who misallocate resources. Periodically disrupting Adam Smith's "invisible hand" is very tempting and can be rationalized in countless ways, some intellectual, some humane, but in the end the result is weaker economy that is less able to compete on its own against other countries without continued subsidy from the government.
Humans would have turned out rather differently if mother nature had decided to take the kind route and let some of our mutations survive and procreate.
Even Lehman Brothers was allowed to go under as late as September 2008 — under Bush.
Interesting example - because that's exactly what caused Bush and Paulson to panic and start handing out goodies to the rest of the finance industry.
The subsequent TARP was a bow to Congress
Really? The same TARP that was the brainchild of Bush's SecTreas Paulson? The one that congress initially rejected because it was a few pages that basically said give the SecTreas $700B and he pink swears to do the Right Thing with it (the same SecTreas who'd was chairman and CEO of Goldman-Sachs).
the taxpayers recovered 97% of the monies given to the evil "banksters" under the program. Compare to the figures of the auto-bailout
Ok. Auto-bailout: $10.5B. TARP: $24B (read the 2nd paragraph of your own link - that 97% number is very deceptive). For bonus points, discuss how much of the TARP money was paid back because the Fed loaned the banks money at an even lower rate. It doesn't take a financial genius to realize that it makes sense to payoff loan A using the loan B money, if loan B is at a lower rate.
Go back to the auto-bailout (and the subsequent cash-for-clankers fraud). Nothing represented as blatant a wealth-transfer from taxpayers to "workers" (or, indeed, to anyone else) in recent history.
Nice of you to limit transfer of taxpayer's money to only that received by "workers". You conveniently left out bank executives, bank shareholders, highly speculative "investors", etc.
The bottom line is that you are obsessed with how much money "workers" get from taxpayers, regardless of the fact that much more was transferred to people who aren't "workers". Your ideology blinds you to any real concern for the taxpayer's money. You may call yourself a Libertarian, and you may even vote that way, but considering your agenda and your defense of Bush, it's obvious that you're a Republican in libertarian's clothing. A corporatist (not excusing Democrats here) is as far as you can get from a genuine libertarian.
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
Numbers. Specifically, the number of employees who don't have any say in how GM is run, didn't have any say in the decisions that led to it cratering, but who'd end up without jobs, on unemployment and dependent on welfare and food stamps and the like to survive, if GM went out of business. With the state of the economy as it is, the country can't afford that, and so the government acted to prevent it. They can't do that for everyone, though, so when choosing who to bail out and who to let go the impact of that choice on the rest of the country comes into play. GM's workforce suddenly becoming unemployed could very well be enough to send the country into the next Great Depression, the neighborhood bookstore closing probably won't.
So you think that financial entities are more important than people?
Capitalism is great but it has seriously devalued people. We need a little balance here.
I don't read your sig. Why are you reading mine?
Interesting article in the Guardian this weekend which talks about the failings of capitalism:
http://www.theguardian.com/world/2013/dec/08/david-simon-capitalism-marx-two-americas-wire
I think the Pope has it right... we have gone off the cliff worshiping the golden calf.
I don't read your sig. Why are you reading mine?
Of course not – but I am not sure what that has to do with anything. If you don’t like the law, change the law. Can you explain why GM pensions are more important than other pensions that held GM debt? Or do you think the President should ignore the law anytime he feels it is inconvenient? Or maybe only sometimes? If so, when can he break the law?
America is a nation of laws, not a kleptocracy where elected officials buy votes by throwing cash at their privileged base. I am exaggerating to point out the principle involved but it is a principle that I think should be robustly protected.
AIG executives got bonuses just after they tanked the economy and received a big bailout because "they had a contract" but the contracts that employees have with GM for their pensions didn't matter?
I don't read your sig. Why are you reading mine?
In the real world however a GM liquidation would have destroyed the entire supply chain. GM doesn't exist in a vacuum. Ford would have gone bankrupt as well because they share the same suppliers. Even Toyota would have taken a hit.
Or perhaps GM would have been calmly restructured according to law, but apparently we don't care too much about the rule of law.
Of course not, but then again the bond holders also had a contract with GM.
In bankruptcy law there is an order of payment.
Payroll (as you mentioned in the AIG case) and taxes are first,
Secured lien holders are second.
Unsecured lien holders – which includes pension obligations - are third.
Stock holders are last.
Obama jumped the pension obligation ahead of the secured lien holders. There was no legal reason for this and it was wrong.
If you think the order of payment is wrong then get the law changed. Don’t retroactively change the rules because you have political debts to pay off.
Which sections of government did Obama create? I'm assuming you meant Homeland Security for Bush.