Slashdot Mirror
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.'"
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.
You think so? You don't think the smoking carcass would own all of the patents and make it impossible for a bunch of new startups to get into the industry?
Because in pretty much every other industry patents essentially prevents that from happening.
I'm of the opinion that in many cases, you'd just end up with a huge patent troll which prevents newcomers from entering the market.
There can be no innovation without really deep pockets to cover all of the rent seeking which happens. Because the game has been stacked that way.
Lost at C:>. Found at C.
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.
it wasn't just GM that had problems, it was just the only one that got bailed out
Ever hear of the finance industry, aka Wall Street? By comparison the GM bailout is lost in the noise. Moreover, there were actual consequences for the company and its management. On Wall Street the CEO's who steered their companies off a cliff (save for the US Treasury and the US Federal Reserve) didn't even lose their jobs. They congratulated themselves for being survivors, and great defenders of the free market. They got bonuses to go with the accolades. Best of all, there were no criminal investigations, despite very strong reasons to conduct them (search on "William K. Black" for details from a banking regulator who got 1000 criminal convictions after the S&L crisis, and thinks this one smells worse).
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.