It’s a sign of grim times indeed when the Obama administration is touting a potential $14 billion loss to the taxpayers as a great economic success.
The White House is running on its auto bailouts as courageous acts that saved the industrial Midwest. To critics of government intervention, the administration holds up the revival of General Motors and Chrysler as proof of the efficacy — nay, the necessity — of bailout economics.
It’s a telling point of pride. In bragging about the bailouts, the administration is boasting of a process shot through with lawlessness and political favoritism, not to mention reckless disregard for taxpayer dollars. Few acts have so powerfully captured Pres. Barack Obama’s corporatism.
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The administration believes it trumps all criticism with one data point: GM and Chrysler are still with us. GM has even been making money, and had the biggest IPO in American history last November.
Yet, as Megan McArdle of The Atlantic tartly observes, it shouldn’t have been in doubt that if government threw $80 billion at two companies, not expecting to get all of it back, it could save them. She points out that the loss from the bailouts (the administration’s estimate is $14 billion) will be close to the entire market capitalization of GM in 2007. It will be several times as big as the company’s 2008 market capitalization.
McArdle figures that, at a cost of roughly $10 billion to $20 billion, we might as well have given GM’s pre-bankruptcy workforce of 75,000 hourly workers $250,000 each and called it a day.
On top of the bailout, the government has given GM a special tax break — CNN calls it “a sweetheart deal” — that will save it $14 billion on its U.S. tax bill. The government also is trying to induce consumers to buy GM’s signature new product, the absurdly expensive electric Chevy Volt, by giving them a $7,500 tax credit on its $41,000 sticker price.
With all this support, GM should be the world’s greatest industrial concern. It’s hardly that, although it’s much improved. We can thank Chapter 11, the tried-and-true method for turning around bankrupt companies that still have value.
Writing in the journal National Affairs, Todd Zywicki makes a distinction between “economically failed” companies that disappear when they go bankrupt and “financially distressed” companies that can still work. With a skilled workforce, advanced factories, and prized brands, GM was the clearly the latter. “Virtually every major airline has been through bankruptcy at least once, as have K-Mart, Macy’s, and a host of other familiar brands that are still very much in business,” Zywicki writes.
Somewhere in GM there was a viable car company trying to get out. Through Chapter 11, GM pared down wages and benefits, shed uneconomical dealerships, and ditched unnecessary brands. This was a classic restructuring. If anything, without government intervention, it would have been more thoroughgoing and effective.
As an exercise in what Zywicki calls “state capitalism,” the bailout was a procedural horror show. It was probably illegal to funnel TARP funds into the companies; they may not have been car companies worthy of the name any longer, but they certainly weren’t “financial institutions.” Chrysler’s creditors, who held secured bonds and were guaranteed repayment first, got forced into taking 29 cents on the dollar. In contrast, the United Auto Workers’ pension plan got 40 cents on the dollar. The creditors of both Chrysler and GM were denied their usual right to have a say in the reorganizations.
The government was in a strong position to bully some of these creditors, because they themselves received TARP funds. Once they had their hooks in them, the Obama administration and Congress made the companies to do their bidding, insisting they build politically correct hybrid cars and keep open politically favored dealerships.
Ultimately, the moral stature of capitalism depends on a structure of rules that applies to firms large and small, politically connected and not. By this standard, the auto bailouts fail miserably, and so perfectly distill Obamanomics.
As noted by Mr. Lowery "It was probably illegal to funnel TARP funds into the companies; they may not have been car companies worthy of the name any longer, but they certainly weren’t “financial institutions.”"
Question: Mr. Lowery why did you not write this article in December 2008 when Mr. Bush approved $13.4 Billion of TARP to be given to GM & Chrysler? That was the key moment to stop the farce when Messrs. Paulson and Bush with TARP money bag in hand were going around dispersing our tax dollars to corporations like drunken sailors at port.
Truth Seeker,
You could try doing some seeking. From 12/16/2008 http://www.nationalreview.com/articles/226537/paulsons-pliable-plan/rich-lowry
"A few weeks ago, Paulson insisted that troubled U.S. automakers “fall outside” the original purpose of the bailout program, which “was aimed at the financial system.” That’s quite categorical. Clearly, funds can’t be used for a purpose for which they were never intended. At least that’s what the civics books lead us to believe."
Seems pretty clear to me, Mr. Lowry did indeed write against the misuse of TARP funds to bailout GM and Chrysler.
Perhaps the memory loss you are bemoaning is your own.
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Truth seeker,
The real "truth" here is found in the many laws thrown aside when these bailouts were effected: bankruptcy laws, contract laws, union laws, constitutional laws (limiting presidential power and authority). Furthermore, it's about the purposeful cramdown of shareholder equity when unions and hedgefund holdings were treating completely differently. Obama had NO authority to do what did, regardless of the end, the means are NOT justified in this case. This one act DOES illustrate everything we know about this presidente: lawless, arrogant, impudent, unconstitutional, community organizer. Who cares about Bush? He had no designs on usurping corporate ownership as did Obama. THAT'S the difference.
Truth Seeker, remember that Bush directed the transfer of only a small amount of TARP funds to GM, enough to keep them afloat until Obama's inauguration, and that it was upon Obama's request. It was not Bush's policy initiative. Almost the entire bailout and all of the illegal creditor reprioritizing was done by Obama. The why didn't you complain when Bush was doing it line is quite silly in this case.
TruthSeeker, It could be that the author could have been waiting for the final effects of the Bush evolvement with GM, the fact that Bush was no longer the story because of the recent election, or he could be biased the way most of the media is, his bias being a bit "right"... Examples abound with the “left” and BIG-O in power,,, we no longer hear about illegal wars, (Afghanistan, Iraq, Libya, Gitmo never makes the front page, rendition (what’s rendition?), mispronunciation of Corpsmen did not become big news, teleprompters are not a sign of stupidity, we never hear about his lack of experience, terrible speeches are lauded, and I could go on… I will give Lowery a break on this since Bushes involvement was less than the Obama's (really the taxpayers) loss.
I will never buy a Chevy Volt or any other GM vehicle in the future. The free market provides the best products because it draws upon the intelligence and creativity and desires and needs of billions of people. Government contolled economies draw upon the egos of a few know it alls and try to shove products ( like the Volt) down our throats. I don't trust the quality of GM's products anymore.
The bailouts were bad just bad medicine overall, but the alternative would have been worse. This was an ugly time in American history and there were no good choices.
Obama, McCain or any of the candidates running today would have done the same thing.
The conservative alternative would have led to another Great Depression. Most of us here would not even have an Internet connection to post all of our complaints about these bailouts that saved our Internet connections.
the consequence was not to head into a depression. The last hundred years was full of recessions; some bad some not so bad. But they all recovered. FDR kept us in a massive recession, turning it into the GREAT Depression. Obama turned a normal market swing into a disastrous economy and they know it. They say it was already bad; maybe not. But it is clearly now a fiasco. But there was no imminent Depression coming had we begun to pay our bills. Now that he has added $5 trillion in spending, just who is going to pay for it; and when is it going to happen? just saying...
Has anyone access to the numbers of GM and Chrysler vehicles sold to government (state, federal and local) vs. the private sector since the bailouts started? Pre-bailout, cops all drove Crown Vics. Since then, you see lots of Dodge Chargers and Chevy Whatevers.
I think it would be fascinating to see what GM's and Chrysler's figures would be if you pulled out all the government (aka, politically directed) purchasing, and only looked at private sector car sales.
The reason why you are seeing fewer Crown Vics on the road is that production is being phased out this year. Ford is developing of the next-generation Police Interceptor, based on the 2010 Ford Taurus. I love my 2004 Crown Vic!
On another note, I find it odd that few people have mentioned the critical role that the Big Three played in WW II. Without them, the war would have been much harder to execute... I, for one, am happy that they are still alive. Expensive, yes, but also important infrastructure...
"The conservative alternative would have led to another Great Depression." -- A depression, perhaps, but absent govt. interference, it would have been over in 12-18 months.
The depressions or panics prior to 1929 did not last long. The reason we know the 1929-1946 depression as the Great Depression is because of govt. interference, starting with Hoover and ending with FDR.
The Volt is a GREAT car in certain situations.If you work say 15 miles from home(Not unreasonable for alot of people) you could drive to work, and home again for the cost of a few killowatt hours of electricity.It is a bit 'overpriced, but how much is a Toyota Prius with the same comfort level?
Glad you asked. I just went to the Toyota website. The most money you can possibly spend on a Prius is $35,679. That is one loaded Prius. Still overall cheaper than the Volt, because the Prius doesn't get the tax credit.
Taxpayer dollars should only be expended when so doing serves the good of the American people, as opposed to the good of specific corporations or favored groups of workers. So, how does bailing out GM help me again? If GM had to follow the lawful route of Ch 11 proceedings instead of a bail-out would I have suffered: because there would be no cars to buy, or because laid-off GM workers (something less than 75,000)would have gone on the dole and remained there because, well, they were all otherwise unemployable, or because GM had already established such great technological and market savy that the country could not do without them.
Why in the hell do people assume that without GM there would be a loss to the economic system because businesses that supply them would now have no other car company to supply?
Edward you can't ignore the reality that chapter 11 would have worked without the sleazy intervention of the Fascist in chief.Wake up America. We are in dire straits with this crew!!
"Corporatism", "socialism", "state capitalism". Somehow these don't seem like the right description of BHO's governing style.
Consider this definition: "fascism n. A system of government marked by centralization of authority under a dictator, stringent socioeconomic controls,suppression of the opposition through terror and censorship, and typically a policy of belligerent nationalism and racism."
Methinks we have a soft fascist in the White House.
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