Full privatization of GM cannot come soon enough

Freedom Newspapers

The U.S. government shouldn’t be playing the stock market with Americans’ tax money. But that’s what it did in 2009 when it bailed out General Motors and Chrysler, which, combined, received $85 billion from the Bush and Obama administrations. Both companies were restructured under President Barack Obama.

The U.S. Treasury issues monthly reports on how the bailout is progressing. Its latest report, released last week and covering the period ended Sept. 30, found that the government now expects to lose $23.6 billion from the bailout. That’s up $9 billion in one month.

In May, Chrysler repaid its government loans; so, the culprit now is a sharp decline in GM stock, down by one-third in the quarter ended Sept. 30, to $20.18 a share. Since then, GM stock has risen a little, to $21.79 on Nov. 17, or 8 percent. The government, as majority shareholder, owns 500 million shares of GM stock, so that’s a “paper” increase of $800 million, narrowing the loss to $22.4 billion.

President Obama has touted this bailout as saving hundreds of thousands of jobs. No doubt he will use the bailout next year against his Republican rival. All the GOP presidential candidates say the bailout was a bad idea.

The president and other defenders of the bailout ignore the observations of French economist Frederic Bastiat (1801-50) in his essay, “What is Seen and What is Not Seen.” The economist meant we must look deeper than what is first apparent. In this case, we see auto workers receiving paychecks and the continued viability of the larger supply chain of companies to all automakers. But here’s what we don’t see: First, there’s the money taken from taxpayers, who might have put it to better productive use in their own lives.

Second, the “restructuring” had a number of adverse effects: One-quarter of GM and Chrysler dealerships were closed within three months of the firms’ bankruptcies, John Berlau told us; he’s the director of the Center for Investors and Entrepreneurs at the Competitive Enterprise Institute. Those jobs all were eliminated.

Next was the “rip-off of the bondholders and secure creditors,” Berlau said. In a normal bankruptcy, such people — the actual owners of the company — are paid off first from the company’s assets. Both GM and Chrysler still were viable companies, with factories and inventory. But those assets effectively were taken over by the government, with large shares given to the United Auto Workers union. The bondholders and creditors could have found a way to restructure GM and Chrysler on their own, or do something else productive. Instead, they received only a fraction of what they were owed.

Berlau pointed out that stiffing the bondholders and creditors also made other contracts in America less secure, and fueled investor worry over where government might decide to intrude next. How much does that concern contribute to a climate of uncertainty and investment paralysis? That is the unseen.

Finally, the government intervention shut off other potential avenues GM had to work out its own problems; notably, the 2009 bailout lessened the pressure on GM to come to a deal to sell the since-defunct Saturn line to Penske Automotive Group. Instead, Penske withdrew the bid, Saturn production was ended, and the jobs were lost.

In short, the moment that GM is fully private cannot come soon enough.