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Treasury Dept. Sells Off More GM Stock

When the Obama administration extended tens of billions of dollars in loans to General Motors and Chrysler to get them through a managed bankruptcy in exchange for stock in the newly reorganized company, conservatives screamed “COMMUNISM! Obama is taking over the auto industry!” It was nonsense from the start; the arrangement was for the government to slowly sell off those stock holdings to pay back the loans as the company recovered. And guess what? That’s exactly what they’re doing:

The U.S. Treasury Department has slashed its stake in General Motors to 7.3%, putting the government within months of ending its direct ownership of the automaker.

The government revealed in an investment transaction report Tuesday that it had reduced its stake in GM more than previously expected. The report comes more than four years after U.S. taxpayers rescued GM and Chrysler, providing emergency financing to guide the automakers through Chapter 11 bankruptcy.

The latest move is part of the government’s broader plan — revealed last December — to gradually sell off all of its GM shares by early 2014.

The U.S. owned 13.8% of GM stock as recently as June 12, according to the transaction report.

In the end, taxpayers will recover all but about $10 billion. That’s a bargain. A huge bargain. If GM had been forced into a liquidation bankruptcy, which was inevitable without government financing for a managed bankruptcy, the entire American auto industry would likely have collapsed. We would have lost around 3 million more jobs in 2009, turning the worst recession since the Great Depression into another depression. We would have had round two of the foreclosure crisis, with more banks collapsing and state and local budgets destroyed by the resulting surge in spending on unemployment insurance, medicaid, food stamps and other benefits. The federal government would have had to take over the pension plans under the Pension Benefit Guaranty Corporation, to the tune of nearly $30 billion for GM alone. Federal revenue would have taken another huge hit from the lost taxes.

The auto bailout was a bargain at twice the price for taxpayers. The American economy would be far worse today if they had let GM and Chrysler collapse and it would have cost taxpayers far more than the bailout. Today, GM and Chrysler are both thriving and gaining market share. This is truly one of President Obama’s biggest triumphs.

Comments

  1. says

    “This is truly one of President Obama’s biggest triumphs.”

    AS SUCH ITS ALL HIS FAULT! OBAMA LOST TEN BILION DOLLARS ON GM! OBAMA LOST TEN BILION DOLLARS ON GM!

  2. laurentweppe says

    If GM had been forced into a liquidation bankruptcy, which was inevitable without government financing for a managed bankruptcy, the entire American auto industry would likely have collapsed. We would have lost around 3 million more jobs in 2009, turning the worst recession since the Great Depression into another depression. We would have had round two of the foreclosure crisis, with more banks collapsing and state and local budgets destroyed by the resulting surge in spending on unemployment insurance, medicaid, food stamps and other benefits. The federal government would have had to take over the pension plans under the Pension Benefit Guaranty Corporation, to the tune of nearly $30 billion for GM alone. Federal revenue would have taken another huge hit from the lost taxes.

    And Obama would have been trounced in 2012. Of Course the GOP is pissed

  3. Reginald Selkirk says

    How about holding that stock a few weeks until the Tea Party Republicans try to shut down the gubmint; then selling the stock to finance the continuation of gubmint servies?

  4. wscott says

    @ Randomfactor: Partly correct. Bush approved the bridge loan (or whatever they called it), then Obama approved the full bailout a while later.

  5. jameshanley says

    . If GM had been forced into a liquidation bankruptcy, which was inevitable without government financing for a managed bankruptcy, the entire American auto industry would likely have collapsed

    Hyperbole. Not only wouldn’t it have harmed Ford or Chrysler, but the American auto industry now includes Mercedes, Toyota, Honda, and Subaru, along with a few others.

    Not that the fallout wouldn’t have been huge, though.

    For the record, I opposed the bailout and still do. If the government’s role is to protect too big to fail businesses, we have an on-going disfunction. And look at Chrysler–our bailout of it in the ’70s was declared a success, and yet thirty or so years later we had to bail it out again. That’s success? Bailing out a company every generation or so? If we had let Chrysler fail in the ’70s, does anyone really think the U.S. auto industry wouldn’t have been at least as strong today? That we wouldn’t, in the succeeding 30 years, have replaced its jobs with other jobs?

    However, to those who screamed “Socialism!” I repeatedly pointed out that the government did not want to get into, and stay in, the auto manufacturing business, but wanted to sell off the GM stock as fast as reasonably possible.

    I haven’t been impressed, throughout this whole issue, with the arguments from any ideological quarter (including my own libertarian quarter).

  6. jws1 says

    @6: Ford supported the bailout – their CEO rightly pointed out that the steel suppliers for GM are also Ford’s steel suppliers and if GM goes under so do their suppliers, and in turn Ford et. al. The Bailouts worked, and gov’t worked – that’s what pisses some people off: their pet ideologies were given the lie, and rather than have a shred of intellectual integrity and adjust their ideologies accordingly as new facts came in, they stonewalled and denied.

  7. Suido says

    @jameshanley #6

    The government’s role isn’t to protect the businesses, it’s to protect the workers and their families from the businesses.

    Too Big To Fail is a direct result of libertarian economic policies. Unless there are artificial mechanisms put in place to restrict the size of corporations, TBTF is inevitable. Lack of market regulation caused this problem, and the least harmful way to solve it was through a bailout.

    If, as a libertarian, you’re going to support unregulated free market capitalism, you have to accept companies will grow until they are TBTF, and that a government (of the people, for the people) will step in and protect those people where possible. You mentioned Chrysler and whether the jobs would have been replaced in the ensuing 30 years – yes, of course they would. But how many people would be unemployed for how long? How many working class families would struggle to feed their children?

    The solution set for a market based economy looks like this:
    1. Regulate the market so companies can’t grow TBTF.
    2. Bailout TBTF companies, and expect bailouts to be needed periodically.
    3. Accept that TBTF corporations will fail periodically and destabilise the economy, inflicting avoidable suffering on thousands/millions of workers and their families.

    As a libertarian, which of those three is your preferred solution?

  8. Michael Heath says

    James Hanley writes:

    Not only wouldn’t it have harmed Ford or Chrysler, but the American auto industry now includes Mercedes, Toyota, Honda, and Subaru, along with a few others.

    Not true. Both Ford and Toyota advocated bailing out at least GM, I forgot their position on Chrysler. That was due to these four companies’ shared upstream supply chain, where especially Ford would have lost key suppliers that would have been catastrophic to lose, even if they’d lost their biggest competitor.

    The above is from memory. I did find this cite validating my memory: http://goo.gl/779t1j.

    Your continued opposition to the bail-out suggests some serious study in supply chain management is needed. Not only would a greatly compromised GM have harmed millions of workers, including local businesses in most communities, but it would have rippled through other sectors, especially the tech sector. Tech companies enjoy far lower prices on materials common or similar to those used by auto manufacturers where there supply chains overlap far more than most people realize (I serviced both industries as a sub-contractor). That’s because the big volumes the auto industry demands of its suppliers cover much of the supply chain’s fixed costs, making the marginal costs for lower volume tech products far less expensive to make.

    Off-topic but another benefit worth mentioning: Tech’s ability to achieve time-to-volume with such high levels of quality and reliability is largely due to the large auto manufacturers’ serious financial commitment to developing supply chains with world-class quality in a context where time-to-market is expected to continuously shrink.

  9. jaybee says

    The claim that letting GM fail would have been survivable is true but beside the point. As others have said, there would have been a lot of collateral damage and a lot of personal suffering.

    It is akin to climate change denialists claiming that the earth has gone through much larger changes in the past yet the world is still here. Indeed, but nobody is claiming climate change will destroy life on earth — it will just cause huge amounts of suffering through dislocation, economic calamity, warfare, etc.

  10. Michael Heath says

    jaybee writes:

    . . . nobody is claiming climate change will destroy life on earth — it will just cause huge amounts of suffering through dislocation, economic calamity, warfare, etc.

    That’s not true. James Hansen presents the Venus Hypothesis as a possible outcome; his book Storms of my Grandchildren has him making his case. He doesn’t guarantee the total annihilation of life will happen nor does he argue it’s even likely. Instead he speculates that based on our current understanding of climate physics combined with the amount of methane hydrates in the ocean, the hypothesis is sufficiently feasible that we should at least do a lot more research to confidently understand the odds of such happening.

    Most climate scientists disagree with Dr. Hansen, where I find their arguments more compelling than Hansen’s. However I agree with Hansen that it’s an example of conservative idiocy that we’re not doing more research in this area. Especially since I’ve seen no expressed confidence by either side of credible scientists regarding this hypothesis.

  11. says

    @11&12:

    It is not likely that AGW could cause the extinction of life on this planet.

    Human life? Well, that’s a bit problematic.

    It is somewhat more likely that AGW could alter the planet’s ecosystems to the point where crop and fodder yields went right into the shitter and saw the nations with the greatest concentrations of weaponry first destroying lesser nations and then warring against each other for control of shrinking resources. I, for one, welcome the new IO* who will be ruling from their Twinkies Throne**!

    * Insectivore Overlords–Periplaneta brunnea

    ** Partly, because it’s unlikely to happen before I shuffle off this mortal (and only) coil; primarily because I have already welcomed them into my home–unwittingly!!

  12. Ichthyic says

    Hyperbole. Not only wouldn’t it have harmed Ford or Chrysler, but the American auto industry now includes Mercedes, Toyota, Honda, and Subaru, along with a few others.

    I heard people saying the EXACT same thing about the failure of Lehman.

    “meh, it won’t have any ripple effect, no sireee.”

    it really isn’t hyperbole, when we have specific examples to point to of unexpected ripple effects.

  13. Ichthyic says

    It is not likely that AGW could cause the extinction of life on this planet.

    we’re already at mass extinction levels that rival past big events.

    it won’t wipe out everything, for sure, but it will be yet another bottleneck, and be assured another large chunk of species will not survive because of it.

    in some areas, ecosystems can displace themselves with temperature changes, and you simply get one species outcompeting another in a given area (like the various species of penguins in Antarctica).

    but in MOST places, you simply cannot fluidly displace ecosystems like that, even slowly. You can’t move the Taiga any further north, for example.

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