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Dec 12 2013

Feds Sell Off Last Stake in General Motors

The Treasury Department has sold off the last of its stock in General Motors, closing the books on the nearly $50 billion in taxpayer money loaned to keep the automaker open. In the end, they got back all but $10 billion, which is one of the best bargains I’ve ever heard of.

The Treasury took a loss of more that $10 billion on the $49.5 billion bailout, but said that saving the US auto industry, the jobs of millions of auto workers and the pensions of many retirees was worth it…

In a new study, the Center for Automotive Research said the government’s loss was paltry compared with the losses risked by letting GM and Chrysler go under.

Not including the potential impact on the parts sector, the study said the US government “saved or avoided the loss of $105.3 billion in transfer payments and the loss of personal and social insurance tax collections — or 768 percent of the net investment,” the study said.

“Additionally, 2.6 million jobs were saved in the US economy in 2009 alone and $284.4 billion in personal income saved over 2009-2010.”

The losses both in terms of taxpayer funds and economic effects of allowing GM and Chrysler to collapse are virtually incalculable. In addition to more than $100 billion in transfer payments and lost revenue for social insurance programs, a collapse of the auto industry would have triggered another massive wave of foreclosures, further stressing state and local government budgets. It would have forced the federal government to take over the pension plans at a cost of tens of billions of tax dollars. Almost 3 million jobs would have been lost. The worst recession since the Great Depression would have turned into a replay of the 1930s, maybe even worse. We should be thrilled to get out of it with only a $10 billion price tag.

22 comments

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  1. 1
    a_ray_in_dilbert_space

    I did not see whether the $10 billion price tag also included the lost pensions of retired GM workers, who will now be a federal responsibility.

  2. 2
    Modusoperandi

    Yes, but think of the Moral Hazard?*

    * Note: Does not apply to Wall Street. Only General Motors. And only after Obama came out being in favor of cars.

  3. 3
    Gregory in Seattle

    How much of that money went into the pockets of CEOs and corporate board members? As I recall, GM has been paying out very lavish executive bonuses.

  4. 4
    John Pieret

    It also has to be noted that the bailout was part of the TARP program and, despite these losses, TARP netted $11 billion for taxpayers.

  5. 5
    Ray Ingles

    If the bailout worked for the auto industry… is it possible that the bailout of “too big to fail” banks was also justified? I’m skeptical, but I don’t have the numbers to be certain.

  6. 6
    unbound

    While I understand the necessity of what we had to do, what is being done to fix the problem? We should never have been in a position where the public needs to be bailing these companies out.

    As a nation (perhaps even as a world), we really need to rethink how corporations work. We need to recognize that there simply isn’t nearly enough competition in any market to claim that market-based competition principles (e.g. capitalism) can possibly function in modern economies. Something new needs to evolve out of this, and the people need to be involved or we will continue to increase the transfer of payments (in the forms of taxes) back to corporations.

  7. 7
    democommie

    “Something new needs to evolve out of this,”

    I’m in favor of the ChiCom remedy; shoot hooligans, looters and wreckers.That a lot of people who are none of the above wind up in the body count is unfortunate but the idea is appealing at the gut level.

  8. 8
    donalbain

    Ed,
    Does this mean you are no longer a libertarian?

  9. 9
    Michael Heath

    unbound writes:

    While I understand the necessity of what we had to do, what is being done to fix the problem? We should never have been in a position where the public needs to be bailing these companies out.

    As a nation (perhaps even as a world), we really need to rethink how corporations work. We need to recognize that there simply isn’t nearly enough competition in any market to claim that market-based competition principles (e.g. capitalism) can possibly function in modern economies. Something new needs to evolve out of this, and the people need to be involved or we will continue to increase the transfer of payments (in the forms of taxes) back to corporations.

    I continue to conclude that dynamically regulated capitalistic economies are by far the most superior type of marketplace. As an ardent student of economics and history, a prevailing lesson is that optimal economic growth requires on-going and one-time policies that fight deflation in the down-side of the business cycle. A key factor to achieve this, validated by history, is competent governance.

    So from my perspective, the bail-out is a feature, not a bug. It is this perspective that has me vociferously condemning the conservatives, who now control the GOP. We simply can’t function with them having even minority power. There’s far too much competition by competent developed economies to be sloppy or act against our interests as conservatives lobby we do and in many cases, are able to achieve.

    So the root cause problem I see isn’t capitalism, but a government that can no govern, to the point it requires structural changes. The changes I think which would address this the following:
    1) Everyone’s vote is equal – that means a popular election for president and a representative number of Senators.
    2) A technocratic check prior to passing legislation. We need to benchmark what’s being proposed to best practices. We voters need to know this prior to legislation passing.
    3) Our elected officials must be regularly and publically scrutinized to a meangingful and trended set of metrics to be developed by elected officials and technocrats. Currently elected officials and even cabinet heads get to decide how to spin their performance, no CEO gets with away this nor should they.

  10. 10
    colnago80

    It should be noted that some of GM’s foreign competition, particularly Toyota, ware some of the biggest supporters of the bailout.
    This is because, if GM had gone under, so would hundreds of parts suppliers, which would have forced Toyota and others to shut down their manufacturing plants in the US. How many jobs would that have cost?

  11. 11
    Michael Heath

    I wonder if this $10 billion loss considers the interest earned by the Treasury Dept. We didn’t just make an equity play in GM stock; we also lent GM money at a healthy interest rate where they never defaulted on their payments.

  12. 12
    heddle

    Heath,

    1) Everyone’s vote is equal – that means a popular election for president and a representative number of Senators.

    I asked this before and I can’t recall your answer. Does that mean you think China should have four times the number of votes as the US and 20 times the number of votes as France in the UN?

  13. 13
    bobcarroll

    Michael @9, your sentence beginning “As an ardent” needs work.

  14. 14
    Modusoperandi

    bobcarroll “Michael @9, your sentence beginning ‘As an ardent’ needs work.”
    Try to keep in mind that he’s making these comments on his blackberry while at work, as a tester at the unicycle factory.

  15. 15
    Doug Little

    Holy crap heddle, it’s been a while. How goes the particle physics?

  16. 16
    heddle

    Hi Doug,

    It’s Great. We are coming to the end of an extended shutdown during which we are doubling the energy, adding a new experimental hall (cleverly named Hall D since we already had Halls A, B, and C) and redoing most of the detectors and software. There will be a lot of great nuclear physics coming from the lab over the next 10-20 years.

  17. 17
    Doug Little

    heddle,

    Looks like the standard model is still holding up, read the article on the protons weak charge, cool stuff.

  18. 18
    sundoga

    Well, I was skeptical at the time, but this bailout seems to have been a success. Nice to be surprised occasionaly.

  19. 19
    Michael Heath

    heddle to me:

    I asked this before and I can’t recall your answer. Does that mean you think China should have four times the number of votes as the US and 20 times the number of votes as France in the UN?

    I don’t recall ever being asked this nor do I recall considereding it.

    My advocacy above about more equal representative government in the U.S. isn’t premised on a sweeping pronouncement that more democracy is better. Instead it’s a reaction championed by others [my review], that’s based on the driving forces within the U.S. that results in our recent, current, and future piss-poor outcomes. For example, my also advocating for a technocratic check as I do is not an argument for more democracy but instead a strong check against it. I remain in growing contempt of populism.

    One observation regarding China, the U.S., and France. Your question seems compelling only if all three countries’ citizens enjoy representative government that also protects individual self-determination. But you know that is not true. China’s representative to the U.N. are not speaking on behalf of the people of China; not even indirectly as France and the U.S. representatives imperfectly do.

    In fact, if U.N. votes were proportioned by a country’s population share, that would provide motivation to create tyrannies in the most populated nations of member-nations.

    Woodrow Wilson advocated for a forum where countries would hash out its differences diplomatically in order to reduce the propensity for war. He also promoted such a forum to advocate for both representative government and self-determination for all (though he didn’t always practice what he preached). I agree with his objectives and his arguments on why we need a global body remains prescient.

    Perhaps the U.N. should set an objective that sovereign votes be allocated based on their share of population, but only if they met a high standard. A standard well above what the U.S. practices given that we still do not provide equal representation or equal protection to our own; where we can point to only one voting base who effectively obstructs such progress (conservative Christians). Maybe the U.N. should also reduce a countries’ voting power relative to how distant it is from a representative government that protects individual rights.

  20. 20
    Michael Heath

    sundoga writes:

    I was skeptical at the time, but this bailout seems to have been a success. Nice to be surprised occasionaly.

    My reading of history has me concluding that bail-outs in a recession to defend against further contraction are generally successful. As an ex-Supply Chain professional who understands how the auto industry’s impact ripples out well beyond this sector and its local contributions, this bail-out was always a no-brainer.

    For example, we enjoy cheaper electronic devices because much of the metal and plastic in our electronic devices comes from plants that support far higher volumes coming from the automotive industry. Those auto volumes don’t just go a long way in covering these plants’ fixed costs, making electronic devices in lower volume runs much cheaper; the automotive volumes also result in these plants becoming much more effective operators, in terms of quality, cost, and performance.

  21. 21
    sundoga

    Oh, don’t get me wrong, here. I understood that the bail-out was necessary to prop up the economy, which was at a delicate point at the time. I just honestly didn’t expect the company to bounce back and make good the loans and for the restructuring to work. That was the surprise.

  22. 22
    Azkyroth Drinked the Grammar Too :)

    Ed,
    Does this mean you are no longer a libertarian?

    Ed has never been a Narcisso-Capitalist, to my knowledge.

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