Who Bails Out the Bailers?

Todd Zywicki just demolished the narrative on the GM & Chrysler bailouts in a lengthy piece for National Affairs. I must have spent an hour reading it –slowly– yesterday, but here’s the conclusion:


Sold as a means of revitalizing the economy, they are in fact a means of transforming the relationship between the state and the market in a way that empowers large players at the cost of economic growth. The overall effect of such state capitalism is a kind of controlled stasis, in which the preservation of old jobs takes priority over the creation of new ones. Managed decline, rather than dynamic growth, is the defining feature of the Obama economy.

But there’s more. At The Truth About Cars, Edward Niedermeyer is keeping a close eye on Washington’s “exit strategy” for Government Motors — and it ain’t pretty:

Will increased demand from institutional investors as a result of an S&P500 listing be enough to buoy GM’s stock? Maybe not. But then, the White House has insisted for some time that recouping its investment was not the main point of the bailout, and that as an emergency economic measure, it was already “worth it.” At this point, there’s not much choice but hope they’re right, but the very question about how to time the government’s exit raises an interesting point: even after a government-backed bankruptcy and a cash injection of tens of billions of dollars, GM’s position remains uncertain and its future remains unclear. If The General collapses again, and investor pessimism indicates that it’s a possibility, will the “emergency economic measure” still have been “worth it?” Will another such measure be forthcoming? Regardless of how much the treasury loses when it exits GM, this question will dog the auto industry for some time to come.


Niedermeyer estimates that we, the taxpayers, will lose about $11 billion on GM. The reality, however, is much worse. From the comments:

You can bet that the $11 billion figure doesn’t include the $45 billion tax loss carry-forwards that GM was gifted by the Obama administration (normally accumulated tax losses are washed out in bankruptcy).

So we taxpayers are paying a very, very heavy price to bailout the UAW (which is really what this all was about) and so preserve a multi-million dollar donor to the Obamas / Democrat Party.

We’ve been had.


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