Commentary

GM Bailout Fails as Viable Business Test and Industrial Policy

When the “new” GM issued its Initial Public Offering (IPO) as a new company, pundits and the White House applauded the milestone as an example of how the government can surgically intervene in the market and save capitalism from itself. Little attention was given to the losers in the deal and whether the government was, in fact, getting its money back.

Unfortunately, I didn’t have the time to really tear into the details of the deal. But, I always suspected it was a raw deal. Now, Matthew Stevenson has dissected the deal, the IPO, and its aftermath in a very accessible essay over at NewGeography.com that is well worth reading. As Stevenson writes:

“At the time of GM’s IPO, President Obama sounded like Mr. Goodwrench: “Just two years ago, this seemed impossible. In fact, there were plenty of doubters and naysayers who said it couldn’t be done, who were prepared to throw in the towel and read the American auto industry last rites.”

“What he might have said is this: “We hosed the shareholders and suckered the bondholders down to $0.30 on the dollar. We propped up GMAC with $17.5 billion and then buried the losses in bad bank accounting. We leaned on the accountants to keep $45 billion in Net Operating Losses. We learned something from Bernie Madoff and are letting GM continue to carry $30 billion in unfunded pension liabilities. We dumped GM’s health care obligations, for shares, into a union trust. The rest we moved off the lot. Home run.”

“The government originally threw $49 billion at GM’s cash guzzling problems and then forced another $100 billion on the market in losses. In exchange thus far, it has recouped $15 billion, for about half of it stake in the new GM.”