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Feds Sell GM Shares for $10.5 Billion Loss

GM-Chrysler-Bailout

The federal government sold its remaining shares of General Motors at a $10.5 billion loss. Was this a good investment?

AP (“U.S. exits GM stake, taxpayers lose $10.5 billion“):

The U.S. government ended up losing $10.5 billion on the General Motors bailout, but it says the alternative would have been far worse.

The Treasury Department sold its final shares of the Detroit auto giant Monday, recovering $39 billion of the $49.5 billion it spent to save the dying automaker at the height of the financial crisis five years ago.

Without the bailout, the country would have lost more than 1 million jobs, and the economy could have slipped from recession into a depression, Treasury Secretary Jacob Lew said on a conference call with reporters.

“The economic stakes were high, and President Obama understood that inaction was not an option,” Lew said. “His decision to commit additional support to GM while requiring them to fundamentally restructure their business was tough but it was right.”

The government received 912 million GM shares, or a 60.8 percent stake, in exchange for the bailout in 2008 and 2009. It began selling shares once GM went public again in November 2010, and the pace picked up this year as the stock rose more than 40 percent. Last month, the government said it expected to sell the remaining 2 percent stake by the end of the year.

GM shares rose 73 cents, or 1.8 percent in after-hours trading following the announcement. They rose 1.8 percent in regular trading, at one point reaching $41.17, the highest level since GM’s 2010 initial public offering.

Has AP buried its lede here? Did the federal government use its power to manipulate the  price of its GM shares? Is that kosher?

Earlier Monday, Mark Reuss, GM’s North American president, told reporters in Warren, Mich., that a government exit would boost sales, especially among pickup truck buyers. GM has said repeatedly that some potential customers have stayed away from its brands because they object to the government intervening in a private company’s finances. Because of the bailout, GM had been tagged with the derisive nickname “Government Motors.”

Reuss acknowledged some critics would highlight the money lost in the bailout, but pointed to the jobs, plants, towns, suppliers and related service industry jobs saved by the bailout under the Troubled Asset Relief Program, known as TARP.

“How do you put numbers on that?” he said. “I feel good about that and I’m not sure it was the same with the other industries that were granted TARP funds.”

This is really the question. $10.5 billion isn’t much money by federal government standards. At one point, we were spending ten times that annually to rebuild Afghanistan. And one industry group claims the bailout “saved 1.5 million jobs and netted $105.3 billion in personal and social insurance tax collections.” If that’s the case, one could argue we didn’t “lose” 10.5 billion at all.

Aside from the short-term infusion of much-needed cash, getting bought out by the feds allowed US auto companies to restructure their debt burdens pretty substantially. Will that be enough to keep them around for the longer term? If not, it’s quite possible that we’d have been better off spending $49.5 billion bailing out GM’s workers and retraining them for jobs with a future.

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About James Joyner
James Joyner is the publisher of Outside the Beltway, an associate professor of security studies at the Marine Corps Command and Staff College, and a nonresident senior fellow at the Atlantic Council. He's a former Army officer and Desert Storm vet. He has a PhD in political science from The University of Alabama. Views expressed here are his own. Follow James on Twitter.

Comments

  1. C. Clavin says:

    Clearly the investment was worth it.
    And clearly the critics were wrong…all along.
    Does that mean they will STFU? Of course not.
    In America when you are dead f’ing wrong…we just give you a bigger megaphone.

    Hot debate. What do you think? Thumb up 21 Thumb down 8

  2. Jenos Idanian #13 says:

    The assumptions here are based on false choices. The options were not “bailout or liquidation.” There was a third option — normal bankruptcy. Had that been followed, the UAW contracts could have been re-negotiated and bond-holders would not have been screwed over.

    The whole purpose of Obama’s bailout was to protect the UAW and other unions. That’s why union workers were given preferential treatment, and non-union workers (such as those at Delphi) were screwed out of their pensions.

    But hey, what’s $10.5 billion when it comes to boosting one of the Democratic Party’s core constituencies?

    Hot debate. What do you think? Thumb up 23 Thumb down 35

  3. DC Loser says:

    Conservatives are only concerned with contracts that affect them.

    Hot debate. What do you think? Thumb up 18 Thumb down 5

  4. SKI says:

    @Jenos Idanian #13: You are (again) ignoring the impact of a bankruptcy on the supply chain – which would have been substantially disrupted and imperiled all auto-production in the US -not just the Big 3 US brands. That isn’t an exageration. There is a reason that Ford testified to save its competitors.

    Highly-rated. Helpful or Unhelpful: Thumb up 34 Thumb down 7

  5. Jenos Idanian #13 says:

    @SKI: And you are ignoring that the bailout included a bankruptcy — but one crafted by the Obama administration to protect the UAW.

    The main point of the bailout was to circumvent the normal bankruptcy laws and protect the UAW at the expense of the bondholders, who had in good faith given their money to GM under the government’s promise that they’d be protected in case of bankruptcy. And the Obama administration made damned sure that promise was broken.

    Poorly-rated. Helpful or Unhelpful: Thumb up 8 Thumb down 31

  6. OzarkHillbilly says:

    @Jenos Idanian #13: Yes, because people who invest money are far more important than people who invest their lives.

    Highly-rated. Helpful or Unhelpful: Thumb up 30 Thumb down 3

  7. Jenos Idanian #13 says:

    @OzarkHillbilly: I didn’t write the law. And if you don’t like the law, then work to change it.

    Or do you support Obama’s theory that the law means whatever he wants it to mean at that point?

    The point of protecting the bond holders is to encourage them to invest in companies. Without that protection, companies will have a lot harder time getting investors.

    And one of the bigger problems GM had was its cost of labor. The UAW had negotiated contracts with GM that helped kill the company — and Obama made sure those contracts were protected.

    Poorly-rated. Helpful or Unhelpful: Thumb up 7 Thumb down 25

  8. OzarkHillbilly says:

    Will that be enough to keep them around for the longer term? If not, it’s quite possible that we’d have been better off spending $49.5 billion bailing out GM’s workers and retraining them for jobs with a future.

    Is it even possible to predict what the “jobs of the future” will look like when mired in the present? In other words James, I think that is an off the cuff remark totally devoid of any real meaning. Admittedly, the answer to the end of the buggy was certainly not to make more buggy whips, but cars are going to be with us for a while yet and somebody is going to make them.

    Like or Dislike: Thumb up 10 Thumb down 1

  9. Scott says:

    @Jenos Idanian #13:

    And if you don’t like the law, then work to change it.

    I agree with this. I think deferred compensation such as pensions should be first in line in the case of bankruptcy.

    Like or Dislike: Thumb up 11 Thumb down 1

  10. Jenos Idanian #13 says:

    @OzarkHillbilly: Is it even possible to predict what the “jobs of the future” will look like when mired in the present?

    Well, that didn’t stop Obama from throwing a whole lot of our money on “green jobs” that went right down the crapper…

    Hot debate. What do you think? Thumb up 4 Thumb down 18

  11. john personna says:

    @Jenos Idanian #13:

    While I agree with normal bankruptcy in the abstract, and even supported it in the GM case, it was always my opinion that no US President wouild ever let GM bankrupt on his watch. The political damage (think of the visuals) would be too great.

    That’s why GWB kicked the can, to make sure Obama could complete the bailout.

    Like or Dislike: Thumb up 11 Thumb down 2

  12. john personna says:

    @SKI:

    If you believe the whole world has excess automaking capacity, you might worry that the world’s governments are all burning resources to maintain those excess supply chains.

    Like or Dislike: Thumb up 0 Thumb down 1

  13. Scott says:

    @john personna: Folks need to remember that at the time, the entire financial system was locked and frozen. Normal bankruptcy procedures would not have worked when there was no liquidity in the system.

    Highly-rated. Helpful or Unhelpful: Thumb up 19 Thumb down 3

  14. OzarkHillbilly says:

    @Jenos Idanian #13:

    I didn’t write the law.

    No you didn’t. But why do you offer it unqualified support? As to working to change it, I do, every time I step into the voting booth, and in other ways.

    Like or Dislike: Thumb up 10 Thumb down 1

  15. Jenos Idanian #13 says:

    @john personna: Bush “kicked the can” because the crisis came to a head after the 2008 election, and he worked with the incoming Obama administration to allow them to handle it their way.

    And GM did file for Chapter 11 bankruptcy (June 1, 2009, in the Southern District of New York).

    Like or Dislike: Thumb up 5 Thumb down 3

  16. OzarkHillbilly says:

    @Jenos Idanian #13:

    And one of the bigger problems GM had was its cost of labor. The UAW had negotiated contracts with GM that helped kill the company — and Obama made sure those contracts were protected.

    Which contracts? The ones that existed before or after they were renegotiated? Neat trick how you totally ignored that little factoid in you rant.

    Like or Dislike: Thumb up 15 Thumb down 2

  17. Jenos Idanian #13 says:

    @OzarkHillbilly: No you didn’t. But why do you offer it unqualified support?

    Because I support the principle that the law is the law until it is changed.

    Why do you support “the law is whatever Obama says it is at this point in time,” and will you still hold that principle when a Republican is president?

    Like or Dislike: Thumb up 4 Thumb down 7

  18. john personna says:

    @Scott:

    We were all there, and entitled to our memories, I suppose.

    I think that the GM saga was long compared to the actually short and sharp liquidity crises, especially the money market crises.

    Given the ponderous nature of a mega-company bankruptcy, I don’t think that short term funds were really required.

    Like or Dislike: Thumb up 0 Thumb down 4

  19. john personna says:

    @Jenos Idanian #13:

    Don’t you feel silly even saying that? GWB, never a wallflower, just let the next president decide?

    No. He had the opportunity to drive the market agenda and blinked, because he did not want those visuals attached to his name.

    Like or Dislike: Thumb up 6 Thumb down 1

  20. JWJ says:

    “And one industry group claims the bailout “saved 1.5 million jobs and netted $105.3 billion in personal and social insurance tax collections.” If that’s the case, one could argue we didn’t “lose” 10.5 billion at all.”

    Well, there you go, the US gov made ten times their money AND 1.5 million jobs saved.

    I say any time a company that has Democrat union members is possibly going bankrupt, the US gov should print money (or borrow it), bailout the company via loans and an ownership stake, and unilaterally re-write the bondholder agreements.

    Why didn’t we do this with Hostess?

    Like or Dislike: Thumb up 6 Thumb down 2

  21. Rafer Janders says:

    @john personna:

    We were all there, and entitled to our memories, I suppose.

    We weren’t quite all there — I believe that of the commenters here, I was the only one working on Wall Street at the time and actually tangentially involved in the GM bankruptcy via my work with multiple banks and hedge funds who were GM lenders. And several of my former industry colleagues were tapped to run the GM bankruptcy.

    I think that the GM saga was long compared to the actually short and sharp liquidity crises, especially the money market crises.

    Not really true. The GM bankruptcy, while a long time coming, was actually precipitated at that moment by the short and sharp liquidity crisis.

    Given the ponderous nature of a mega-company bankruptcy, I don’t think that short term funds were really required.

    They were. I’m extremely familiar with the state of the credit markets and corporate financing in the 2008-2009 era, and neither short nor long term private funds were available for a GM restructuring. Had the government not stepped in, GM would have gone under in a matter of days or weeks as there were simply no other financial actors large and able enough to step in.

    Highly-rated. Helpful or Unhelpful: Thumb up 16 Thumb down 1

  22. Rob in CT says:

    Yes, I think it was an ok choice. I think it’s easy to imagine losing $10B+ if they’d let GM go under, if you think about knock-on effects.

    The circumstances are what made it ok. The financial panic of 2008-2009 was not a normal event. It called for extraordinary measures, such as the much-maligned TARP and the Auto bailout.

    Under more ordinary circumstances, I’d have favored bankruptcy for GM and for the banks. Of course, under more ordinary circumstances, many of those companies wouldn’t have been going under in the first place.

    [To be fair, in real time, I opposed the GM bailout. Reflex. In hindsight, I think it's justifiable]

    Like or Dislike: Thumb up 11 Thumb down 2

  23. grumpy realist says:

    @Scott: So if you’re a CEO and have taken all your money out up front it’s fine, but if you’re a lowly peon who has deferred compensation it’s perfectly all right to confiscate all of it?

    Bring on the tumbrils and guillotines. The Revolution can’t come soon enough.

    Like or Dislike: Thumb up 12 Thumb down 1

  24. john personna says:

    @Rafer Janders:

    I think you might have bait and switched me.

    The interesting aspects of bankruptcy happen when the company is in receivership, and a court is managing the dissolution of assets.

    That does not actually happen in days, does it?

    Like or Dislike: Thumb up 0 Thumb down 0

  25. john personna says:

    (If you are just saying GM would not have remained whole in bankruptcy, of course not.)

    Like or Dislike: Thumb up 0 Thumb down 0

  26. al-Ameda says:

    First — I think it is a mistake to sell the shares now because I honestly believe that in 12 to 24 months those shares will be valued at a higher price.

    Second — It would have been a colossal mistake to NOT have bailed out the auto industry at that time. The economy was shedding jobs at a rate of over 700,000 per month, the supply of finance capital and credit availability was diminishing rapidly, and the auto industry jobs that would have been lost while the government did nothing would have been in the hundreds of thousands if not at over a million.

    I definitely support the government actions taken to prevent the immediate loss of jobs in the Auto Industry.

    Like or Dislike: Thumb up 2 Thumb down 2

  27. bandit says:

    @C. Clavin: That’s a brilliant response – whenever you use STFU it indicates a high level of cognitive ability. Gov’t payoff of $10.5 b to UAW, manufacturing moves to China and Detroit files for bankruptcy. Well worth it when you can spend other people’s money dumbass

    Like or Dislike: Thumb up 2 Thumb down 12

  28. Rafer Janders says:

    @john personna:

    The interesting aspects of bankruptcy happen when the company is in receivership, and a court is managing the dissolution of assets.That does not actually happen in days, does it?

    No, but that’s not the same thing as saying “short term funds were not required.” Scott was correct when he remarked that the normal restructuring procedures were not available to GM because no lenders were available.

    Like or Dislike: Thumb up 7 Thumb down 0

  29. Jenos Idanian #13 says:

    @john personna: Bush “never a wallflower?” He’s been nothing but a wallflower since the election.

    And it seems that we disagree on his motive, we both seem to agree that Bush gave Obama full control over how to handle GM’s problems.

    Here are some key dates from back then:

    November 4, 2008: Obama elected.

    November 7, 2008: GM announces it will run out of cash by mid 2009.

    December 19, 2008: Bush administration announces the government will help bail out GM and Chrysler.

    December 31, 2008: GM gets $13.4 billion from TARP.

    January 20, 2009: Obama becomes president.

    April 22, 2009: GM gets $2 billion from federal government.

    May 20, 2009: GM gets another $4 billion.

    June 1, 2009: GM files for bankruptcy.

    June 3, 2009: Obama administration files bankruptcy plan for GM.

    June 10, 2009: GM exits bankruptcy.

    Also remember that the Obama administration repeatedly praised the outgoing Bush administration for being so supportive and cooperative and helpful during the transition (contrast this with how the Clinton administration left office). That included coordinating how to handle the GM crisis. Considering how much Obama has blamed Bush for everything, there should be no doubt that had the Bush administration stuck them with the GM problem and set them up for failure, we’d have heard about that non-stop.

    Plus, arguing that Bush could have done something differently and therefore is responsible is essentially arguing that “it’s not my fault because you could have stopped me!”

    Like or Dislike: Thumb up 2 Thumb down 6

  30. Scott says:

    @grumpy realist: Yes, I always wonder about the reasoning that it is OK to take away deferred compensation as if it weren’t real. The same logic can be applied to actual compensation. “We paid you too much when you worked for us. We’re in trouble and we need that money back.”:

    Like or Dislike: Thumb up 4 Thumb down 1

  31. Jenos Idanian #13 says:

    @bandit: That’s one of Cliffy’s tells. When he gets more profane and tosses that phrase around, he’s totally insecure about his argument.

    Like or Dislike: Thumb up 1 Thumb down 6

  32. gVOR08 says:

    This “normal bankruptcy” thing has been adjudicated in a thousand columns since. It would have required some sort of temporary financing; and credit, particularly at that scale, had dried up. Normal bankruptcy simply was not an option at the time.

    @SKI: I’ve read that Honda had a plan. If GM and Chrysler shut down, Honda was going to have to shut down for something like two years while they rebuilt a supply chain.

    @DC Loser:

    Conservatives are only concerned with contracts that affect them.

    Yeah, I’ve noticed that among conservatives, especially libertarians. Contracts are sacred. Until they aren’t.

    Like or Dislike: Thumb up 11 Thumb down 1

  33. Rafer Janders says:

    @Jenos Idanian #13:

    And GM did file for Chapter 11 bankruptcy (June 1, 2009, in the Southern District of New York).

    A lot of people use “bankruptcy” in a vernacular sense to mean go bust, go out of business, and that’s what we see with a Chapter 7 bankruptcy.

    But bankruptcy has another legal meaning as restructuring, as a process designed to help the debtor renegotiate its debts, shed unpayable ones, and re-emerge to do business again, and that’s what’s accomplished via a Chapter 11 bankruptcy, which is the process GM used. The debtor remains in active business operations and files as a “debtor-in-possession” (“DIP”) and obtains DIP financing, under court supervision, to enable it to keep going.

    Highly-rated. Helpful or Unhelpful: Thumb up 16 Thumb down 0

  34. Gromitt Gunn says:

    The RWNJ perspective on the GM situation basically boils down to “investors should be able to earn excess rewards based on assuming excess risk without ever having to actually face the consequences of that risk.”

    Like or Dislike: Thumb up 8 Thumb down 0

  35. Jenos Idanian #13 says:

    @Rafer Janders: But bankruptcy has another legal meaning as restructuring, as a process designed to help the debtor renegotiate its debts, shed unpayable ones, and re-emerge to do business again, and that’s what’s accomplished via a Chapter 11 bankruptcy, which is the process GM used. The debtor remains in active business operations and files as a “debtor-in-possession” (“DIP”) and obtains DIP financing, under court supervision, to enable it to keep going.

    I don’t think we’re really disagreeing here. That’s what I think should have happened. Instead, the Obama administration stepped in and pushed its own plan into place — one that rewarded its supporters in the UAW at the expense of the stupid bond-holders who actually thought that the law would mean something.

    Like or Dislike: Thumb up 3 Thumb down 10

  36. Rafer Janders says:

    @gVOR08:

    This “normal bankruptcy” thing has been adjudicated in a thousand columns since. It would have required some sort of temporary financing; and credit, particularly at that scale, had dried up. Normal bankruptcy simply was not an option at the time.

    I know a lot of the credit guys at Goldman, Morgan, UBS, RBS, Citi, JPMChase, and the largest hedge funds. To a man they were not willing or able to carry GM debt at the time – most of them were just trying to stay above water themselves.

    Like or Dislike: Thumb up 14 Thumb down 0

  37. C. Clavin says:

    @Jenos Idanian #13:
    Typically…you are full of shit.
    The Unions came to the table and negotiated and were a critical part of the success we see today. Unions agreed to wage freezes, bonus cuts, eliminating noncompetitive work rules and requiring binding arbitration if the next deal can’t be reached. All told about $1.2 billion to $1.3 billion in concessions per year.
    Chrysler in particular…where the knew owner came in and fired a top heavy executive staff and closed down the penthouse they had previously occupied. They new owners praised the role that unions played in the process.
    If your opinions are based upon total BS…as yours always are…then your opinions are total BS.
    Every comment your type is is factually incorrect…a lie.
    Why do you keep bothering?
    Why not just STFU if you don’t know anything?

    Like or Dislike: Thumb up 15 Thumb down 4

  38. Jenos Idanian #13 says:

    @C. Clavin: Oh, Cliffy. When you have no arguments to make, why do you keep digging yourself into holes?

    Here’s an analysis of the “concessions” the unions made for GM.

    And from the Washington Post, not often noted as a harsh critic of the Obama administration:

    [U]nion concessions were “painful” only by the peculiar standards of Big Three labor relations: At a time when some American workers are facing stiff pay cuts, UAW workers gave up their customary paid holiday on Easter Monday and their right to overtime pay after less than 40 hours per week. They still get health benefits that are far better than those received by many American families upon whose tax money GM jobs now depend. Ditto for UAW hourly wages, though according to the task force, GM’s labor costs are now within “shooting distance” of those at nonunion plants run by Honda, Toyota and other foreign firms. Cumbersome UAW work rules have only been tweaked.

    Also worrisome was the strong-arming of the company’s bondholders, who got far less equity in return for their money than the UAW, the president’s political ally.

    Physician, STFU yourself.

    Like or Dislike: Thumb up 2 Thumb down 11

  39. michael reynolds says:

    Of course it was a good deal for us as a country. The people opposed to it are opposed for ideological reasons that have a great deal to do with jealousy and petulance and nothing to do with keeping the US economy going.

    And of course these are the same people who told it wouldn’t work. Let’s recall that people on the right not only thought we’d lose 50 billion, but that we’d have to pump in more and more in a desperate, doomed effort to save GM. As it turns out, they were wrong. Completely wrong. GM is doing fine, and we lost only 20% of our investment.

    10 billion to keep a US auto industry alive and employing people? And by the way, turning a profit? That’s an insanely good deal. Any country on earth would pay 10 billion to have GM.

    Highly-rated. Helpful or Unhelpful: Thumb up 19 Thumb down 2

  40. Jenos Idanian #13 says:

    @michael reynolds: I couldn’t have asked for a better example of “false choice.” You start off with the presumption that there were two choices: the Obama administration’s plan, or let GM liquidate.

    The third option — the legal option — of simply letting the bankruptcy laws be applied as written was what a lot of us thought should happen, and quite frankly didn’t imagine would be ignored. But that was still early in the Obama administration, and we hadn’t fully seen how Obama’s principle of “the law means whatever I want it to mean right now” would develop.

    Like or Dislike: Thumb up 4 Thumb down 15

  41. Rafer Janders says:

    @michael reynolds:

    10 billion to keep a US auto industry alive and employing people? And by the way, turning a profit? That’s an insanely good deal. Any country on earth would pay 10 billion to have GM.

    To put this in context, the approximate cost of a new US Navy Ford-class aircraft carrier is $9 billion (in 2010 dollars). So, for the cost of one — one — carrier, we saved an entire industry for the next generation.

    Highly-rated. Helpful or Unhelpful: Thumb up 18 Thumb down 2

  42. C. Clavin says:

    @Jenos Idanian #13:
    “…[U]nion concessions were “painful” only by the peculiar standards of Big Three labor relations…”
    What standards do you think cuts to the negotiated and agreed-to Union Contracts should be compared to? McDonalds workers? Caddy’s at the local Country Club?
    You hate Unions like you hate Obama. We get that. Who in the f’ cares?
    You were wrong then.
    You are wrong now.
    You are always wrong.

    Like or Dislike: Thumb up 10 Thumb down 2

  43. Rafer Janders says:

    @Jenos Idanian #13:

    I don’t think we’re really disagreeing here.

    No, we are disagreeing.

    That’s what I think should have happened. Instead, the Obama administration stepped in and pushed its own plan into place — one that rewarded its supporters in the UAW at the expense of the stupid bond-holders who actually thought that the law would mean something.

    What you think should have happened COULD NOT have happened in the world we were in. It was an impossibility. The normal bankruptcy procedures require liquidity in the system, they require banks and hedge funds to step up and provide DIP financing to keep GM going through the restructuring process.

    But they were not willing to. There was no available private credit for a normal Chapter 11 bankruptcy. Without the Obama administration stepping in, GM — and most of its supply chain — would have very quickly gone out of business.

    Highly-rated. Helpful or Unhelpful: Thumb up 24 Thumb down 2

  44. rudderpedals says:

    @Jenos Idanian #13: You can’t have actually preferred liquidation over reorganization…

    Like or Dislike: Thumb up 7 Thumb down 0

  45. john personna says:

    @Rafer Janders:

    No, but that’s not the same thing as saying “short term funds were not required.” Scott was correct when he remarked that the normal restructuring procedures were not available to GM because no lenders were available.

    You definitely switched me, because I was talking about bankruptcy and dissolution.

    Like or Dislike: Thumb up 1 Thumb down 0

  46. michael reynolds says:

    @Jenos Idanian #13:

    You’re rewriting history because you can’t stand how wrong you were. There was no chance of GM being saved by conventional bankruptcy. Your ideology is clashing with reality and of course you choose ideology.

    Highly-rated. Helpful or Unhelpful: Thumb up 17 Thumb down 1

  47. gVOR08 says:

    @rudderpedals: Sidebets? Anything to screw the UAW.

    Like or Dislike: Thumb up 3 Thumb down 1

  48. john personna says:

    @michael reynolds:

    What about poor Ford? What did they get for being a well-run competitor?

    The US auto industry has some weak ducks, as do other developed nations where national pride prevents efficiency.

    Any long term maintenance of a weak competitor by the state reduces the effectiveness of the national economy. It also penalizes the good players, because their innovations do not bring them the rewards they should.

    Like or Dislike: Thumb up 4 Thumb down 4

  49. Rafer Janders says:

    @john personna:

    What about poor Ford? What did they get for being a well-run competitor?

    They got the fact that most of their supply chain — the companies that provide them with glass for windshields, paint for the auto bodies, tires, rubber for the tires, tool manufacturers, advanced electronics, computer programs to run the car, etc. etc. — were able to stay in business and were not dragged down along with GM. A bit hard for Ford to keep making cars without their suppliers.

    Like or Dislike: Thumb up 14 Thumb down 1

  50. michael reynolds says:

    @john personna: @john personna:

    If Ford was being victimized they had a hell of a way to show it. They testified on behalf of the bail-out. Now Ford has a strong competitor, which will keep them hard at work making better car. I guarantee you when they were re-designing Mustang they were thinking long and hard about Camaro.

    So Ford benefits as well as GM does. From the supply line and from the competition. And it cost us very little, certainly nothing like the financial disaster so confidently predicted by conservatives.

    Like or Dislike: Thumb up 14 Thumb down 2

  51. al-Ameda says:

    The bailout of GM continues to be a measure of how well people did, or did not, understand the financial catastrophe that was going on at that time.

    Large very important financial institutions were failing, and capital resources (credit availability) was almost completely choked off -we were looking into the abyss of another Great Depression.

    As it was, we lost about 25% of our national wealth in the 2008-2009 crash of the financial and housing markets, and only recently, with the increased value of the equity markets, have we reached the level of national wealth that we had prior to the crash five years ago.

    I cannot see how GM would have survived bankruptcy proceedings in the absence of well or normally functioning finance and capital markets.

    Like or Dislike: Thumb up 11 Thumb down 1

  52. Rafer Janders says:

    @john personna:

    Any long term maintenance of a weak competitor by the state reduces the effectiveness of the national economy. It also penalizes the good players, because their innovations do not bring them the rewards they should.

    Generally true in normal conditions. Not necessarily true in an emergency.

    In normal times, Lehman going under would have been good for its competitors at Goldman, Morgan, JPMChase and Citi. In September 2008, however, Lehman going under nearly destroyed them — and would in fact have destroyed them had the government not stepped in.

    Like or Dislike: Thumb up 10 Thumb down 1

  53. C. Clavin says:

    All the folks here who are trying to re-write the history of this deal…and are bitching about the unions…are the same ones who whine about the slow economic recovery. They are intellectually incapable of understanding the economic damage done by their war on the middle-class…of which attacking and weakening unions is the central front. For some reason they think that if only everyone could be paid sub-starvation wages the economy will boom. They belong to the so-called Conservative Party…but they are espousing radical ideology. Their economic theories have been proven to be pure unmitigated bunk….abject failures And yet they are undeterred. Instead they want to double-down on their stupidity. They can’t point to any justification for their views. Any example of success. Yet they are convinced they are right and the facts are wrong.
    Morons. Each and every one of them.

    Like or Dislike: Thumb up 13 Thumb down 1

  54. Gromitt Gunn says:

    In addition to the other context mentioned, it is important to keep in mind that this happened at the same time that Lehman Brothers collapsed over the period of a few days, and we were looking at the near term immediate impact of what happens when a “too big to fail” player actually does.

    I was auditing investment management companies for PwC at the time. As we were doing our audit planning for the As Of 12/31/2008 audits, we were having a lot of internal conversations about how to go forward with our risk assessments specifically related to financial leverage and asset valuation at a point in time where everything that was known was being called into question.

    Anyone stepping in to offer liquidity to GM at that point in time would have been forced to give that investment a Fair Value of $0, or very close to it, and totally screwed up that years’ financial statements.

    Like or Dislike: Thumb up 7 Thumb down 0

  55. Jenos Idanian #13 says:

    @rudderpedals: You can’t have actually preferred liquidation over reorganization…

    One last time: Fase Choice. I preferred “reorganization under the existing law” over “reorganization to protect Obama’s supporters and screw over the rest.” So kindly drop the “Obama or liquidation” false dichotomy.

    Like or Dislike: Thumb up 1 Thumb down 13

  56. Jenos Idanian #13 says:

    @C. Clavin: Hey, Cliffy, if you’re going to fart, at least excuse yourself.

    Whoops, that wasn’t a fart. It was a VOLUNTARY expulsion of noxious gases, devoid of any substance, whereas farts are usually involuntary. Sorry I made that error, and my apologies.

    Like or Dislike: Thumb up 1 Thumb down 11

  57. wr says:

    @C. Clavin: Jenos cheers for auto workers to be thrown out of their jobs so that he can then feel superior to the “losers.”

    You have to remember, this is a frightened little boy who loathes anyone who has ever accomplished anything in his life, because it reminds him just how insignifican he is.

    Which is why he gets increasingly shrill here when he’s rooting for disaster for other people. Besides, acting like a jerk on the internet is the only way he has of proving he’s alive.

    Like or Dislike: Thumb up 8 Thumb down 1

  58. michael reynolds says:

    @Jenos Idanian #13:

    As usual you can’t refute. Why don’t you see if you can actually address Clavin’s points? You know, with facts and logic.

    Spoiler Alert: You can’t.

    Like or Dislike: Thumb up 9 Thumb down 1

  59. wr says:

    @Jenos Idanian #13: Nice try, loser. But that wasn’t written by “the Washington Post,” it was an opinion column by Mickey Kaus, who loathes unions and spends much of his writing demonizing them.

    Like or Dislike: Thumb up 14 Thumb down 0

  60. Rafer Janders says:

    @Jenos Idanian #13:

    I preferred “reorganization under the existing law” over “reorganization to protect Obama’s supporters and screw over the rest.”

    I also prefer ponies for everyone.

    Which is as realistic as wishing for “reorganization under the existing law” when, as has been repeatedly pointed out, normal reorg requires private lenders who did not want to lend at the time. The existing law depended on the existence of a normal functioning credit market, which we did not have. Therefore reorganization under the existing law was a financial impossibility.

    Like or Dislike: Thumb up 14 Thumb down 0

  61. Jenos Idanian #13 says:

    @michael reynolds: When Cliffy comes up with a point, it’ll be his first.

    Like or Dislike: Thumb up 1 Thumb down 6

  62. michael reynolds says:

    @Jenos Idanian #13:
    Your surrender is accepted.

    Like or Dislike: Thumb up 15 Thumb down 1

  63. Jenos Idanian #13 says:

    @wr: It was published BY and IN the Washington Post, and just what was inaccurate about it?

    Look, Mr. reynolds has made his absolute loathing and contempt for Republicans clear at every opportunity. So that means we should discount whatever he says about them?

    Hold on, that might actually have some merit…

    Like or Dislike: Thumb up 1 Thumb down 9

  64. grumpy realist says:

    @Scott: Actually, you can sort of do that sort of clawback under certain circumstances….funnily enough, in bankruptcy court.

    I guess Jenos and all those who would have let the US car companies collapse on their own didn’t worry about the secondary effects. Or that no one was stepping up to help move the system along, which is usually what happens in a bankruptcy. Gotta hold the ideological line, even if it means the total collapse of the US economic system. (Who do they think the secondary car part manufacturers would be selling to if the US car companies suddenly went out of business? )

    Ideologists are idiots.

    Like or Dislike: Thumb up 8 Thumb down 0

  65. C. Clavin says:

    @Jenos Idanian #13:
    I guess you have a reading comprehension problem.
    Which would explain why everything you type is a$$-backwards.
    Of course so would the Dunning-Kruger Effect.
    Probably an all-of-the-above situation.

    Like or Dislike: Thumb up 2 Thumb down 0

  66. C. Clavin says:

    @Jenos Idanian #13:
    Thank you for proving my point.

    Like or Dislike: Thumb up 3 Thumb down 1

  67. wr says:

    @Jenos Idanian #13: You tried to make the point that even the Obama-loving, lefty Post — a paper you have clearly never read, or you might have noticed the overwhelming right-wing cast to their editorial pages — said that unions were hardly suffering in the deal. So you were using as evidence that you were correct the idea that this paper was arguing against its own interestst, and thus should be trusted. The fact that all newspapers not owned by Rupert Murdoch regularly publish op-eds by people from all sides of the ideological spectrum is something completely lost on you.

    And now the “what, I didn’t say that” schtick. It would be very convincing if we were all ten years old.

    Like or Dislike: Thumb up 9 Thumb down 1

  68. grumpy realist says:

    @Jenos Idanian #13: How stupid can you get? What we are screaming at you over and over and what you don’t seem to be able to get through your thick head is THE NORMAL PROCESS WAS NOT AVAILABLE AT THAT TIME. Rafer up there is pointing out that THE ENTIRE SYSTEM WAS FROZEN UP. NO ONE was willing to step in and help pony up the required liquidity to get the system moving!!! Hello? Capisce? Have we said this in tiny enough words yet?

    (I swear, I fail to understand how you have the brains to BREATHE!)

    Like or Dislike: Thumb up 10 Thumb down 1

  69. rudderpedals says:

    @Jenos Idanian #13: Two choices in bankruptcy court for this debtor, liquidation under 11 or 7 or try to get your Chapter 11 reorg Plan confirmed. The Plan was confirmed and the objections overruled. It takes more than just a feeling that the reorganization was unlawful to make it so, and you haven’t met the burden.

    Like or Dislike: Thumb up 6 Thumb down 0

  70. David M says:

    At this point is seems you’re arguing with some who is probably brain damaged and is suffering from severe enough memory loss they ought seek medical help. There’s really no other reasonable explanation for the repeated claims that there was private money available to help get GM through bankruptcy.

    Like or Dislike: Thumb up 7 Thumb down 1

  71. BigEd says:

    As I recall it was GWB who made the decision to bail out GM.

    Like or Dislike: Thumb up 6 Thumb down 0

  72. wr says:

    @Jenos Idanian #13: “Look, Mr. reynolds has made his absolute loathing and contempt for Republicans clear at every opportunity. So that means we should discount whatever he says about them?”

    Actually, I’ve seen MR talk quite generously about certain non-insane Republicans. The absolute loathing and contempt I’ve seen him express has been reserved for you. (And, to be fair, a couple of others who match you in ignorance and hatred of their fellow Americans…) So he strikes me as a man of sound judgment, even though there are areas where we have strong disagreements (such as the security state).

    Like or Dislike: Thumb up 12 Thumb down 1

  73. john personna says:

    @michael reynolds:

    If GM had been broken and sold the pieces would have gone to Ford and Toyota. Roughly the same number of cars would have been sold, and hence the same upstream work would have been done.

    It is certainly not like saving GM ensured that more cars for the US market were made with US labor. NAFTA anyone?

    And so the spending was for the brand, and not for the total long term employment.

    @Rafer Janders:

    Listing banks is not the same as listing car companies.

    Like or Dislike: Thumb up 1 Thumb down 6

  74. michael reynolds says:

    @David M:
    It’s a case of GIGO. If all you listen to is Fox News you’re going to have a very tough time defending your position. Garbage In…

    Like or Dislike: Thumb up 7 Thumb down 1

  75. michael reynolds says:

    @john personna:
    I don’t think that’s true. If it were true and Ford saw that as a likely outcome they’d have testified against the bailout rather than for it. Ford was obviously in a better position to understand their own position, no?

    Like or Dislike: Thumb up 10 Thumb down 1

  76. Al says:

    If not, it’s quite possible that we’d have been better off spending $49.5 billion bailing out GM’s workers and retraining them for jobs with a future.

    Wait. I thought job retraining didn’t work?

    Like or Dislike: Thumb up 3 Thumb down 0

  77. C. Clavin says:

    @john personna:
    I doubt Ford or Toyota had the money…remember…credit was tight, if not frozen.

    Like or Dislike: Thumb up 3 Thumb down 0

  78. C. Clavin says:

    @grumpy realist:
    hehehe

    Like or Dislike: Thumb up 0 Thumb down 0

  79. steve s says:

    IIRC, Ford only survived by being mortgaged to the hilt. They even mortgaged their frickin’ logo. And the private credit market was paralyzed. So they couldn’t have bought GM.

    Like or Dislike: Thumb up 4 Thumb down 0

  80. Pharoah Narim says:

    @Jenos Idanian #13: The money is easier to replace than the talent and and livelyhoods.

    Fool

    Like or Dislike: Thumb up 6 Thumb down 0

  81. C. Clavin says:

    @Jenos Idanian #13:

    The point of protecting the bond holders is to encourage them to invest in companies. Without that protection, companies will have a lot harder time getting investors.

    Then how do you explain a $40 share price. Unless of course you are wrong?

    Like or Dislike: Thumb up 4 Thumb down 0

  82. David M says:

    The GM bailout does always make me smile a little though. It was an unqualified success and the GOP and their sycophants were completely wrong, in a very obvious and visible way.

    It says very little of their character that we haven’t seen more public apologies like this one from the Economist for being on the wrong side of such an important decision.

    Like or Dislike: Thumb up 7 Thumb down 0

  83. C. Clavin says:

    @David M:
    If these losers will not admit they were wrong about Iraq…no way they admit they were wrong about this.
    It takes humility and courage to admit that you were wrong about anything.
    Do you really think people like Jenos possess courage?

    Like or Dislike: Thumb up 5 Thumb down 1

  84. stonetools says:

    Conservatism can never be wrong… only be wronged.

    When a conservative, but reality-based, magazine like The Economist acknowledges that Obama made the right call on GM, it’s time to give up the fight and accept reality.

    Like or Dislike: Thumb up 4 Thumb down 1

  85. Tyrell says:

    Pontiac was showing a profit and was making some good cars: G-6, Solstice, and their suv. Those vehicles sold well and got good reviews. They made a mistake getting rid of Pontiac. Saturn had turned into just another division, making look-alike cars of Chevy. Saturn should have been turned into a separate, experimental group, developing alternative engines, composite materials, and more computerization.
    Legendary Pontiacs: the incomparable GTO, the “Eagle” Firebird
    (“Smoky and the Bandit”, the 1962-63 Bonneville.
    Legendary Pontiac race drivers and builders: Fireball Roberts, Cotten Owens, Rex White, Smoky Yunick, Banjo Matthews, Junior Johnson, Jack Smith, David Pearson, Bud Moore, Paul Goldsmith, Joe Weatherly (20 wins), Richard Petty, Bobby Allison, Bobby Labonte, Rusty Wallace, Tony Stewart.
    No mistake about it: GM made a mistake dropping Pontiac; they lost a lot of fans and young buyers. I don’t know who was responsible or all the details, but it was not a smart decision.

    Like or Dislike: Thumb up 1 Thumb down 0

  86. al-Ameda says:

    @stonetools:

    Conservatism can never be wrong… only be wronged.
    When a conservative, but reality-based, magazine like The Economist acknowledges that Obama made the right call on GM, it’s time to give up the fight and accept reality.

    I suspect that a fair number of conservatives will not admit that they were wrong because their preference was that GM go through bankruptcy and that the UAW be broken. Some of the language used above – reference to protection of the UAW and other unions is the giveaway.

    Like or Dislike: Thumb up 7 Thumb down 1

  87. C. Clavin says:

    @Tyrell:

    Legendary Pontiac race drivers and builders: Fireball Roberts, Cotten Owens, Rex White, Smoky Yunick, Banjo Matthews, Junior Johnson, Jack Smith, David Pearson, Bud Moore, Paul Goldsmith, Joe Weatherly (20 wins), Richard Petty, Bobby Allison, Bobby Labonte, Rusty Wallace, Tony Stewart.

    Legendary? They could only turn left.

    Like or Dislike: Thumb up 3 Thumb down 0

  88. michael reynolds says:

    What fascinates me is the psychology of someone like Jenos, who has a less-than-lucrative job and yet dances with glee at anything that screws over a working man like himself. I mean, what the hell is that?

    It’s of a piece with people who pay no income tax getting hysterical over taxes I pay. If I’m not upset over my tax rate, what weird mental twist causes some random stranger to get apoplectic?

    The term “useful idiots” comes to mind, because I’m sure the Kochs and Romneys of this world find them useful. I just find them creepy.

    Like or Dislike: Thumb up 6 Thumb down 1

  89. al-Ameda says:

    @michael reynolds:

    What fascinates me is the psychology of someone like Jenos, who has a less-than-lucrative job and yet dances with glee at anything that screws over a working man like himself. I mean, what the hell is that?

    You and me both. I do not understand the perverse joy that many conservatives take in the economic degredation of the working middle class.

    Like or Dislike: Thumb up 9 Thumb down 0

  90. Gromitt Gunn says:

    Its the desire to be Better Than. They’ve convinced themselves that minorities get all sorts of handouts and special treatment, so the only people left that they can be Better Than is each other.

    Like or Dislike: Thumb up 5 Thumb down 1

  91. mattbernius says:

    @michael reynolds:

    What fascinates me is the psychology of someone like Jenos, who has a less-than-lucrative job and yet dances with glee at anything that screws over a working man like himself. I mean, what the hell is that?

    Not to mention, if one reads into some comments across his posts, may have (or currently is) benefited from a number of government “entitlement” programs.

    Or the fact that, while he claims to be open minded and well read, I have yet to see him change a position (despite the multiple times we’ve posted hard evidence that directly contradict the very underpinnings of his argument).

    Of course, Jenos could just be trolling all of us.

    Like or Dislike: Thumb up 10 Thumb down 0

  92. mattbernius says:

    @Tyrell:
    While we don’t agree on much, we are of the same mind when it comes to the demise of Pontiac.

    And since your music tastes seem to gravitate towards Americana and Grassroots, I give you Fred Eaglesmith’s “Pontiac” to commemorate this moment of coming together:
    http://www.youtube.com/watch?v=UVl0mIMti9w

    Like or Dislike: Thumb up 0 Thumb down 0

  93. An Interested Party says:

    I’m curious why Jenos is so ticked off that bondholders got stiffed…after all, in the past, he got health care and stiffed those who provided it to him…he even wrote something like if the cost of what he owed was spread across the entire population, it would amount to very little money…much like the amount the government “lost” by bailing out GM…

    Like or Dislike: Thumb up 5 Thumb down 0

  94. anjin-san says:

    It’s looks like Jenos is teaching investing 101 now as a follow up to his recent capitalism 101 course. Now thats comedy.

    Like or Dislike: Thumb up 5 Thumb down 0

  95. HarvardLaw92 says:

    @Jenos Idanian #13:

    You clearly have no understanding of corporate bankruptcy laws. A Chapter 11 bankruptcy requires DIP financing. The inability to obtain it results in an automatic conversion to a Chapter 7 filing (liquidation).

    The credit markets were frozen. No private lender would have stepped up to finance GM’s reorg, ergo the filing would have resulted in GM being liquidated. That would have taken a good portion of the supplier chain down with it, and since all of the manufacturers share common suppliers for many assemblies, it would have idled them as well.

    GM’s bondholders had to vote to approve taking a haircut, which they did. The alternative open to them was far worse.

    Please stick to discussing topics you actually know something about. Offhand, I can’t imagine what those might be, but this one clearly isn’t on the list.

    Highly-rated. Helpful or Unhelpful: Thumb up 21 Thumb down 0

  96. HarvardLaw92 says:

    As to the original question, $10.5 billion weighed against what the cost to the taxpayers of allowing GM to be liquidated (unemployment benefits, food stamps, lost tax revenue, and so on and so on) is a relative bargain.

    Like or Dislike: Thumb up 8 Thumb down 0

  97. Tyrell says:

    “We build excitement!” Pontiac slogan. Famous Pontiac innovations: a non-chrome bumper that you couldn’t dent with a baseball bat. The “wide track”. Speedometer mounted on the hood.

    Like or Dislike: Thumb up 0 Thumb down 0

  98. grumpy realist says:

    Totally OT, but let me take the time to gripe about a stupidity I see over and over again in reporting: APPLYING FOR A PATENT IS NOT THE SAME THING AS GETTING IT. Which is why glib titles like “JP Morgan patents Bitcoin-like money system” frosts my shorts. NO, they have NOT patented it yet. They have APPLIED for a patent and still have to go through the headache of dealing with the examiner, who is going to argue either 103 or 101 on their claims and kick them all out. (If they’re really lucky, they’ll get 102 rejections! What fun!)

    Sheesh….

    Like or Dislike: Thumb up 3 Thumb down 1

  99. C. Clavin says:

    @Tyrell:
    My dad sold Pontiacs back in the 60′s…so I’m sympathetic to your love of Pontiacs.
    But it’s always important to remember that when it came time to jump the bridge in Smokey and the Bandit…they stuffed a big block Chevy into that Trans Am…because they needed more HP.

    Like or Dislike: Thumb up 1 Thumb down 0

  100. Barry says:

    @Jenos Idanian #13: “There was a third option — normal bankruptcy. ”

    Nope, not under the circumstances of the times.

    And please remember that any ‘screwing’ of the bond-holders passed the courts – the Obama Administration won.

    Like or Dislike: Thumb up 2 Thumb down 0

  101. Barry says:

    James, as a political scientist you should also put this into perspective.

    $10 billion would be:

    How many days of the Iraq War? Going by the on the books costs (i.e., underestimating by a factor of a metric buttload), it’s maybe 30 days. More likely, it’d have purchased a three-day weekend.

    What infinitesimal percentage of the (strictly monetary) costs of treating wounded veterans?

    What infinitesimal percentage of the Wall St bailout?

    What infinitesimal percentage of the corporate subsidies granted in a given year – or better, any given month?

    Like or Dislike: Thumb up 0 Thumb down 0