The American Interest
Analysis by Walter Russell Mead & Staff
Now They Tell Us: Costs of the GM Bailout

To some the GM bail-out seems like the distant past, especially since President Obama recently hailed it as a success in Midwestern swing states. But now that the election is out of the way, its true cost to the taxpayers – billions – is about to become very clear.

The government still owns 32% of the auto company, and stands to lose a good amount when selling its share. Right now GM shares are trading at less than half the price the government needs to break even, and if all the shares were sold at this price, it would only bring in about $14.1 billion, meaning that the taxpayers stand to lose about $15 billion on their “investment”.

Now that the election is over the government will likely sell the stocks at a loss. Bloomberg has the story:

The question is how and when. With GM suffering as much as $1.8 billion in losses in Europe this year and Chinese economic growth slowing while the U.S. accelerates gradually, prospects are dim for a doubled stock price.

“They can’t wait for the shares to turn a profit because they know it’s not going to happen,” Phillip Swagel, assistant Treasury secretary for economic policy under President George W. Bush, said in an interview. “They will wait a reasonable time period after the election, as people focus on the fiscal cliff and tax reform. Then they’ll start to sell off the shares.”

That cynical forecast is looking pretty good, even if it comes from an ex-Bushie, and there are also good policy reasons for the government to get out of GM as soon as possible. It’s a bad thing for government to own large chunks of the private economy; GM should be owned by shareholders who invest based on their reading of the health of the company and the direction of the economy.

Both Governor Romney and President Obama made the point in the last campaign that the government had a legitimate interest in ensuring that temporary economic dislocations did not lead to the unnecessary destruction of an important American company; that seems right to us. It doesn’t make a lot of sense now to relitigate the issue, but we hope that future bailouts, should any be necessary, will be structured in ways that are less costly to taxpayers and less likely to create moral hazard down the road.

 

Published on November 10, 2012 3:19 pm