Menu
Home

Opinion

GM's Bailout Is a Financial Disaster

Only the government would consider it a success to buy stock at $43.84 a share and sell it at $33. -- But President Obama and those who supported his bailout of General Motors and Chrysler are claiming just that today.

First, the alternative to the government bailout wasn't to "give up" as Obama claimed on Thursday at his press conference. Bankruptcy didn't mean that all jobs were going to be lost. It didn't mean that all the factories producing cars would be closed. 

Yet, the president made that claim in his announcement again today and he continually misstates what would have happened in a normal bankruptcy. Courts don't just close down bankrupt companies. In fact, that rarely occurs. Any part of a company that can continue operating profitably continues to do so. 

Some are pointing out that just a year and a half ago GM stock was trading at just $1 a share and claim that today's closing price of $34.19 is proof of the bailout's success. It simply doesn't account for the over $50 billion in direct bailout funds and the tens of billions of dollars in other breaks President Obama gave the company and its unions. 

It also ignores that GM's stockholders and particularly its bondholders had their wealth stolen from them when the government took over ownership of the company. Traditional property right protections were shredded by the Obama administration, making corporate investments in America riskier as a result.

The president also has to take responsibility for the fact that today's stock price wasn't higher and that the government lost as much money as it did. 

The Obama administration strictly limited stock sales to less than half of what the government owned in the company, not only delaying the day when the government control of GM will end but also depressing what GM's stock was sold for on Wednesday. -- The reason is very simple, with continued government ownership, politics, not standard business practice, will continue to determine many of GM's decisions.

GM Chairman Edward E. Whitacre Jr. resigned in August over frustration in government interference in business decisions. But continued government ownership, along with the continued government interference, is keeping stock prices lower than they would have to be. 

Fully privately owned companies simply work better and earn more than those that are publicly or partially publicly owned. That is not very surprising as they have less reason to engage in political compromises. 

Politics has indeed entered into everything -- from where the company's headquarters are located in Detroit to where cars will be assembled. Individual congressmen such as Barry Frank (D-Mass.) intervened in whether a car plant in Massachusetts would be closed.

The administration claims that stock sales had to be limited because GM was just trying to get "higher fees for the bankers." That's obviously just more of President Obama's class warfare claptrap. If he really believed that the bankers were charging too much, there was a simple solution: make sure that there is a competitive process in setting up this stock sale.

Nor does should the government wait to sell its shares just on the hope that stock prices will rise. The administration hopes that if GM's stock can rise from $33 per share to $52.79, a 60 percent increase, the government will be able to break even. 

But the Obama administration is not anywhere near as good at predicting future car sales as private individuals who have their own money at stake. The current stock price already reflects what those future sales are expected to be.

There is no reason for the federal government to continue owning 37 percent of GM's stock. 

Hopefully, the new Republican controlled House of Representatives can help push to sell off these remaining shares as soon as possible.

The Obama administration’s class warfare rhetoric exposes how weak its arguments are. The administration has no right to squander so much of our country’s wealth on taking over companies to benefit the president’s political supporters.

John R. Lott, Jr. is a FoxNews.com contributor. He is an economist and author of "More Guns, Less Crime."(University of Chicago Press, 2010), the third edition of which was published in May.

John R. Lott, Jr. is a columnist for FoxNews.com. He is an economist and was formerly chief economist at the United States Sentencing Commission. Lott is also a leading expert on guns and op-eds on that issue are done in conjunction with the Crime Prevention Research Center. He is the author of eight books including "More Guns, Less Crime." His latest book is "Dumbing Down the Courts: How Politics Keeps the Smartest Judges Off the Bench" Bascom Hill Publishing Group (September 17, 2013). Follow him on Twitter@johnrlottjr.