On Dec. 10, the U.S. Treasury Department sold off its last shares of General Motors’ stock (NYSE: GM). Both President Obama and the Treasury Secretary Jack Lew touted the company bailouts — Chrysler was also bailed out — as a success. Let’s do a quick review to understand what “success” means in Washington doublespeak. President […]
On Dec. 10, the U.S. Treasury Department sold off its last shares of General Motors’ stock (NYSE: GM). Both President Obama and the Treasury Secretary Jack Lew touted the company bailouts — Chrysler was also bailed out — as a success. Let’s do a quick review to understand what “success” means in Washington doublespeak.
President Obama said the federal government had to step in to keep both companies from “going bankrupt.” To the uninitiated, that meant going out of business. If so, then how did American Airlines just come out of bankruptcy and merge with US Airways. Clearly, bankruptcy doesn’t always mean ceasing operations.
Our president repeatedly told us that the private sector had no interest in rescuing GM unless Uncle Sam stepped in. How do we know that, since his administration short-circuited the process? GM clearly had outsized liabilities, because management couldn’t say no to the unions and the corporate culture was sclerotic. But that doesn’t mean there wasn’t demand for the product and assets in the form of capital investments, a dealer network, loyal customers, and skilled workers.
The president further argued that the industry would collapse if GM went bankrupt. Funny thing, the government took the company through the bankruptcy process anyway while propping up GM with taxpayer money. In the process, the political appointees in charge of the process stuck it to the bond- and stock-holders, while protecting the interests of some unions.
In GM’s case, President Obama and Secretary Lew both admitted that the taxpayers took it on the nose for $10 billion (another $1 billion was lost in the Chrysler bailout); that’s called success inside the Beltway. Neither man mentioned that Chrysler is now majority-owned by Fiat and that each GM job “saved” cost more than six figures.
The U.S. government’s final argument for stepping in was the collapse of the auto manufacturers’ supplier network. That presumes the feds were the only savior. Since the Obama Administration has no problem rescuing banks, they could have politely suggested that these financial institutions lend money to those suppliers in need.
Our sitting president may be slapping himself on the back for the government’s role in the auto bailouts, but what he really did was to circumvent an established process and decide which interest group would benefit, all at the expense of the public.
The bailouts were just another form of corporate cronyism. Only in Washington would the bailouts be called a success.
Norman Poltenson is publisher of The Central New York Business Journal. Contact him at npoltenson@cnybj.com