The national news reported on the success of GM and its latest profitable quarter. That is only one piece of the pie. I found an article from Megan
McArdle, a senior editor for The Atlantic. She paints a pragmatic picture, which I couldn't have said better myself. You be the judge on whether or not the bailout for GM was a good deal for the U.S. taxpayers.
Here are the highlights:
About
$40 billion of the money that the
government gave GM was converted to GM common stock. In the November IPO, the
government made about $20 billion selling 478 million shares, leaving us with
around $20 billion more to recoup on our remaining 26.5% stake in the company.
A very important extra:
the $14 billion gift that the government seems to have handed the company, in the
form of a special tax break:
That break will
reduce GM's U.S. tax bill by an estimated $14 billion in the coming years, and
its global taxes by close to $19 billion, according to a company filing.
Companies typically get a break on future
taxes because of past losses. But in most cases they lose that tax break during
bankruptcy, because the losses are offset by the "income" the company
receives from shedding its debt.
Since the company shed $30 billion in debt
during bankruptcy, it should have wiped out most of the tax break. GM even
warned it expected to lose those tax breaks shortly before filing for Chapter
11 protection.
But somehow, that never happened, and the
automaker was able to keep most of its tax breaks, essentially receiving a $14
billion "gift" from the government.
While it's unclear why GM was allowed to
carry over its losses, some experts insist that GM got preferential treatment.
What lesson, exactly,
are we supposed to learn from this "success"? What question did
it answer? "Can the government keep companies operating if it is willing
to give them a virtually interest free loan of $50 billion, and a tax-free gift
of $20 billion or so?" I don't think that this was really in
dispute. When all is said and done, we will probably have given them a sum
equal to its 2007 market cap and roughly four times GM's 2008 market
capitalization.
No, the question was
not whether GM could make a profit after a bankruptcy that stiffed most of its
creditors and shed the most grotesque burdens of its legacy costs, nor whether
giving companies money will make them more profitable. The question is
whether it was worth it to the taxpayer to burn $10-20 billion in order to give
the company another shot at
life. To put that in perspective, GM had about 75,000 hourly workers
before the bankruptcy. GM has closed 13 plants and shed 25,000 union jobs in the United States. We could have given each of them a cool $250,000
and still come out well ahead compared to the ultimate cost of the bailout
including the tax breaks--and over $100,000 a piece if we just wanted to break
even against our losses on the common stock.
