The GM bailout comes with a lot of smoke and mirrors, sold on the constitutionally questionable TARP to the American people. The bailout comes with a loss that neither the president or the automaker wanted you to know.
That’s because the automaker’s claim about paying back the money is very misleading. Much of the $50 billion in federal assistance came in the form of equity purchases, with the government taking a 61-percent stake in the company. The cash loan totaled “only” $6.7 billion in taxpayer dollars. For taxpayers to recoup their investment, the federal government would have to sell its 365 million shares at a profit. The break-even price would be $55 a share, but GM is currently selling at $28.90.
And it doesn’t look like share prices are increasing any time soon. The stock market is up since mid-November by about 8 percent. But the stock of General Motors has bucked the trend. It’s down more than 16 percent since its initial public offering on November 18, 2010.
That’s the bad news–especially bad for the taxpayers, because it means we’ve lost roughly $11 billion in the government’s experiment in big business, with no real prospect that the market performance of GM will turn around anytime soon–not as long as the government is calling the shots, anyway.
There is no justification for sticking the taxpayers with the bill for this misadventure. The taxpayers didn’t want the bailout in the first place–every poll, not to mention the 2010 elections–confirms that view.
As things now stand, the taxpayers are innocent victims of the fraud that the bailout constituted from the beginning. Therefore, the only fair way to correct the injustice is to require General Motors to repay the taxpayers the $11 billion, or whatever the final amount turns out to be.
Since the automaker clearly doesn’t have that kind of cash lying around, one solution would be some type of long term debt financing. Such a settlement would not only be good for both the taxpayers and General Motors, it would also have the salutary effect of chilling the desire of any future big businesses from running to the government for a bailout.
The Washington Post got it exactly right when it wrote that, “The mere fact of government ownership is a drag on GM’s profit potential.”