The Cadillac of Bad Ideas
Oh, good, the Obama administration has another imaginary victory for
taxpayers to celebrate.
As you've probably heard, there's quite a bit of hubbub surrounding the
news that the administration's car company has gone public.
President Barack Obama tells us that General Motors' initial public
offering is proof that one of the toughest tales of recession "took
another step to becoming a success story." Not "survival," but success.
Taxpayers are going to make a profit, even!
Now, admittedly, success is a malleable concept. If by success we mean
that General Motors still owes the government $43 billion -- not
including that piddling $15 billion it borrowed to fund its financial
arm -- and that many analysts are uncertain it can ever flourish, we're
Success will mean temporarily setting aside the fact that the Treasury
actually lost billions on the IPO as it "bought" GM stock at inflated
prices. To break even on the freshly printed money taxpayers are
"getting back" will probably mean GM needs to double in value over the
next year to make us whole.
Do you feel whole? I do.
Don't worry. Not only is GM equipped with an array of unmerited
advantages over companies operating successfully in the marketplace --
even without blank checks from taxpayers -- but also the IPO was
exempted from federal and state anti-fraud laws just to make sure things
still aren't exactly fair. (Then again, every GM success comes at the
expense of someone else.)
If things get tough, we can rely on Transportation Secretary Ray LaHood
to trump up safety concerns regarding Toyota or Honda to correct the
Success also means that Morgan Stanley, Goldman Sachs, Citigroup and
other institutions saved from extinction by taxpayers can now make
hundreds of millions of dollars on an IPO from a company that only
exists because of taxpayers.
It reminds me of the success we experienced the last time GM paid back
taxpayers, when it utilized funds from a TARP escrow account rather than
actual revenue. Paying back taxpayers with taxpayer dollars is an
inventive accounting method, for sure.
And let's not forget that success is predicated on this president's
strong-arming bondholders and essentially wiping out shareholders of a
private company -- tearing up legal contracts rather than allowing a
traditional bankruptcy. Success means shielding benefits of United Auto
Workers as a reward for helping make cars that are less efficient and
At the time, George Mason University law professor Todd Zywicki wrote
that by "stepping over the bright line between the rule of law and the
arbitrary behavior of men," the president "may have created a thousand
new failing businesses."
Confiscating the property of investors for the common good isn't
generally conducive to a healthy business environment.
Sean McAlinden of the Center for Automotive Research told NPR that
investors may want to ask the new GM: "By the way, the last set of
shareholders and bondholders you had, you totally screwed them. So why
should I trust you now on nine months' worth of results?"
They may want to also ask why GM is making ideologically motivated
money-losers, such as the Volt, a car the middle class won't be able to
afford, even with massive subsidies. What happens when taxpayers divest
themselves from GM's social engineering projects?
Taxpayers didn't have much of a choice in the matter on the front end.
It'll be nice to see GM stand on its own -- until the next time.
But when we undermine the rule of law, ignore property rights, create
moral hazards and destroy organic job growth to save a company that was
terribly managed long before the recession, no one should brag about
"I have tried to live my life so that my family would love me and my
friends respect me. The others can do whatever they please."
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