Taking Taxpayers for a Ride
By EDWARD NIEDERMEYER
NYT
Portland, Ore.
GENERAL MOTORS raised more than a few eyebrows last week by announcing plans to repay what it describes as $6.7 billion in outstanding loans to taxpayers. So provocative was this announcement that it all but overshadowed the real news of the day: G.M. had lost $1.2 billion since exiting bankruptcy in July, and its fourth-quarter results were expected to be worse.
The company’s chief executive, Fritz Henderson, called the repayment plan “a personal commitment.” The Obama administration, wardens of the 60 percent taxpayer stake in the company, declared itself “encouraged” by the news. Many commentators followed suit. But in the premature rush to herald the beginning of the end of the government’s involvement in the auto industry, a number of key considerations were left out.
For starters, $6.7 billion doesn’t begin to scratch the surface of what G.M. actually owes us. Over the past 12 months, the Treasury has given it some $52 billion in the form of cash, loans and the purchase of that 60 percent of the company’s post-bankruptcy equity. And that number fails to take into account the two bailouts of G.M.’s former lending arm, GMAC, or the $3 billion spent on the “cash for clunkers program,” which doubtless kept the company from posting even deeper losses.
Moreover, G.M. is not, in the strictest sense, paying back taxpayers at all. Rather, it is refunding $6.7 billion of an $18 billion escrow account that was given to it by the government when it emerged from bankruptcy. The rest of that account will be used to cover fourth-quarter losses (including $2.8 billion pledged for the rescue of G.M.’s major parts supplier, Delphi), repay loans from the Canadian government, and possibly prop up the automaker’s shaky European operations. That escrow account is due to expire in June, at which time G.M. will repay what remains of the $6.7 billion from this week’s pledge — and then pocket the estimated $5.6 billion remainder.
(Continued here.)
NYT
Portland, Ore.
GENERAL MOTORS raised more than a few eyebrows last week by announcing plans to repay what it describes as $6.7 billion in outstanding loans to taxpayers. So provocative was this announcement that it all but overshadowed the real news of the day: G.M. had lost $1.2 billion since exiting bankruptcy in July, and its fourth-quarter results were expected to be worse.
The company’s chief executive, Fritz Henderson, called the repayment plan “a personal commitment.” The Obama administration, wardens of the 60 percent taxpayer stake in the company, declared itself “encouraged” by the news. Many commentators followed suit. But in the premature rush to herald the beginning of the end of the government’s involvement in the auto industry, a number of key considerations were left out.
For starters, $6.7 billion doesn’t begin to scratch the surface of what G.M. actually owes us. Over the past 12 months, the Treasury has given it some $52 billion in the form of cash, loans and the purchase of that 60 percent of the company’s post-bankruptcy equity. And that number fails to take into account the two bailouts of G.M.’s former lending arm, GMAC, or the $3 billion spent on the “cash for clunkers program,” which doubtless kept the company from posting even deeper losses.
Moreover, G.M. is not, in the strictest sense, paying back taxpayers at all. Rather, it is refunding $6.7 billion of an $18 billion escrow account that was given to it by the government when it emerged from bankruptcy. The rest of that account will be used to cover fourth-quarter losses (including $2.8 billion pledged for the rescue of G.M.’s major parts supplier, Delphi), repay loans from the Canadian government, and possibly prop up the automaker’s shaky European operations. That escrow account is due to expire in June, at which time G.M. will repay what remains of the $6.7 billion from this week’s pledge — and then pocket the estimated $5.6 billion remainder.
(Continued here.)
Powered by Blogger
1 Comments:
well, boys and girls, I hope we have learned a valuable lesson here. Bankruptcies should be more preferred to bailouts. Bailouts lead to more bad behaviour and, alas, more bailouts! How long are we, as Americans, going to stand for this? I don't have an allegiance to GM or Ford or Chrysler. Our economy will emerge stronger if we would let weaker companies fall so that stronger ones can succeed. As it is now, continually bailing out bad companies drags down the entire economy because resources get misallocated. But, of course, we bail out these companies because it is politically helpful to do so, even though, in the end, it hurts every consumer. GM should go to liquidation and its assets sold off so companies like Ford can become stronger.
This same situation happened 40 years ago with the disastrous merger of the Penn Railroad and its arch rival New York Central when they merged in 1968 to become the Penn Central. PC went to bankruptcy just over two years later and nearly brought down the entire northeast economy. PC and several other northeast carriers were used to form government-run Conrail in 1976 which went private in the late 1980s and took nearly 20 years to become profitable. When it did, Norfolk & Southern and CSX split Conrail between them in 1999. Government meddling delayed the inevitable by nearly 30 years. GM will never, ever be a profitable company again and we will be bailing out GM forever in order to get the votes of the rank and file employees who will keep viting Democrat as long as the bailout dollars keep flowing to GM.
Post a Comment
<< Home