Update on GM Bailout

“My theories explain, but cannot slow the decline of a great civilization. I set out to be a reformer, but only became the historian of decline.” – Ludwig von Mises, Notes and Recollections

Caught an article just now indicating that the US is finally selling its remaining shares of GM stock and getting out of the auto-industry … well, getting out of direct ownership of a major automaker in the US anyway. As an aside, I’ve conjectured before that these type of moves could be indicative of a stock market top. After all, the market is completely driven by Fed printing policy right now, and surely the chairman of the Fed and Secretary of the Treasury talk.

Don’t take that as investing advice. I’ve been wrong before … a lot, actually. That said, it is interesting that when I last wrote about “A Sure Sign the Stock Market Will Tank” it was around the time the US government divested from its Chrysler bailout back in June of 2011. While the broad stock market did not collapse, shares of Chrysler’s parent company Daimler AG dropped from above $75 a share to below $45 a share in just over a month. No telling how much of that was front running and price action due to government selling, and how much of it was a “lucky guess” on the part of the government that the shares were headed down.

In the end, the taxpayers will lose $10,000,000,000 on the GM deal. The article contains this beautiful snippet about the giant waste of money (and violation of law) that was the bailout:

Treasury officials say. The loss offsets a greater calamity that would have occurred – the disappearance of 1 million jobs – if the federal government had not intervened, says Treasury Deputy Assistant Secretary Tim Bowler.

Let me see if I have this right: had the US taxpayer not ponied up $10,000,000,000 we would have lost 1,000,000 jobs? The statement has several obvious problems. First, bankruptcy doesn’t equate to disappearance of an industry. Had GM gone belly up it would have been bought out by private parties, who would have been able to reconstitute the manufacturing functions and continue to build cars under the GM name. It is all but certain that GM would not have disappeared. Yes, some contracts would have been swept away – like all of the sweetheart union deals that made GM unprofitable in the first place. But the jobs would have still been there; albeit at a lower pay grade.

Second, simple math demands that this is $10,000 a job. Now, that’s pretty good by federal government standards, but is still fairly atrocious. $10,000 a job? The US taxpayer had to pony up $10,000 per job ostensibly “saved” at GM. I kind of wonder how many of those folks would have rather had the $10,000 before going on to find different (or even the same) work. For that matter, I wonder how many people understand that a cool $10,000 per job was handed over to GM workers to shore up their utterly untenable employment and benefits deals. It’s good to be politically connected.

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