This article first appeared at The McAlvany Intelligence Advisor on Wednesday, December 11th, 2013:
In Treasury Secretary Jacob Lew’s fawning, obsequious, genuflecting announcement that the president had singlehandedly saved western civilization from a cataclysmic economic disaster, he said that by taking a loss, taxpayers actually scored a victory:
The President’s leadership in responding to the financial crisis helped stabilize the auto industry and prevent another Great Depression. With the final sale of GM stock, this important chapter in our nation’s history is now closed.
The President understood that inaction could have cost the broader economy more than one million jobs, billions in lost personal savings, and significantly reduced economic production.
As a result of his efforts, which built on those of the previous [Bush] administration, more than 370,000 new auto jobs have been created, and all three U.S. automakers are profitable, competitive, and growing.
Naturally the president, in his modesty, accepted Lew’s applause along with the responsibility for the rescue of GM and Chrysler, as though it had been his idea all along:
I refused to walk away from American workers and an iconic American industry. But in exchange for rescuing and retooling GM and Chrysler with taxpayer dollars, we demanded responsibility and results.
In 2011 we marked the end of an important chapter as Chrysler repaid every dime and more of what it owed the American taxpayers from the investment we made under my administration’s watch. Today we’re closing the book by selling the remaining shares of the federal government’s investment in General Motors.
Aside from reflecting the man’s monstrous hubris, the president’s statement also revealed his audacious willingness to rewrite history, hoping that no one would notice, or care.
First of all, the bailout wasn’t his idea. It’s was GM’s. The company had been in desperate financial shape long before the Great Recession, recording huge losses of $10 billion in 2005 and another $38 billion in 2007. Obama first rejected a bailout in March 2009 but reconsidered when he learned that the company was rapidly running out of money and without an infusion of taxpayer monies, it would be forced to cease operations. That would hurt his friends in the UAW to whom he owed his recent election. So he changed his tune.
Secondly, he had nothing to do with any “retooling” of GM, except for the outrageous firing of GM’s president Rick Waggoner in an executive overreach that has continued to define his regime.
Thirdly, it wasn’t just American taxpayers’ monies he was “investing,” but he managed to capture some Canadian taxpayers’ funds as well in arranging the GM bailout. Furthermore, he was able to reward his UAW cronies by giving away some 17% of the “new” GM to the United and Canadian Autoworkers Union’s VEBA fund – their Voluntary Employees Beneficiary Association – for next to nothing.
And the President indulged himself in another excessive misstatement about Chrysler’s repaying “every dime and more of what it owed the American taxpayers.” In fact, Chrysler has reneged on repaying the $1.3 billion it soaked up under the same scheme.
But the biggest lie of all came when he added:
When things looked darkest for our most iconic industry, we bet on what was true: the ingenuity and resilience of the proud, hardworking men and women who make this country strong. Today, that bet has paid off. The American auto industry is back.
He failed to mention the monumental screwing of the other “proud, hardworking men and women” who owned GM’s bonds when the government decided to use a little-known tool in the bankruptcy code known as Section 363. It was forced onto the bondholders as a “quickie” bankruptcy that would avoid the usual bankruptcy and reorganization that was designed to protect creditors’ interests. It cost them some $172 billion.
It doesn’t matter. Lies, deceit, and audacity characterize his administration. The end justifies the means. A few eggs have to be broken to make an omelet. Besides, Obama has the proof that what he did was right after all. He touted a study that came out, conveniently just a few days before the sale of the rest of the Treasury’s GM stock, from a so-called “independent” research outfit called the Center for Automotive Research, or CAR. It’s funded by GM, but adamantly claims that it is free of any political or industry influence. It’s “objective.”
Here’s what its report, grandly titled “The Effect on the U.S. Economy of the Successful Restructuring of General Motors,” concluded: that the US treasury actually made money on the deal! By not allowing the usual bankruptcy proceedings – characterized in this independent neutral balanced report as likely to be “a drawn-out, disorderly bankruptcy proceeding [that would have led] to a liquidation of the automakers” – but instead employing “a quick, orderly Section 363 bankruptcy” – the industry “saved” an estimated five million jobs and the Treasury some $105 billion in “transfer payments” (read: food stamps and unemployment benefits) and otherwise lost tax revenues under Social Security withholding payments and income taxes.
This is how the math works in Washington. If the government doesn’t spend money, it’s “savings.” In CAR’s press release touting the report comes this beauty: “CAR’s results show that the U.S. government saved or avoided the loss of $105.3 billion in transfer payments and the loss of personal and social insurance tax collections of 768 percent of the net investment.” In other words, the US taxpayer made a 768 percent return on its money. Hallelujah.
Little was said in the report about how the ordinary bankruptcy, liquidation, and reorganization of GM and Chrysler might have gone. It assumed that any jobs lost would be jobs lost forever, never to be recovered. The report used words like “collapse,” “losses,” and “shutdowns” that would have resulted under that scenario.
Deep in the report, however, was this:
It is true that CAR projects that much of U.S. auto manufacturing employment would have recovered without U.S. government intervention by 2011 or sometime thereafter, but there would have been a decided shift in the location of this employment to the southern portion of the United States….
Results for upper Midwest states such as Michigan, Ohio and Indiana … would have been severe…. Double digit unemployment rates would still exist in these states today.
What CAR is conceding is instructive. Obama saw that normal bankruptcy proceedings would have led to a reorganization of GM and Chrysler away from union-dominated states and towards southern non-union states. This couldn’t be allowed to happen. So the GM and Chrysler bailouts were bailouts instead of union-centric states in the Midwest, and a protection of his union friends.
In sum, the bailouts were a victory after all: a victory for the unions, another successful attack on the capitalist system, and a precedent established to be used the next time an “essential” part of the economy is threatened. It rewarded incompetency and increased the moral hazard protecting business owners from the consequences of their bad decisions. It was a victory after all – for everyone, that is, except the bondholders and the American citizen.
USA Today: Government sells last of its GM shares
Detroit News: End of bailout era: Feds sell final stake in GM
FoxBusiness.com: U.S. Sells Last of GM Shares
24/7 Wall Street: GM Bailout Saves 1.2 Million Jobs
Yahoo.com: A Second Bailout for GM and Chrysler