Big Government Motors Big Failure

August 26, 2010 08:32

The bottom line is that GM and Chrysler still owe the government a great deal of money, and it is far from clear that they will be able to repay it all. As long as the prospect of large losses for taxpayers loom in the distance, it is impossible to say that the jobs saved didn’t come at the expense of other jobs.

Stephen Spruiell at NRO


‘But if we have learned anything from the stimulus, it is that a few quarters of success attributable to government policy do not mean that the policy was successful. Home sales took off last April as the expiration of the New Homebuyers Tax Credit neared, only to plummet this summer when it became clear that the policy had merely pulled demand forward instead of stimulating new demand. The same thing happened with Cash for Clunkers, to a lesser extent: A brief bump in sales of cars and light trucks was followed by a steep drop. Sales have since gone up slightly, but the latest forecasts predict weaker demand for autos to go with weaker demand for housing and continuing high unemployment.’

‘Much of the taxpayers’ “investment” in GM is held in the form of preferred stock. According to the government’s own estimates, GM’s market capitalization would have to reach $67 billion for taxpayers to break even. At its peak, in 2000, GM’s market cap was $57 billion. One GAO report concluded that “Treasury’s own analysis suggests that the circumstances necessary for the companies to reach market capitalizations high enough for Treasury to fully recover its equity investments are unlikely.”’


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