We have come a long ways. In 1979 when Chrysler was bailed out by Jimmy Carter, the initial cost was $1.2 billion and rather than an infusion of cash from the government, the $1.2 billion was in guarantees for Chrysler loans. Although that bailout was also touted as a success, research by the Heritage Foundation showed that the overall job loss at Chrysler would have been little different than if the company had gone through bankruptcy. The only difference was that stockholders were bailed out but at a cost of reduced net wealth suffered by the drop in share price.
It probably comes as no surprise that the president and his men – Timothy Geithner and Joe Biden - have been going around touting the automobile bailout as a success. However, what constitutes success. The Wall Street Journal says that after shedding 334,000 jobs, Chrysler and GM have hired 55,000. So is the loss of 279,000 jobs a success? The bailout cost $60 billion and I won’t calculate how much this is per job since it would not take into account suppliers and other ancillary factors. Nevertheless, the administration is also telling us that in the end the loss will be $16 billion. Actually the loss is more because the $16 billion does not include the $4 billion in Chrysler debt that was forgiven by the Treasury Department.
Now we have the definition of success: it is a loss 279,000 jobs and $20 billion. The president seems to have conveniently forgotten that he initially promised that the taxpayers would not lose a dime. What is disappointed is that the otherwise clear thinking Bob Coker (R-TN) seems to have bought into this curious definition of success. He told Investor’s Business Daily "The resurgence of the companies would not have occurred without the tough restructuring measures I laid out and the administration generally followed. Like most Americans, I am glad the companies are doing well ... and that taxpayers are being repaid." Apparently, Coker the politician has trumped Coker the business man on this issue. What Coker has also forgotten is that the GM IPO was $35 and now is $28. A price of $54 would mean no taxpayer loss and that seems like a pipe dream. But just like the Chrysler bailout of 1979, the essential question is whether the same results would have been achieved under normal bankruptcy proceedings without costing the US taxpayer billions of dollars. The answer can be found in the excellent piece by Professor Todd Zywicki (http://www.nationalaffairs.com/publications/detail/the-auto-bailout-and-the-rule-of-law) who finds little merit in the government bailout. Finally, if GM and Chrysler lost 279,000 jobs and $20 billion on their own and their CEOs had run around the country proclaiming success, the rest of us would have looked upon them as fools (unemployed fools).
Happy Birthday Frederic Bastiat
2 years ago