National Review Online
Monday, September 10, 2012
The Democrats have decided to run in 2012 as the bailout
party. It is an odd choice — the 2008–09 bailouts were deeply unpopular among
the general public, and even their backers were notably conflicted about the
precedent being set and the ensuing moral hazard. But Democrats have
nonetheless made one of the most abusive episodes in the entire bailout era
their economic cornerstone: the government takeover of General Motors.
The GM bailout was always an odd duck: The Troubled Asset
Relief Program (TARP) was created in order to preserve liquidity in the
financial markets by heading off the collapse of key financial institutions
that had made catastrophically bad bets on real-estate securities — nothing at
all to do with cars, really. GM’s financial arm, today known as Ally Financial,
was in trouble, but GM’s fundamental problem was that its products were not
profitable enough to support its work-force expenses. A single dominant factor
— the United Auto Workers union’s extortionate contracts with GM — prevented
the carmaker from either reducing its work-force costs or making its products
more efficiently. And its hidebound management didn’t help.
Admirers of the GM bailout should bear in mind that it
was the Bush administration that first decided to intervene at the firm,
offering a bridge loan on the condition that it draw up a deeply revised
business plan. President Obama’s unique contribution was effectively to
nationalize the company, seeing to it that the federal government violated
normal bankruptcy processes and legal precedent to protect the defective
element at the heart of GM’s troubles: the financial interests of the UAW. It
did this by strong-arming GM’s bondholders into taking haircuts in order to
sweeten the pot for the UAW. The Obama administration also creatively construed
tax law to relieve GM of tens of billions of dollars in obligations — at the
same time that Barack Obama & Co. were caterwauling about the supposed lack
of patriotism of firms that used legal means rather than political favoritism
to reduce their tax bills.
Mitt Romney’s proposal for a structured bankruptcy would
have necessitated considerable federal involvement, too, but with a key
difference: The UAW contracts would have been renegotiated, and GM’s executive
suites would have been cleaned out, placing the company on a path toward
innovation and self-sufficiency rather than permanent life support. Which is to
say, Obama did for GM what he is doing by un-reforming welfare: creating a
dependent constituency.
The Democrats cling to the ridiculous claim that the
bailout of GM and its now-Italian competitor, Chrysler, saved 1.5 million U.S.
jobs. This preposterous figure is based on the assumption that if GM and
Chrysler had gone into normal bankruptcy proceedings, the entire enterprise of
automobile manufacturing in the United States would have collapsed — not only
at GM and Chrysler but at Ford and foreign transplants such as Toyota and
Honda. Not only that, the Democrats’ argument goes, but practically every parts
maker, supplier, warehousing agency, and services firm dedicated to the car
industry would have collapsed, too. In fact, it is unlikely that even GM or
Chrysler would have stopped production during bankruptcy: The assembly lines
would have continued rolling, interest and debt payments would have been cut,
and — here’s the problem — union contracts would have been renegotiated. Far
from having saved 1.5 million jobs, it is not clear that the GM bailout saved
any — only that it preserved the UAW’s unsustainable arrangement.
Bill Clinton bizarrely tried to claim that the bailout
has been responsible for the addition of 250,000 jobs to the automobile
industry since the nadir of the financial crisis. Auto manufacturers and
dealerships have indeed added about 236,000 jobs since then, but almost none
are at GM, which has added only about 4,500 workers, a number not even close to
offsetting the 63,000 workers that its dealerships had to let go when the terms
of the bailout unilaterally shut them down.
Ugly as the bank bailouts were, the federal government
appears set to make its money back on most of them, with the exception of some
smaller regional banks and CIT. Even AIG, one of the worst of the financial
basket cases, is set to end up being a break-even proposition for U.S.
taxpayers. But tens of billions of dollars will be lost on GM. The federal
government put up more for a 60 percent interest in the firm than GM is worth
today.
At their convention, Democrats swore that GM is
“thriving,” but the market doesn’t think so: GM shares have lost half their
value since January 2011. And while the passing of the Great Recession has
meant growing sales for all automakers, GM is seriously lagging behind its
competitors: Its sales are up 10 percent, a fraction of the increases at Kia,
Toyota, Volkswagen, and Porsche. With its sales weak, its share price crashing,
and its business model still a mess, some analysts already are predicting that
GM will return to bankruptcy — but not until after the election.
The Obama administration talks up all of the “jobs” it
saved at GM — but jobs doing what? Manufacturing automobiles that are not
competitive without a massive government subsidy? Propping up an economically
unviable enterprise just long enough to get Barack Obama reelected? As much as
it will pain the hardworking men and women of GM to hear it, it is not
worthwhile to save jobs at enterprises that cannot compete on their own merits.
So long as the federal government is massively subsidizing the operation, a job
at GM is a welfare program with a fairly robust work requirement. (And we all
know how the Obama administration feels about work requirements.)
We have bankruptcy laws and bankruptcy courts for a
reason. It may make sense to expedite the proceedings for very large firms such
as GM in order to prevent disruptions in the supply chain that would, as Ford’s
executives argued, harm other, healthier firms. But bankrupt is what GM was,
and bankrupt is what GM is, a fact that will become blisteringly apparent should
the government ever attempt to sell off the shares it owns in the company.
The GM bailout was a bad deal for GM’s creditors, for
U.S. taxpayers, and, in the long run, for the U.S. automobile industry and our
overall national competitiveness. No wonder the Democrats are campaigning on a
fictionalized account of it.
No comments:
Post a Comment