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  • Bailouts don’t provide ROI

    Posted by Bruno Behrend on November 18th, 2010 (All posts by )

    News reports are rolling in regarding the TARP paybacks and stock sales on GM.  Some are saying that these bailouts  are “turning a profit” for taxpayers.  Here is one example.

    G.M. Prices Its Shares at $33 in Return to Stock Market

    American taxpayers’ ownership of General Motors was halved on Wednesday, and billions of dollars in bailout money was returned to the federal government, as a result of the nation’s largest initial stock offering ever.

    The offering, which raised $23.1 billion, is bigger and more ambitious than had once seemed possible. But the recently bankrupt automaker will have to build on its revival for the government to recoup its entire $50 billion investment and validate the Obama administration’s decision to keep G.M. from collapsing.

    The idea that these policies were beneficial, simply based upon some of the money being returned through IPOs, needs to be placed into context.

    Let’s start with this. Since 2007,  revenues to the Fed. government have collapsed.  This collapse was precipitated by a dramatic slowdown, which, in turn, was based upon a variety of factors.  The key is that many of these factors could have been addressed prior to the collapse.

    Instead, American governance is a freak show where we have an above the surface gridlock on any good policy, with a below the surface greasing of every stupid policy under the sun.  This culminated in bursting asset bubbles, bailouts of rent-seekers, and a slew of morally hazardous policies that replace self-governance with “Czarism.”

    Into this tragi-comedy of political idiocy, unemployment, and huge deficits, defenders of the bailouts point to a paltry few pennies returned to the treasury as a sign of “success” while ignoring the billions (or trillions, even) in lost revenues based upon bad government policies.

    This is ridiculous. GM’s $33/share price is based upon a czarist edict waiving away taxes on bailed out entities.  What some tout as a “return on investment” reads more like a scene out of Atlas Shrugged, where some people get bailed out based upon the “aristocracy of pull.”

    There are far too many Republicans, conservatives, and libertarians who operate under the false theory that the well of our moral, social, financial and intellectual capital will never run dry. I think they are wrong.

    The GM situation is evidence of deep decline, not of a “bailout” having worked.

     

    7 Responses to “Bailouts don’t provide ROI”

    1. Dennis Says:

      Since, as I understand it, I’m the one who bailed out the union pension and health funds and the various bondholders gave up their rightful first-in-line payouts ( and I suppose others in the same boat(s) that I’m too uninformed to raise), it seems we should be the ones with the forward tax write-offs.

      Fat chance, I know. What is the value of the stock offering without this new bailout?

    2. David Foster Says:

      Part of the value of GM’s new stock represents the tax-loss carryforwards that were done as a special favor, part of it represents wealth which was confiscated from bondholders. Again and again, the Obama administration sends the message that the only way to become wealthy in the society that they envisage is through political favoritism.

    3. Lexington Green Says:

      “… the only way to become wealthy in the society that they envisage is through political favoritism.”

      America, welcome to: Chicago, Cook County, Illinois.

    4. Percy Dovetonsils Says:

      Speaking of political favoritism, be sure to check out the Chicago Tribune’s article this morning about the city’s pension plan being deep in the red, in no small part due to politically-connected investment managers taking on inordinate amounts of risk in illiquid investments.

      So, where exactly does your average citizen buy tar and a large quantity of feathers? I assume tar can be found at Home Depot, but I don’t know of anyone who stocks large bags of feathers.

    5. Michael Kennedy Says:

      “I assume tar can be found at Home Depot, but I don’t know of anyone who stocks large bags of feathers.”

      Well, Thanksgiving is next week. Maybe you could corner the market on turkey feathers.

      Contracts are a foreign concept to this administration. Even the judge in the fake terrorist trial this week said he wasn’t worried about excluding evidence because Obama would not release the defendant even if acquitted. Now, even Glen Greenwald admits this was a show trial.

      The “Rule of Law” Chicago style.

    6. David Dzidzikashvili Says:

      Due to economic crisis and soaring debt and the deficit, the United States has already lost its status as the superpower of the global financial system. To add more bad news, the soaring cost of health, social security nearing bankruptcy, high unemployment add more bad news to current economic woes of the American society. Bad decisions, bad policy combined with flawed decision-making process have practically killed/destroyed the foundations of Capitalism in America. But even considering all of the economic data & factors, we’re somehow still addicted to spending and some political “heavyweights” advocate even more borrowing & spending by the government. We’ve got to stop and realize that at some point we need to pay the debt, the younger generation of Americans will need to pay the debt, probably next generations as well… So what we are really doing now is taking liability and spreading slowly over next generations, so that they can deal at a later time? How about actually cutting/freezing all spending, conducting audits of all government spending & programs and start slowly and painstakingly cutting to save and to be a bit more fiscally realistic (and responsible?).

    7. Mitch Says:

      I never realized IRC sec. 382 was optional, but it’s been a long time since I took the CPA exam and I might have forgotten that detail.