November 19, 2010
The Cadillac of Bad Ideas
By David Harsanyiwww.realclearpolitics.co m________________________
________________
Oh, good, the Obama administration has another imaginary victory for taxpayers to celebrate.
As you've probably heard, there's quite a bit of hubbub surrounding the news that the administration's car company has gone public.
President Barack Obama tells us that General Motors' initial public offering is proof that one of the toughest tales of recession "took another step to becoming a success story." Not "survival," but success. Taxpayers are going to make a profit, even!
Now, admittedly, success is a malleable concept. If by success we mean that General Motors still owes the government $43 billion -- not including that piddling $15 billion it borrowed to fund its financial arm -- and that many analysts are uncertain it can ever flourish, we're home free.
Success will mean temporarily setting aside the fact that the Treasury actually lost billions on the IPO as it "bought" GM stock at inflated prices. To break even on the freshly printed money taxpayers are "getting back" will probably mean GM needs to double in value over the next year to make us whole.
Do you feel whole? I do.
Don't worry. Not only is GM equipped with an array of unmerited advantages over companies operating successfully in the marketplace -- even without blank checks from taxpayers -- but also the IPO was exempted from federal and state anti-fraud laws just to make sure things still aren't exactly fair. (Then again, every GM success comes at the expense of someone else.)
If things get tough, we can rely on Transportation Secretary Ray LaHood to trump up safety concerns regarding Toyota or Honda to correct the problem.
Success also means that Morgan Stanley, Goldman Sachs, Citigroup and other institutions saved from extinction by taxpayers can now make hundreds of millions of dollars on an IPO from a company that only exists because of taxpayers.
It reminds me of the success we experienced the last time GM paid back taxpayers, when it utilized funds from a TARP escrow account rather than actual revenue. Paying back taxpayers with taxpayer dollars is an inventive accounting method, for sure.
And let's not forget that success is predicated on this president's strong-arming bondholders and essentially wiping out shareholders of a private company -- tearing up legal contracts rather than allowing a traditional bankruptcy. Success means shielding benefits of United Auto Workers as a reward for helping make cars that are less efficient and more expensive.
At the time, George Mason University law professor Todd Zywicki wrote that by "stepping over the bright line between the rule of law and the arbitrary behavior of men," the president "may have created a thousand new failing businesses."
Confiscating the property of investors for the common good isn't generally conducive to a healthy business environment.
Sean McAlinden of the Center for Automotive Research told NPR that investors may want to ask the new GM: "By the way, the last set of shareholders and bondholders you had, you totally screwed them. So why should I trust you now on nine months' worth of results?"
They may want to also ask why GM is making ideologically motivated money-losers, such as the Volt, a car the middle class won't be able to afford, even with massive subsidies. What happens when taxpayers divest themselves from GM's social engineering projects?
Taxpayers didn't have much of a choice in the matter on the front end. It'll be nice to see GM stand on its own -- until the next time.
But when we undermine the rule of law, ignore property rights, create moral hazards and destroy organic job growth to save a company that was terribly managed long before the recession, no one should brag about success.
Reach columnist David Harsanyi at dharsanyi@denverpost.com.
