That may all be true - but that's very different from the idea that they didn't pay. At the end of the day, this was one of the most successful government interventions in world history. At a total cost of about $0 (profit from banks, some loss on the autos), the government was able to prevent the global collapse of the financial system and a worldwide depression that would have cost many, many hundreds of billions of dollars. If the point of government is to provide for the well-being of the people it governs, this was a clear victory. We can argue over what got us there or whether the risks of this repeating are still there, but given the circumstances at the time, it was absolutely the correct and an extremely effective policy decision by both parties (Bush admin and congressional Dems).
Exactly, the point of the bailout is, surprisingly enough, to bail out several important companies who could not have gotten financing through other means. The fact that the banking system has not collapsed and we still have a domestic auto industry (not just GM and Chrysler, but all of their suppliers and related businesses) shows the bailout worked. The U.S. government may or may not have "made money" on each investment in a narrow sense, but considering loss tax revenues, liability for pension insurance, cost of unemployment benefits, Medicaid, and social services-- and ESPECIALLY the cluster**** that a failed GM/Chrysler/AIG/Big Banks, etc. would have meant to the economy, what the U.S. government might have lost on the GM investment is clearly worth it.
I was very against the bailouts particularly the automakers but if taking only a partial loss on the bailout is the worst that has happened then things have already worked out better than I expected.
Not to me. We bailed out a failing business model, throwing good money after bad. Money that could have been channeled to better investments. Bailouts privatize profits and socialize risk and losses. It leads to irrational economic activity. No entity is too big to fail. The only thing worse than failure is propping it up. GM should have gone the way of the Studebaker. How perverse is it to reward poor performance like that? Obama decided to play Warren Buffet with my tax dollars and now the GM stock is worth less than half what he paid for it. This guy has zero market experience and he's playing venture socialist with our money.
As far as I recall, the shareholders of "Old GM" didn't get any money out of the chapter 11/bailout, so no one benefited from their bad equity investment getting "bailed out." GM's lenders/creditors also took a discount on what was owed to them. I don't see where the bailout created a kind of "moral hazard" situation for making a speculative investment on GM and hoping for the government to help you out. It did preserve the jobs of employees of GM and its suppliers, and benefits of retirees and also has made GM into what is now a functioning company with a more workable capital structure by most measures. So, is "working for GM or a GM supplier" the "irrational economic activity" to which you refer? Do you think the bailout is encouraging people to irrationally make the decision to work for the auto industry when they really should known better and make the rational decision to quit and work at Wal-Mart? Are you saying that our problem is that workers are irrationally picking failing businesses to work for because they know that the government will be there to bail them out? As for "socializing of risk of losses," let remember that with unemployment insurance, PBGC, Medicare/Medicaid, etc., there is already a lot of "socializing of risks of losses" built into the system for employees and retirees in the case of a company's failure. If GM went the way of Studebaker, a Bloomberg report that the government would have incurred the cost of more than $28 billion in terms of both loss tax revenue and varioius benefits programs. I don't think the "GM bailout moral hazard" argument makes a whole lot of sense.
Off the subject a little but sort of related. HP CEO receives 7 million dollar severance and paid 2.5 million + 30 million in stocks... for 11 months while losing 40 billion dollars. Being CEO of a cooperation is like winning the lottery.
And to think until the late 60s, CEOs were paid less than other upper management in a company. CEO salaries are out of control
actually, both management and unions had to agree to change the business model. mainly unions giving some concessions, something i would think you would agree with
I still think it makes a lot of sense. While yes the government would've incurred a lot of cost if GM had went under and likely more the management of GM though would've been defunct. While the government may be saving some money the bottom line is GM still exist as a company thanks to the US government. To the credit of GM they have made a lot of reforms but what's to keep them down the road from mismanaging the company back into trouble where they need the US to bail them out again? Consider Chrysler, they were bailed out in the 1980's and then they made a lot of reforms, moved back to profitably and were seen as a success story of bailouts. 20 some years later they are bailed out again and are the weakest of the big three, at the point where their survival is still in some question. As far as the bailouts go though I think the moral hazard issue is far greater with the banks and AIG. While we have seen some substantial reforms taken by GM and Chrysler the financial institutions still seem to be doing things largely the same way they did before and are fighting back against proposed reforms. In this case I don't see that they have learned much from the collapse and propping them up is encouraging them is only teaching them that governments will bail them out when needed.
Point to some evidence that it makes sense. Like real actual empirical evidence that it makes sense, where you can separate out the "moral hazard" which you feel is determinative here. Thousands and thousands of companies have gone bankrupt since then, surely you can identify one who pointed to GM and Chrysler and decided to make risk decisions based on their assurance that a bailout was forthcoming.
The only thing that kills me are the severance packages. Stanley O'Neal runs Merrill into the ground, breaks a basic management rule (negotiating a corporation's sale without talking to the board) and is allowed to resign so he can collect something like $150 million. For that to be feasible means enough "good" CEOs would expect that kind of pay package and consideration for the company to be scared to break precedent.
CEOs are like basketball players. You get paid based on what the market thinks you are worth at the time you are hired. Then you get that money even if you suck. Sincerely,
So your argument is that we should have let them fail because, by saving them at no cost to us, they might fail down the road and that would be horrible?
As I said back when this first came up on principle I didn't agree with the bailouts but given that finance isn't an area of expertise, frankly no one seems to no exactly what was going on regarding the financial world then and now, if I was in Congress I would've gone along with the bailouts. I asked many people who I consider far more knowledgeable about finance including in a thread here, whether we would be headed towards a depression if we didn't bail out the banks and the answer by quite a fair degree was that we probably would. Now granted perhaps we staved off depression that said I haven't seen any substantial changes major financial institutions have made simce then to prevent another collapse at some point. My argument isn't whether we should've bailed them out but whether there still is a moral hazard. Based on the banks and other financial institutions it doesn't seem like they have really learned anything from the bailout except that they will be bailed out.
