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The Treasury Department announced plans on Wednesday to sell the 500 million shares of General Motors it still owns, closing the books on the $51 billion bailout that started four years ago (At one point the government owned 61% of GM, while unions owned 17.5%!).
But even with the $12 billion to $14 billion Treasury will likely recoup from the stock sales, taxpayers will probably lose out on the GM bailout when all is said and done (Yup, we the taxpayer bears the risk of these hairbrained government schemes, and we always seem to lose. At least when I invest in the stock market myself, I get to choose the stocks I buy and how much money I risk, and because it was a voluntary decision, I get the gains or losses myself by my choice.).
Treasury said GM has agreed to repurchase 200 million shares by the end of this year for $27.50 a share, a nearly 8% premium above Tuesday's closing price. Shares of GM jumped more than 7% in early trading Wednesday on the news.
Treasury intends to sell its remaining 300 million shares through various means in an orderly fashion within the next 12-15 months, subject to market conditions. Sales could start as soon as January.
After the repurchase of shares by GM, there will still be $21.6 billion of bailout funds yet to be returned to taxpayers. The average sale price on the remaining 300 million shares would have to be nearly $72 in order for Treasury to break even. That's nearly triple Tuesday's closing price. (We were continually told that this would be a money maker for the treasury, weren't we?)
GM started to receive bailout funds in late 2008, with the bulk of the money being used to fund its operations during its 2009 bankruptcy reorganization (We were also told that the bailout was going to prevent GM from going bankrupt.).
Although GM has returned to profitability since the bailout, the stock has not done as well as hoped. Treasury is getting less than the $33 per share it received at the time of GM's initial public offering in November 2010. GM CEO Dan Akerson has apologized for the automaker's weak stock price despite strong earnings (It certainly helps profitability to not have to pay taxes.).
Still, it is estimated that 1.5 million jobs were saved by keeping General Motors and smaller rival Chrysler afloat through bailouts, according to the Center for Automotive Research. That's why many economists argue that the bailout worked, even if taxpayers are not completely repaid (This is a fallacious argument. It assumes a static equation, which is the same mistake that government regularly makes when it computes the additional revenue of tax increases, revenue which never seems to materialize. The economy is dynamic. Had GM and Chrysler shut down operations {which probably wouldn't have happened without the bailout, since it later went bankrupt anyway}, the demand for automobiles would have shifted to other manufacturers. GM and Chrysler sell millions of cars per year. Those buyers would not simply decide not to buy. They would have bought a Ford or a Toyota. So all the other car makers would have increased sales and hired displaced workers to build their cars.
The Treasury Department announced plans on Wednesday to sell the 500 million shares of General Motors it still owns, closing the books on the $51 billion bailout that started four years ago (At one point the government owned 61% of GM, while unions owned 17.5%!).
But even with the $12 billion to $14 billion Treasury will likely recoup from the stock sales, taxpayers will probably lose out on the GM bailout when all is said and done (Yup, we the taxpayer bears the risk of these hairbrained government schemes, and we always seem to lose. At least when I invest in the stock market myself, I get to choose the stocks I buy and how much money I risk, and because it was a voluntary decision, I get the gains or losses myself by my choice.).
Treasury said GM has agreed to repurchase 200 million shares by the end of this year for $27.50 a share, a nearly 8% premium above Tuesday's closing price. Shares of GM jumped more than 7% in early trading Wednesday on the news.
Treasury intends to sell its remaining 300 million shares through various means in an orderly fashion within the next 12-15 months, subject to market conditions. Sales could start as soon as January.
After the repurchase of shares by GM, there will still be $21.6 billion of bailout funds yet to be returned to taxpayers. The average sale price on the remaining 300 million shares would have to be nearly $72 in order for Treasury to break even. That's nearly triple Tuesday's closing price. (We were continually told that this would be a money maker for the treasury, weren't we?)
GM started to receive bailout funds in late 2008, with the bulk of the money being used to fund its operations during its 2009 bankruptcy reorganization (We were also told that the bailout was going to prevent GM from going bankrupt.).
Although GM has returned to profitability since the bailout, the stock has not done as well as hoped. Treasury is getting less than the $33 per share it received at the time of GM's initial public offering in November 2010. GM CEO Dan Akerson has apologized for the automaker's weak stock price despite strong earnings (It certainly helps profitability to not have to pay taxes.).
Still, it is estimated that 1.5 million jobs were saved by keeping General Motors and smaller rival Chrysler afloat through bailouts, according to the Center for Automotive Research. That's why many economists argue that the bailout worked, even if taxpayers are not completely repaid (This is a fallacious argument. It assumes a static equation, which is the same mistake that government regularly makes when it computes the additional revenue of tax increases, revenue which never seems to materialize. The economy is dynamic. Had GM and Chrysler shut down operations {which probably wouldn't have happened without the bailout, since it later went bankrupt anyway}, the demand for automobiles would have shifted to other manufacturers. GM and Chrysler sell millions of cars per year. Those buyers would not simply decide not to buy. They would have bought a Ford or a Toyota. So all the other car makers would have increased sales and hired displaced workers to build their cars.
Which means that those 1.5 million jobs saved would likely be much smaller, since many of them would have found jobs elsewhere, even outside the automotive industry. But even assuming that this number is correct, we need to note that $51 billion of taxpayer money was put at risk to save those jobs.).
Van Conway, a Michigan restructuring expert, said the overall hit to the economy might have been hundreds of billions of dollars if GM and Chrysler had gone under, due to the loss of businesses across many different sectors (Again, this is based on the assumption that the equation is static. But even if true, an impact of few hundred billion dollars is not that big a deal in an economy measuring $15.7 trillion.).
"If we had not bailed out GM and Chrysler, it would have affected companies that no one ever thought about," said Conway.
GM has bounced back to earn record profits in 2011, as it recaptured its title of the world's leading automaker. It is hiring workers once again (Again, it's a lot easier to obtain record profit one doesn't have to pay taxes, or pay off bondholders with depressed stock, or cap CEO pay. And, we don't know what the current economic situation would be had the bailout never happened.).
"The auto industry rescue helped save more than a million jobs during a severe economic crisis, but TARP was always meant to be a temporary, emergency program (No one can know this for a fact.). The government should not be in the business of owning stakes in private companies for an indefinite period of time," said Assistant Secretary for Financial Stability Timothy Massad (He's only partly right. The government should NEVER own stakes in private companies.).
Despite the success of GM since 2009, the bailout remains controversial. It was a major point of contention during the recent presidential election. Mitt Romney argued government funds should not have been used the bailout. GM has been eager to have Treasury sell its remaining stake due to the opposition of some potential car buyers to the deal, who mockingly referred to the company as "Government Motors." The final sale of stock will also remove limits on executive pay at GM (This a is crucial piece. A significant number of people did not buy GM cars because of the bailout. In fact, there are a lot of car buyers who will never buy a GM product again. We need to note that pundits have not calculated the lost jobs or lost revenue from this.).
"This announcement is an important step in bringing closure to the successful auto industry rescue (The claim to success is doubtful. We can point to Ford as a control subject which did not get a TARP bailout even in the face of its own financial difficulties, and not only survived, but prospered.), it further removes the perception of government ownership of GM among customers, and it demonstrates confidence in GM's progress and our future," Akerson said in a statement Wednesday.
Van Conway, a Michigan restructuring expert, said the overall hit to the economy might have been hundreds of billions of dollars if GM and Chrysler had gone under, due to the loss of businesses across many different sectors (Again, this is based on the assumption that the equation is static. But even if true, an impact of few hundred billion dollars is not that big a deal in an economy measuring $15.7 trillion.).
"If we had not bailed out GM and Chrysler, it would have affected companies that no one ever thought about," said Conway.
GM has bounced back to earn record profits in 2011, as it recaptured its title of the world's leading automaker. It is hiring workers once again (Again, it's a lot easier to obtain record profit one doesn't have to pay taxes, or pay off bondholders with depressed stock, or cap CEO pay. And, we don't know what the current economic situation would be had the bailout never happened.).
"The auto industry rescue helped save more than a million jobs during a severe economic crisis, but TARP was always meant to be a temporary, emergency program (No one can know this for a fact.). The government should not be in the business of owning stakes in private companies for an indefinite period of time," said Assistant Secretary for Financial Stability Timothy Massad (He's only partly right. The government should NEVER own stakes in private companies.).
Despite the success of GM since 2009, the bailout remains controversial. It was a major point of contention during the recent presidential election. Mitt Romney argued government funds should not have been used the bailout. GM has been eager to have Treasury sell its remaining stake due to the opposition of some potential car buyers to the deal, who mockingly referred to the company as "Government Motors." The final sale of stock will also remove limits on executive pay at GM (This a is crucial piece. A significant number of people did not buy GM cars because of the bailout. In fact, there are a lot of car buyers who will never buy a GM product again. We need to note that pundits have not calculated the lost jobs or lost revenue from this.).
"This announcement is an important step in bringing closure to the successful auto industry rescue (The claim to success is doubtful. We can point to Ford as a control subject which did not get a TARP bailout even in the face of its own financial difficulties, and not only survived, but prospered.), it further removes the perception of government ownership of GM among customers, and it demonstrates confidence in GM's progress and our future," Akerson said in a statement Wednesday.
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