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  • Morning Bell: Our Economy Can't Afford More GM "Success" Stories

    Celebrating the company’s Wednesday initial public offering, President Barack Obama last night called his government takeover of General Motors a “success story.” “American taxpayers are now positioned to recover more than my administration invested in GM,” he said. Left unsaid is the fact that if the Obama Administration keeps selling their GM stock at the IPO price, the U.S. taxpayer will lose $10 billion on the deal, and that does not include the loans GM still owes, cash for clunkers, the Chevy Volt subsidies, or the millions of unseen costs the unprecedented intervention has inflicted on our economy.

    No matter what you hear from the President’s defenders, always remember that it did not have to be this way. As late as April 30, GM’s bondholders were willing to take a 58 percent equity stake in the company in exchange for canceling their $27 billion in unsecured GM bonds. But under their deal, the federal government would have had no control over this new company, while the United Auto Workers union would have received a minority share of the company and the taxpayers would have been protected as a secured creditor. An even better outcome would have been for the federal government not to have supplied taxpayer cash at all and let all creditors take their lumps from an unbiased bankruptcy judge. But President Obama just couldn’t keep his government out of it.

    So he publicly bullied the GM bondholders into accepting a much worse deal. Under the White House plan, the federal government was awarded a 60 percent stake of GM, the Canadian government got 12.5 percent, and GM’s unions got 17.5 percent while the bondholders walked away with just 10 percent. Defenders of the bailout say all this was worthwhile because the effects of a failure of GM would have been catastrophic. But that ignores both the deal the bondholders first offered the unions and the possibility of an expedited—but non-political—bankruptcy proceeding.

    Before this week, taxpayers put a net $40 billion into GM and held a majority stake in the company. The IPO allowed the Treasury to sell about a quarter of their share at $33 per share, raising $13.6 billion. That leaves taxpayers, post-IPO, with $35.9 billion “invested” and about a 37 percent stake in the company. At $33 per share, that leaves taxpayers still almost $10 billion in the hole. The shares would have to jump to $51 for taxpayers to break even, a price level considered by most analysts to be unlikely.

    But perhaps the biggest danger of all is the prospect of the GM “success” being used to justify future bailouts of other firms. That would be the true catastrophe. As George Mason University economist Don Boudreaux wrote:

    The chief economic case against the bailout was not that huge infusions of taxpayer funds and special exemptions from bankruptcy rules could not make G.M. and Chrysler profitable. Of course they could. Instead, the heart of the case against the bailout is that it saps the life-blood of entrepreneurial capitalism. The bailout reinforces the debilitating precedent of protecting firms deemed “too big to fail.” Capital and other resources are thus kept glued by politics to familiar lines of production, thus impeding entrepreneurial initiative that would have otherwise redeployed these resources into newer, more-dynamic, and more productive industries. The “success” of the bailout is all too easy to engineer and to see. The cost of the bailout—the industries, the jobs, and the outputs that are never created—is impossible to see, but nevertheless real.

    The legal and political chicanery used by the White House to produce the GM “success” story is also exactly why the United States fell from the ranks of the economically “free,” as measured by The Heritage Foundation’s Index of Economic Freedom this year. From Fannie Mae to Freddie Mac, from GM to Chrysler, from AIG to Citibank, our government continues to subvert the established rule of law. This lawlessness creates uncertainty in the business environment, and it is a huge reason why our economy is not recovering as it should be.

    Quick Hits:

    Posted in Ongoing Priorities [slideshow_deploy]

    46 Responses to Morning Bell: Our Economy Can't Afford More GM "Success" Stories

    1. Len, Alexandria,KY says:

      As I see it, the ONLY winner in this part Kabucky theater by Obummer and Comrads is the UAW! Meanwhile We The Tax payers get Hosed as usual by these Progressive Narcisstic Bastards!

    2. Ken Jarvis - Las Veg says:

      "Our Economy Can’t Afford More GM “Success” Stories"

      No Problem,

      the HF NEVER post "Success” Stories"

      Just DOOM and GLOOM

      Since the WSJ announced the recession was over

      the DOW is UP 429 Points in less than 2 month.

      The HF has yet to SPIN that BAD, but they will.

      I'll add that to the List of things the HF HATES –

      The HF HATES -

      Success Stories

      FDA

      Needy

      Workers – Anti-Union

      Sick – Anti-HCare

      Public Schools – Pro-Vouchers

      Recovery – Anti-Tax the Rich

      Women – Women can NOT use Birth Control

      Taxes on the Rich

      LVKen7@Gmail.com

    3. Annabelle, Michigan says:

      No one ever talks about what the salaried retirees sacrificed, or all the GM small business suppliers that went out of business because GM didn't have to pay their bills after the bankruptcy. And lest we forget how Rick Wagner was fired, not by the GM board, but the Obama administration. Ethically, I have no respect for this new company nor the UAW.

    4. toledofan says:

      I think these bailouts are a great example of government tinkering and it's obvious that the more they tinker the worst things become. The end result of this is that alot of people suffer needlessly because of the broken agreements caused by mismanagement and corruption that makes a banrupcy possible. In this case the governemnt was directly responsible for alot of this because of the Fannie and Freddie debacle. In hindsight, the unions have become so big and bloated they have lost sight of their vision and now actually jeaprodize many peoples futures and retirements. You just can't keep giving without getting something in return and at some point in time you have to start giving back.

    5. J.W.Jeltema says:

      You nailed it… 10 out of 10!

    6. Dennis Georgia says:

      We the American people are in for hard times. The "guvment" is in debt to deep, interest rates will shy rocket to the point that a home will be beyond everyone. Inflation and more regulations will increase the cost of food beyond belief, breadv will be $20.00 a loaf, milk will not avaliable to most, gas will consume the largest portion of our income, driving to work will not be possible.

      We the American people are to blame for all of this. we have sat on our collective butts over the years, not gotten involved in the process, and allowed ourselves to be brainwashed to believe we are not able to make decisions. We keep sending the same ones back to power, the same agenda is carried on year after year. Wake up people and demand America back.

    7. EON59 says:

      I will be surprised if the stock price holds for long. The economy will certainly take a dive in January if the current tax rates are not kept, plus the loss of deductions and increases in other taxes and Obamacare will also put a drain on the economy. The Fed can't prop up the DOW forever. GM will only show profits on unaudited financials. The taxpayers are also paying for new production facilities outside of the US. It's all pretty sad.

    8. Richie Naples says:

      It is a shame that the truth of what you say does not get to enough people. When

      you try to explain this to someone that just do not get it so until the news media

      starts telling the truth we really have an up hill battle.

    9. Carl D Oldham says:

      Every time the Government gets involved, TSA, GM, EPA, FCC to name a few, the outcome is always BAD!!

    10. cathy poole,north ca says:

      i am so angry that my country leadership and the people who support them have bullied all the rest of us to adopt their GODLESS UNBELIEF AND SPIRITUAL IGNORANCE . the "FRUIT from this TREE isn't the peace and prosperity they believe it will.as we begin to see the results instead to be the usual decadence, misery and sin that unbelif in GOD it always produces. GOD always has a remnant of people who believe and serve HIM.I am happy to say i accepted CHRIST as my SAVIOR in 1975. I will continue to serve HIM no matter what.I continue to urge others to repent , get saved and serve the true GOD.

    11. David, Kansas City, says:

      As noted, the real casualty in the GM bailout episode was the rule of law, which was profoundly trampled on when the Obama Administration bullied the bondholders to accept the union's deal. The rule of law and the sanctity of contract are two of the fundamental precepts of our American economic system. Without them, we have no certainty, no confidence in the manner in which we conduct business and carry out commerce with third parties. It's what separates our system from most of the other countries in the world and I don't think it's an overstatement to say that those precepts have contributed in large part to making our country the greatest, most prosperous, and most successful country in the history of the world.

      I worry for our future when the federal government is able to breach the rule of law for its own political convenience. If this Administration can get away with such an egregious denial of Americans' legal and contractual rights, where will it stop? If this Administration is so casually dismissive of the rule of law, what other individual rights are they willing to tear asunder in pursuit of their political goals? I think we know the answer, but it's worth discussing so that we can learn from the GM bailout disaster and be more prepared to defend our rights next time.

    12. Charles LABounty Mer says:

      If BHO is a hero for saving GM then George W. must be a super hero for saving them in 2008 after the Dems voted down a auto bailout the end of Dec 2008.

      George W. redirected $11B to save them.

    13. Larry Michigan says:

      I agree with the article but it does not go to the core of the issue. Neither political party has a vision to the future where they have proposed a clearly defined industrial policy. We are competing internationally, often at a disadvantage to our foreign competitors and it is not a level or fair business environment for many of our companies. So, without an industrial policy defining the rules of business for our companies and the foreign competitors, government knee jerk reaction to a crisis in a particular industry is what we will continue to get as our economy slowly dissolves. I can't think of a single U.S. industry that competes internationally that will survive in the current laissez-faire environment that allows foreign competition to eat our lunch. Yes, they may keep their headquarters in the USA, but the brunt of the jobs will be offshore. Germany, Korea, China, Japan etc. all have industrial policies that help their industries grow, often at our expense. Free trade must be fair and it starts with strong industrial and trade policies. The GM bailout is just a symptom of the bigger issue which remains unaddressed.

    14. Evan, Anchorage says:

      In my opinion, the business climate is bad not because my taxes may go from 36% to 39%, but because we all know that our country will soon crash and burn because of it's debt. Pick a budget plan FAST and go with it. Why do unemployment benefits need to be paid for but tax cuts do not?? Back to Bush economics and more debt.

    15. Pat-San Antonio says:

      This "in your face", expensive, and improper use of this administration's power is too much like Hugo Chavez's kind of governing. I wouldn't buy another GM car if they had them on sale for a dollar.

    16. Steven C Jacobs 104 says:

      Thanks for the info…It still seems odd to me whenever gov't comes charging in to help the people before they ask for help. Makes me nervous, like there must be another reason more important than just the people ? Like maybe un-named gov't cronies or their relatives who may have had large blocks of stock who would have taken a beating if GM went under but, maybe, made out better given a chance to sell off their stock to the American people before it dropped lower ? or maybe to help not so much THE people but THE UNIONIZED PEOPLE ? I'm still left scratching my head.

    17. Steve M. (Dallas, Te says:

      If this is true…. how can a President basically 'lie' about the facts? Is there not an Ethic Commission of sorts that can make him accountable?

      Steve McWilliams

    18. Judy, Georgia says:

      Good article full of important information.

      Thank you, Heritage, for all you do!

    19. Claudia- CA says:

      I WILL NEVER, EVER BUY A VEHICLE FROM GM (GOVERNMENT MOTORS!)

      BARRY SCREWED THE BOND HOLDERS AND ALLOWED THE UNION THUGS TO PROFIT WHEN THEY DID NOT DESERVE TO LEGALLY!

      MY OPINION OF UNIONS NOW IS THAT UNIONS=SOCIALIST INSTITUTIONS!

      NEVER WAS, BUT NOW AM A FORD PERSON!

    20. Jim Delaney says:

      Listening carefully to the stream of positive analyses offered up by politicians who supported the bailout, it's like being in the Land of Oz. Either they're shameless prevaricators, utterly clueless or genuinely stupid. And in their feverish attempts to move on to the next subject, the ill-prepared TV interviewers (even FOX) seldom iterate the data shown in this article which would intellectually challenge the interviewee. In effect, interviewees are given a free ride to spout their senseless spin and misinformation with impunity. Not exactly a public service by either the interviewer or interviewee. Thank God for Heritage.

    21. Jimmy Konogeris says:

      The BUSINESS of America is BUSINESS. The pro folks for the "bail outs" have either ignored or forgotten or never knew this basic premise. Oh I forgot!! They were "all knowing" politicians!! Have We the People now allowed our governement, for the people, to set a precedent? Next time it may be the NY Yankees, Louisiana Hot Sauce, McCormick & Company, Nascar, Apple Computers, or the Boston Red Sox (well them we could live without I guess)!! Southern Pacific Railroad was allowed to fail then their employees, engines and railcars were absorbed by a better ran railroad company. Kaiser Steel went belly up too; re-organized and is doing business again. Keep "Our Government" out of our pockets and out of American Business. Keep all the "Chicken Littles" out of "Our Legislatures". Send that Arrogant, All Knowing One, back to his Chicago cesspool, or Indonesia/Kenya roots!!!

    22. Mike Prunty says:

      I can no longer resist the opportunity to part with the terminology being used to describe us taxpayers as the "owners" of GM. Are our tax dollars invested against our will? You bet…big time. Do we actually own anything? If you think you do, then please tell us where you parked your space ship.

      I'm not so much fussing at the Heritage Foundation here, but seriously, I have to wonder what planet so many commentators across the board are living on when they keep repeating terms simply because they've heard someone else use them.

      Does anyone who reads this actually believe they will ever get a dividend check from GM, either directly from the company or through our benevolent government once it crosses into the black? I don't, and never ever did.

      Is anyone still naive enough to believe that we "own" our government? I hate to be so pessimistic, but even after the election sweep, the chances of individual citizens getting a either a stock dividend check or a loan repayment returned to them in their mailbox is less than zero. The chances of us even getting a credit against our taxes as a form of reconsideration is even smaller.

      Our government is and has long been a gargantuan entity unto itself. We elect the people at the top to represent us, but apparently we didn't "hire" them. They set out to work for themselves. They exist and toil for their own sake, and not ours. They strive for the growth and perpetuity of their own existence. They hired the bureaucracies, and the bureaucracies answer to them … and not us. Can any conservative argue with that?

      Can anyone say "full body airport pat downs?" After all the recent and growing outrages, what's next?

      For that matter, how can we expect any benefits from the stimulus money when they can't even tell us where it all is?

      Where we can all agree is that the fight to pressure our Congress and the President to stop this reckless spending in the first place must never stop. We must recognize that we never have nor will get paid back any current or future loans. The federal government didn't loan GM that bailout money for them to continue to make American cars. They moved to save the unions…a partisan Democrat voter constituency.

      "We" consider our tax dollars to be "ours" which should be used as entrusted responsibly by the government for our general benefit and need. The government considers the money they collect from us to be "theirs." They even consider the money we still have to be "theirs." They do not work for us. We work for them … and that is what must change.

    23. F. Swemson, Manhatta says:

      I find it rather offensive that everyone is referring the GM's latest offering as an "INITIAL" public offering (IPO).

      GM's IPO occurred MANY years ago… before the company was destroyed by the UAW, before the stock and bond holders were unconstitutionally raped by the Obama administration, and before Goldman Sachs & the other underwriters of the issue and the bankruptcy attorneys helped themselves to another couple of hundred million dollars from the once great company's coffers.

      fs

    24. Dave Provo, UT says:

      The GM bailout and suposed successful comeback is another reason businesses are leary of obamanomics. Can't get a Tea party sign out of my mind it read: OBAMA–COMMANDER IN THIEF. That says it all.

    25. B. Hall Syosset N.Y. says:

      If Ken Jarvis thinks that the recession is over then it must be that he never buys gasoline or doesn't buy food either. Gas prices have increased 10% and food prices are way up as well. The reason that these items are not included in the cost of living stats, is that they are exempt from the gov't calculations

    26. Larry Welch, Idaho says:

      Just a note to Ken Jarvis: Your list that you say "HF hates" reflects the usual liberal outcomes-based priorities. Please take a look at Heritage's "First Principles"; there you will see the foundational AND constitutional concepts that result in prosperity, strength and vigorous growth. If those results do not appeal to you then you may want to consider living in a country whose outcome based policies will sap you of your money, your energy and your motivation. Good luck, Ken

    27. Mary, Washington Sta says:

      This does not even mention the special tax rulings that the new GM (Government Motors) got from the Obama administration. Published reports (WSJ) say the special treatment is worth about $45 billion for the new GM. Instead of giving special tax breaks to politically favored companies what about lowering the corporate tax rate so US companies don't have a tax rate that is so much higher than our competition in other countries.

    28. Freddel, Walnut Cree says:

      I doubt that Obama’s academic career included much economics other than the socialistic delusions about Marxism. But his actions in this and other matters smack of state capitalism. He wants to usurp the rule of law and manipulate the price system with price controls and subsidies to achieve political ends. Perhaps I have succumbed to a disturbed, paranoiac view of what he and the congress desire for our economy. I prefer to believe that their impulses are perilously mindless, but not benign.

    29. Jill-Maine says:

      Buy a Ford Taurus. My 1994 went to 267,000 miles. I loved that car.

    30. Shebah, Florida says:

      My comment is very straight and to the point. Mr. Obama and his arrogant puppets truly believe that every living American falls into either the stupid or ignorant category, however, on November 2, he got the first kick from those "stupid and ignorant" voters. I truly hope that the people we elected to put a stop to this present train wreck running Washington will keep up the pressure on this sorry excuse for a president – and not only the senators and reps, but Main Street Americans who are truly concerned about the direction in which he intends to take this country. Our founding fathers gave us a republic, not socialism. If he is so in love with socialism, he can do all of us a favor and hand in his resignation, pack up his luggage and find a place more suitable to his intentions because we, the American people will fight him tooth and nail.

    31. Pingback: Morning Bell: Our economy can’t afford more GM “success” stories

    32. Gerry Box, Edmonton, says:

      Is it true that 18% of the stock that was offered yesterday was bought up by the Chi-coms, and they didn't pay anything for it? Instead, they just deducted the amount of the stock from our debt to them. So, how can Government Motors say that they are paying back $24 billion dollars on their bailout? Oh, I forgot. In Obama's world, anything can happen. And they (the dems) accused Bush of "fuzzy math". Wake up, America! We are being taking for a ride, preferably in a Ford/Mercury/Lincoln vehicle or a Japanese-made car.

    33. Ben C. Ann Arbor, MI says:

      Ann Arbor is not far from Detroit so I view the auto bailouts as a double edge sword. GM management has never been stellar and has made some bad decisions. In years past they thought they could bury their competition by hiring all of the Ford people when Ford realized they needed to downsize and laid people off. Bad decision. Bankruptcy would not have meant closure of their business – just reorganization with the courts overseeing the transitions. For GM to close its doors Michigan would have been crippled beyond belief. So keeping a "failed" company open was a good thing. What I object to is the favoritism given to those who voted for Obama rather than what would have best for the company in the long run. As pointed out in the above article, GM is a long was away from profitablitiy and I can only imagine the ulterior motives the Chinese have with their agenda to buy stock and merge with GM. Joint ventures with China tend to become aquisitions by the Chinese and I don't see this as a good thing.

    34. hal metzger says:

      11/19/10

      Good article but little understood by the vast majority of our citizens. The President looked so cool explaining how wonderfully astute he was to have saved GM from the brink of diaster – what a joke! I do know this for sure – nothing helpful for our country will occur until he is history. The two years leading up to that event really will be unsettling for all of us.

      hang on citizens!

    35. Virgil Bierschwale, says:

      Mitch and I have been noticing some interesting similarities between 29 and 10

      http://keepamericaatwork.com/?p=11071

      http://keepamericaatwork.com/?p=11086

      Regards,

      Virgil
      http://www.KeepAmericaAtWork.com

    36. Tdog says:

      What a total crock. Billions in bailouts and payolla to the unions. You have to be able to sell a car to stay in the auto business. No chance I'll never support anything to do with owebama's socialist, wealth redistribution, muslim promoting, open boarder, welfare state agenda.

    37. Drew, Baltimore says:

      The cost of the bailout—the industries, the jobs, and the outputs that are never created—is impossible to see, but nevertheless real.

      Like ghosts, UFOs, unicorns, and fairies – impossible to see, but nevertheless real.

    38. Mark, Omaha says:

      I'm from the government and I'm here to help you.

    39. canisius ng says:

      I THINK THIS A SHORTERM ONLY DO NOT WORRY LATER THE AMERICANS WILL BACK TO NORMAL ECOMNOMY IN THE GLOBAL TQ

    40. jeff, Michigan says:

      Growing up in a suburb of Flint Mi and around UAW members. I have been wiped up and down by them. I have the mental scars of their damage. I remember the UAW slobs smashing a Japanese car outside Flind Truck and Bus, then all the bumper stickers…. buy American. Please don't get me wrong, I support the two or three American Made products. Remember, American Made is dying, not because of the consumer… do some research on corp. Regulations.

      Growing up being told I have to by a Big three auto, to save their jobs…. I didn't see the correlation. You destroy a car, not out of competition but out of effigy. I remember the Local 6_9 president talking how they were going to kick butt, build all these great cars.

      The reality was simple, they blamed the consumer for Getting their butts kicked. This last year Gov't Motors need Washington to vilify Toyota in order to snatch market share. The media never followed up…. the Toyota investigation show mostly driver error, floor mats or some Jack-rabbit trying to cash in.

      Living in the heart of Big Auto, I have watched the Union and _iss poor management destroy an industry and I STILL GET THE BLAME. Even worse I have to pay for the clean up….

      Day two of GM IPO trading we find 18% of stock was purchased by China. I wonder how long it will be until the UAW is holding hand with the Chinese government…. what a Dream come true for the Presidents of the UAW, AFL-CIO and SEIU.

      We must also remember, how much tax payer dollars bailed out the UAW pension fund…..

      I pray The U.S auto industry make Great strides, I luv big earth crushing pick-ups that tow my toys. I don't want to subsidies cheap, dangerous battery mobiles. I don't ever see the UAW waking up…. as long as they can drink from the China's teet

      here's a bumper sticker….. Need a job, Keep letting China Buy GM Stock. You'll look good in olive green uniform.

    41. Don O'Malley, L says:

      Re: Sale of GM stock vis IPO. Why doesn't someone or entity sue the President or the administration over this deraliction of duty to the country?

    42. RBL says:

      Maybe you should get your facts straight. George W. Bush started the GM bailout. It was George Bush's AND Obama's decision.

      http://online.wsj.com/article/SB12296936759512156

    43. Timothy MIles, Saint says:

      GM IPO Highlights Many Losers and Two Winners
      http://timothymiles.com/2010/11/20/gm-ipo-highlig
      Following the General Motors IPO, the dust has settle on the bailout, allowing us to identify the winners and the losers. The results are startling, yet not surprising.

      Despite Obama's claims, the IPO demonstrates most clearly how the administration threw the American people and GM's secured creditors under the bus in order to not only save the unions, who has refused to make concessions prior to the bankruptcy causing GM's troubles in the first place. In the end, the American people are the big losers and the unions came out smelling like a rose. My article details the extent of damage….

    44. Coastgal San Diego says:

      And all the shareholders were wiped out. Why are people buying the NEW shares?

    45. Blair Franconia, NH says:

      When Obama became President, he forced Chrysler and GM into bankruptcy and stood how bankruptcy cases SHOULD have been handled on its head. Obama gave the unions dibs over the stockholders, bondholders, and other investors, who should have gotten their money back first. The unions were to have gotten their money last

      under Chapter 11 then there was the claim that if GM and Chrysler hadn't gone into

      "enhanced bankruptcy," they would have gone out of business. So what happened?

      Chrysler was part of a shotgun marriage to Fiat. The government forced GM to get rid

      of Pontiac, Saturn, and Oldsmobile, Pontiac, and Oldsmobile, were two of the divisions that made up General Motors. What was the other? Chevrolet.

    46. Virginia Herbel says:

      Any and all monies given to GM's bailout should go back to the people, as it is the people's money that paid out for all of these bailouts. Maybe, maybe not was it necessary to bail out any of the motor companies, my personal opinion, may it not be worth much, IT WASN'T. Most probably, Obama and his advisor's all ended up with their pockets even heavier.

      Most certainly the banking & Wall Street were the winners along with this power crazy man and his entourage. It's well known that at least 5 Union officials signed in visiting our so called president several times a week.. There was a time when the unions worked to help the workers, but now they collect big time monies from the workers. Many pensions are now left very lean or even broke, as big contributions are being made to further Mr. Obama.

      I for one will fight as hard as I can to discourage any forth coming re-election, this man is not to be trusted.

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