Bin Laden Is Dead And GM Is Alive...But Just Barely and Other Bailout Blunders

One of the campaign slogans coming out of the Obama camp is that "Bin Laden Is Dead and GM is Alive" which tries to show the Obama administration's success both domestically and overseas. Bin Laden is indeed dead, the work of thousands of American citizens and military personnel that spanned the time from before to during the Obama administration. In other words, America finally killed Bin Laden, Obama was present and able to give the order that culminated the work of many, but America finished him off, not Obama.

As far as General Motors being alive, that is debatable, especially relative to the money owed to the American taxpayer, courtesy of Obama's bailout of the company. Let's recap the history of this ill fated bailout. When a company gets into financial trouble, it usually goes through the tried and true  bankruptcy proceedings that exist in this country in order to do some or all of the following:

• Void distribution contracts with existing dealers and resellers of that company's products and services.
• Void labor contracts that exist between the company and its employees.
• Restructure debt with existing bond holders and stock holders.
• Sell off divisions or shut down unprofitable divisions.
• Look to restructure or default on existing debt obligations to suppliers, vendors, etc.

Companies go through this type of thing all the time, no big deal and no government intervention required, just a judicial proceeding. However, in order to preserve some level of loyalty with Obama's labor interests, his administration unnecessarily stuck itself in the middle of what should have been a typical bankruptcy proceeding and, at last count, had not seen the return of about $25 billion worth of taxpayer bailout money that went to GM as a result of this unnecessary government intervention.

Now, some defenders of this intervention and ill use of taxpayer wealth will claim that Obama saved the car industry in this country. No, he saved some union votes. Let's illustrate via an example: in normal times, I believe the annual market for cars and small trucks in this country is about 16 million vehicles. I also recall that GM's market share of this market is about 25%.

Question: if GM went out of business, how big would the domestic car market be in this country? If you said 12 million vehicles, 16 million less GM's 25% share, you would be wrong. The size of the domestic car and small truck market would still be about 16 million vehicles. The 25% share that GM claims now would be taken up by Ford, Honda, Nissan, etc. Thus, the market would be about the same size but GM would not be a part of it. That is the fallacy in his argument.

But even if the Obama administration had stayed out of the GM bankruptcy proceedings and saved billions of taxpayer dollars, there would still be a GM today. GM might have restructured differently, GM might be smaller than it is today, GM's unions may not have gotten such a sweet deal, but GM and the domestic car market would still exist and those jobs that go into making the 16 million cars a year would still exist. They might exist at Ford, they might exist in a domestic factory of a foreign car maker, they might exist at a slimmed down GM but they would exist.

This is a long winded way of saying that the risking of tens of billions of taxpayer dollars via this bailout was insanity, especially when you look at the numbers today. According to a Huffington Post article from earlier this year,

http://www.huffingtonpost.com/2012/01/26/bailout-taxpayers_n_1233374.html,

General Motors still owes the American taxpayer about $25 billion. Although this article is a little on the old side (about five months old), I could find no more recent credible source that indicated that GM had paid back any of this debt since then. So let's go with the Huffington piece as the reality of today. As of the close of the stock market yesterday (August 2, 2012), the market value of General Motors (number of stock shares times the stock price) was about $30 billion.

If the market capitalization or value of the entire GM operation is now valued at about $30 billion, about 83% of that value would have to be used to pay back the $25 billion owed to American taxpayers.  Thus, the Obama administration has gotten us into a very bad financial situation if our debt load is more than 80% of the company's ENTIRE value. The chances of that $25 billion ever being repaid is almost zero.

That near zero possibility was laid out in the Huffington article. The writer asserts that the stock price of GM stock would have to get to almost $54 a share for the American taxpayer to break even on this investment. Given the track record of the GM stock price (double click on the graph for a larger view):

it is highly unlikely that the $54 stock price is going to be attained any time soon. And unlikely that the taxpayers of this country will get paid back any time soon.

Yes, Bin Laden is dead and GM is alive. But GM is on life support relative to the bad, unnecessary investment the Obama administration made in this company. But this is not surprising, given Solyndra, Beacon, Abound, Spectra, Ecotality, and a myriad of other poor investments his Presidency has made with taxpayer money expended and no value returned.

But let's not stop here, let's move on to other bad investments that have burned though billions of taxpayer dollars for nothing in return. Now, President Obama may not have been the overriding force behind these bad investments like he was on the GM bailout but as Senator and then President, he was in agreement with their ill fated financial principles.

 According to the same Huffington Post article, American Insurance Group (AIG) still owes the American taxpayer about $50 million. But the recent stock performance of AIG put the market value/capitalization value at about $56.2 billion. Thus, AIG's liability to the American taxpayer of $50 billion or so is about 89% of its total market value. Doubtful that AIG will ever be able to pay back the entire $50 billion taxpayer bill if what it owes is a whopping 89% of its market value.

But the damage to taxpayer wealth by the recent and current political class does not stop with these two companies. The Huffington article reports on the testimony of the inspector general of the bailout funds who told Congress that in total, 371 banks still $133 billion and that the funds are unlikely to be paid back any time soon.

Even that amount of taxpayer money would be higher since one hundred thirty-seven banks repaid their bailout money using cash from a separate Treasury-run fund, which obviously was also funded with taxpayer money. If you add in the $189 billion (and counting) of taxpayer wealth that the political class has diverted to salvage the remnants of Fannie Mae and Freddie Mac, you can easily calculate that on average, every American household paid about $3,000 of its own wealth to bailout GM, AIG, Fannie, Freddie, and 371 other banks, a total that is unlikely to decrease any time soon.

Which brings us back to a point we have made many times in this blog with one simple chart. How could the entire political class, Republicans and Democrats in Congress and the White House, and the entire Federal government (SEC, FDIC, Federal Reserve, HUD, Fannie, Freddie, Senate committees on housing and banking, House committees on housing and banking) been so oblivious to the housing bubble that was occurring over the past ten years and not taken remedial action beforehand to stop the resultant bailouts and wasting of hundreds of billions of dollars (double click on graph for a larger view):

      









How could something so obvious as the bubble on this chart by ignored or not understood by so many people in Washington? Yes, Bin Laden is dead but so is the ability of the Washington political class to think strategically and proficiently, negative traits that always get dumped on the wealth of the American taxpayer.  

Just another reason to implement Step 39 from "Love My Country, Loathe my Government." Step 39 would impose term limits on all Federal politicians, "one and done." Since most of the people in Congress, and the current resident of the White House, were present when the economic flame out occurred, requiring massive taxpayer bailouts despite advance warning, we have to assume that they were part of the problem and are unlikely to be part of the solution of efficient, competent, and effective government.

Please visit our Presidential website, "The United States Of Purple," at:

http://www.unitedstatesofpurple.com/

The United States of Purple is a new grass roots approach to filling the office of President of The United States by focusing on the restoration of freedom in the United States, focusing on problem solving skills and results vs. personal political enrichment, and imposing term limits on all future Federal politicians. No more red states, no more blue states, just one United States Of America under the banner of Purple.

The United States Of Purple's website also provides you the formal opportunity to sign a petition to begin the process of implementing a Constitutional amendment to impose fixed term limits on all Federally elected politicians. Only by turning out the existing political class can we have a chance of addressing and finally resolving the major issues of or times.

Our book, "Love My Country, Loathe My Government - Fifty First Steps To Restoring Our Freedom And Destroying The American Political Class" is now available at http://www.loathemygovernment.com/. It is also available online at Amazon and Barnes and Noble. Please pass our message of freedom onward. Let your friends and family know about our websites and blogs, ask your library to carry the book, and respect freedom for both yourselves and others everyday.

Please visit the following sites for freedom:

http://www.cato.org/
http://www.robertringer.com/
http://realpolichick.blogspot.com/
http://www.flipcongress2010.com/
http://www.reason.com/
http://www.repealamendment/