The Bailouts Didn’t

From Larry Wright:

(Click for a larger image.)  All this promise of rescuing GM and Chrysler, and yet, as of this morning, both are in Chapter 11 bankruptcy protection.

"The General Motors board of directors authorized the filing of a Chapter 11 case with regret that this path proved necessary despite the best efforts of so many," GM Chairman Kent Kresa said in a written statement. "Today marks a new beginning for General Motors. … The board is confident that this New GM can operate successfully in the intensely competitive U.S. market and around the world."

Please note 2 things:  First, a government handout failed to both avoid bankruptcy and produce an automaker that could compete.  Second, if this is what bankruptcy will do for GM, this should have been the first option.

A bankruptcy that comes post-bailout, however, creates a GM that looks something like this:

(Click for a larger image.)  As you’ll notice, the government is in the driver’s seat.

The plan is for the federal government to take a 60 percent ownership stake in the new GM. The Canadian government would take 12.5 percent, with the United Auto Workers getting a 17.5 percent share and unsecured bondholders receiving 10 percent. Existing GM shareholders are expected to be wiped out.

Emphasis mine.  There’s a word for when the government owns a controlling interest in (what was) a private company, but it’s not coming to me at the moment. 

Filed under: Doug • Economics & Taxes • Government

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