Is Another Bailout in GM’s Future?

Being that Paul Krugman has enthusiastically endorsed the Obama administration’s bailouts of General Motors (GM) and Chrysler, he might get a double dose of happiness. According to this article, there is a good possibility that GM might go belly-up again within a few years:

President Obama is proud of his bailout of General Motors.  That’s good, because, if he wins a second term, he is probably going to have to bail GM out again.  The company is once again losing market share, and it seems unable to develop products that are truly competitive in the U.S. market.

Right now, the federal government owns 500,000,000 shares of GM, or about 26% of the company.  It would need to get about $53.00/share for these to break even on the bailout, but the stock closed at only $20.21/share on Tuesday.  This left the government holding $10.1 billion worth of stock, and sitting on an unrealized loss of $16.4 billion.

Even though the stock market has been climbing, GM shareholders — including the U.S. Government — have not been participating in the good times. I hardly am surprised. Yes, the Obama administration decided to screw the bondholders and other GM creditors while laying some gifts on the United Auto Workers (a labor union that certainly played an important role in bringing down GM, although it was a group effort with managers and labor). However, the government cannot overturn the laws of economics, no matter what Krugman might say.

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About William L. Anderson 48 Articles

Affiliation: Frostburg State University

William L. Anderson is an author and an associate professor of economics at Frostburg State University in Maryland. He is also an adjunct scholar with the Mackinac Center for Public Policy as well as for the Ludwig von Mises Institute in Alabama.

Anderson was formerly a professor of economics at North Greenville College in Tigerville, South Carolina.

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