The federal government announced recently that it will sell its remaining stake in General Motors, ending its involvement in the rescue of the American auto industry.
Critics of the bipartisan effort (it was started by Bush and finished by Obama) call it a bailout of banks and corporations that deserved to go under because of their bad behavior. They may have deserved to fail, but the American public didn’t deserve the fall-out that would have occurred if the government had done nothing.
The bottom line in that we saved two major industries (and the jobs that go with them), reduced the damage of a major shock to the economy, and actually made money for the taxpayers.
Take the auto industry. Employment has increased from a low of 624,000 in June 2009 to 822,000 today–the same number working in the industry in 2008. General Motors and Chrysler were forced to go through major restructurings that kept the companies alive and also saved the jobs of several thousand workers who supply parts to the manufacturers.
There’s a general impression that the bailouts for the auto and banking industries were nothing more than a gravy train for people who should be in the unemployment line if not in prison. In fact, the government imposed tough terms for the loans.
The government acquired substantial equity in several cases, including preferred stock that paid double-digit interest rates, charged high interest rates for loans, and demanded a say in the day-to-day operations of the companies. One condition of the GM bailout gave the government approval over pay for the five most senior executives and the 20 next most highly paid employees.
Banks that received government aid were required to reduce their exposure to risky investments and increase their capital reserves so they could better withstand future shocks. American banks are now the best capitalized in the world.
While the government will lose about $10 billion on the GM bailout, it has made money rescuing our auto and banking industries: More than $10 billion to date.
Not bad for a government “giveaway.”