Punching Stupid and Evil in the Face Since 1986!

"We are on strike, we the men of the mind. We are on strike against self-immolation. We are on strike against the creed of unearned rewards and unrewarded duties."-John Galt

Wednesday, December 19, 2012

Government exits GM, taxpayers lose 50%

Readers of this site are well aware that I had no love for the auto bailout since it's inception, but now another of my fears has come to fruition. (Most of my predictions came true, as I knew they would.) Today the Administration announced they would finally start to remove themselves from the auto industry and begin to sell off some of the stock purchased with taxpayer money.
The Detroit automaker said it will purchase 200 million shares of GM stock held by Treasury for $5.5 billion — or $27.50 per share — nearly $2 above the stock's closing price on Tuesday. GM shares jumped sharply on the news and were up 7.5 percent to $27.36, or $1.90, early afternoon in very heavy trading.
The U.S. Treasury, after more than a year of refusing to say when it might start selling its remaining stake in GM, said it willannounce a written plan in January to shed its remaining 300 million shares over the next 12 to 15 months, likely in a series of small stock sales.
The Treasury's move is intended to minimize the impact of the stock sale on the share price — and the government's state will shrink from 26.5 percent to less than 19 percent — but the exit could be completed far more quickly.
The exit plan may prove to be a boost to GM's lagging stock price and to some car buyers, who have avoided GM because of the "Government Motors" label.
The exit timetable signals the end of one of the most extraordinary government interventions in the U.S. economy in history — the rescue and partial nationalization of two U.S. automakers and their finance arms supported by two U.S. presidents.
Still, taxpayers will almost certainly lose billions of dollars in the $49.5 billion GM bailout - and the government would need to sell its remaining shares for about $70 each to break even. If the government sold the rest of its stock at current prices, taxpayers would lose more than $13 billion.
As we continue to live under crushing debt, spending money we do not have but continue to borrow or print, we add to that a crushing loss on GM stock. There was never any reason for the government to buy into GM-a managed bankruptcy was always a better plan-but once they did there was no doubt the only loser would be the taxpayer. The initial investment was made under the guise that there was no funding available for bankruptcy, which they ended up going through anyway, and then that the government wouldn't lose any money on the deal, which they did. Bait and switch? Nah, we knew what we were getting.