Sunday, May 18, 2014

Charles Goyette on “Government Motors”

Charles Goyette emails:

Here a short piece I wrote a couple of weeks ago with a pretty succinct explanation of the Kashkari “profit” claim that you’re welcome to run and your readers might find useful.

The article, “Government Motors,” attached.

By the way, I cited your observations about writer Steven Rattner’s insane scheme to tax rising stock prices in the May Freedom and Prosperity Letter.

Best wishes,

- Charles

Here's the Government Motors piece:

 Government Motors
 By Charles Goyette

Having sold its remaining share in Government Motors General Motors at the end of 2013, and written off $826 in million administrative claims in March, the taxpayers’ ownership and claims against GM have come to an end.  However Ally Financial, the former GMAC, still owes the taxpayers $6.5 billion.

The Special Inspector General for the Troubled Asset Relief Program (the Bush bailout) reported to Congress this week on almost $16 billion in taxpayers losses from Treasury speculation in the automotive industry:

“As of March 31, 2014, taxpayers had lost $11.2 billion on the TARP investment
in GM from selling GM common stock at prices below the Government’s cost
basis, as well as from the write-off of its remaining investment in Old GM in the
amount of $826 million, according to Treasury.  Additionally, taxpayers lost $845
million on the sale of Ally Financial’ s common stock.   Taxpayers also lost $2.9
billion on Treasury’s investment in Chrysler LLC, which exited TARP in 2011.”

Would it be unkind to remind ourselves of how much money Obama administration supporters said would be made on this deal?  With unintended irony, one apologist said it “may well be the best investment Uncle Sam ever made.”

Shouldn’t decisions on the prospects for fixing a broken company be left to people with some experience along those lines, those who are willing to risk their own money?  If they are wrong in their assessment, it is their loss, not yours or mine.  If they are correct, they are vindicated by the profits they make.

Nobody is forced to rely on their judgment.   No one is forced to speculate unwillingly.  What could be more fair?

If such people won’t risk their money in the endeavor, why should politicians, who strike many people as knowing far less about almost everything and often being ethically challenged as well, be allowed to risk your money and mine?

It wouldn’t strike most people as prudent to put a “community organizer” in the drivers’ seat of important industrial policies that put billions of dollars at risk, but if such financial decisions are to be made politically we should be used to kissing prudence and prosperity goodbye.

It’s almost funny how slippery these government investment deals actually are.  For those who might have missed my Monday morning podcast, let me repeat the details of another TARP bailout deal.

This came to mind when Neil Kashkari, running for governor of California, popped up on an interview the other day.  Kashkari, who, who ran the TARP program for Treasury Secretary Hank Paulson, his former Goldman Sachs colleague, made the claim that the $700 billion bailout he ran was not only a success, but that it made a profit.

It made a profit?  Based on what narrative?

Well, let me give you an example.  Goldman Sachs repaid its $10 billion TARP loan, but what enabled it to do so?  Where did it get the money?

Just days before it announced it was paying back the loan, Goldman Sachs sold $11 billion of illiquid, troubled mortgage securities to… the Federal Reserve.

In other words, Goldman Sachs paid back the TARP loan by selling toxic paper to the Fed.  In fact, during the 12 months following the payback of its TARP loan, the Fed bought $100 billion of troubled mortgage-backed securities from Goldman Sachs.

It was a sweet deal for the crony capitalists.  But even the business reporter for the Wall Street Journal who interviewed Kashkari could not be bothered to explode his claim that the bailouts made a profit.
Meanwhile, supporters of the auto bailout trot out statements about how much money the government intervention saved in social costs.  Answering that would require unpeeling the onion to demonstrate the long-term harm of:

a.) depriving prudent competitors of the failed companies of the competitive and market advantages their superior management deserved;

b.) depriving irresponsible parties to the calamity of responsibility for their practices, and others from a chance to learn the lessons of such irresponsibility; and,

c.) redistributing assets from shareholders and debt-holders to pensioners with the damage it may have done to the structure of the U.S. capital markets.

Suffice it for this article to say that capital flows to places that are safe.  The bailout acts of the Republicans and Democrats have made capital less safe in America than it was.

Down this road lies Venezuela of today, China of a generation or two ago, and the Soviet Union of several generations.   Chavez, Mao, and Lenin have their thumbs out, beckoning for a ride.  Government Motors is their kind of automobile.

Charles Goyette is the author of the New York Times bestseller The Dollar Meltdown. His new book is Red and Blue and Broke All Over: Restoring America's Free Economy. He is also editor of Freedom & Prosperity Letter, a monthly political and financial newsletter dedicated to revealing the truth about the U.S.’s political scene and economic climate.


  1. Thanks for posting this. It's a subject I think of often and not just the GM deal but, McDonalds, Harley-Davidson, etc., etc., ad infinitum it seems.

  2. Even if the government made a profit on the bailouts that still does absolutely dog shit for the citizens.

    What would the government do? Reduce everyone's tax burden by the amount of profit they got from the sale?

    I doubt it.

  3. ...has the cash for clunkers program been factored into this story?

  4. I wonder if cash for clunkers has been factored into this giant loss making enterprise...