Government Motors: Obama’s latest mistake
Today's Financial News - Posted April 14, 2009
News of a quick and tactical bankruptcy made sense. But now that Uncle Sam wants an ownership stake in General Motors (NYSE:GM), I cannot help but think we have turned down a dangerous path.
By Andrew Snyder, TodaysFinancialNews.com
Baltimore – (TFN): It has been a while since I ranted about the situation in Detroit. For the most part, the silence has been for rather selfish reasons. The action has progressed exactly in the direction I hoped for, a controlled, government-backed bankruptcy.
It is what I have been writing and yelling about for months. Why beat a tired horse?
But now the government is working outside the limits I had hoped for. Washington truly is trying to turn General Motors (NYSE:GM) into Government Motors.
Instead of expecting the carmaker to repay its recent $13 billion in loans, Uncle Sam is now thinking about becoming a flat-out owner in the company, right beside guys like you and I. Just like everybody else, it wants to transform its debt into an equity stake.
It is not right. It is not what this country is about. And we should not stand for it.
Not only would a government stake crowd out other investors (like the bondholders with $27.5 billion at stake), it would create an entity with unprecedented conflicts of interest.
How is a major industry player like Ford (NYSE:F) or even Toyota (NYSE:TM) supposed to compete in a free market when the government and its free money is propping up the competition? Where is the incentive to develop new technology or pay expensive capital costs when its competitive neighbors are owned by Uncle Sam?
Now, of course Obama and his team are saying they will “quickly” sell off any stake in GM to recover taxpayer money. Believe that and I’ve got a bridge to sell you.
If Washington tries to unload its stake, all sorts of political and financial ramifications will erupt. It will not be pretty.
Rolling out stock like toilet paper
The biggest problem with this plan, however, is not the government’s intrusion in ownership, but the fact GM is willing to hand equity shares to just about any stakeholder, from retirees to bondholders to employees to you and I the taxpayer.
No matter what, the nation is quickly realizing government intervention in any business, large or small, too often has long-lasting negative consequences that far outweigh the short-term, often emotional benefits that made the government act in the first place.
With GM that means, a few more billion-dollar loans to help the company through bankruptcy, billions of dollars in lost shareholder equity, future political maneuvering and an incredible amount of uncertainty that will surely weigh on investor sentiment.
If GM would have been allowed to shrivel and die on its own when the market wanted it to six months ago, we would already be crawling out of this mess instead of slowly circling it like a flock of vultures waiting for it to finally die.
If you are still a shareholder in GM (shame on you), get out while you still can. There is no room at the trough.
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April 30th, 2009 at 9:06 am
Congrats you must have been asleep for the last 101 days
the new path is socialism.