Counting up the profits, losses in bailouts

THE 2009 federal bailout of General Motors and Chrysler was a major theme of the 2012 presidential campaign. According to President Obama, the $61.5 billion commitment to the two automakers was pure upside: an industry rejuvenated, a million jobs saved nationwide. Certainly it helped the president make his case that the precise total cost of the rescue, which include the cost of not using the money for some other purpose, could never be known. And the knowable cost had not yet fully materialized. Specifically, the government still owned 500 million shares of GM, or about 26 percent of the total; until it sold, any loss to taxpayers would remain hypothetical.

Well, now the election is over and, coincidentally or not, the Treasury Department has decided to start selling out. GM itself will buy back 200 million shares at $27.50 each (slightly above market price), using $5.5 billion of the $31.6 billion cash pile it has accumulated since the bailout. Treasury will dispose of the remainder over the next 12 to 15 months.

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Bottom line? Surely GM, which has made tremendous strides toward restructuring and profitability, will benefit further from losing the stigma of “Government Motors” as well as restrictions on the compensation it can offer top executive talent. But there’s no realistic near-term scenario under which GM’s stock reaches $53, Washington’s break-even price. Factoring in previous realized losses, and assuming that the government sells its remaining 300 million shares at or near $27.50, it would end up losing roughly $19 billion of the $49.5 billion it poured into GM. Coupled with the $1.3 billion it lost on its $12.5 billion Chrysler commitment, the total taxpayer loss on the auto companies comes to $20.3 billion. That’s $20,300 each for the million jobs saved. Too much? Let history judge.

Meanwhile, both GM and Chrysler still have their work cut out for them. GM’s North American market share has slipped below 18 percent for the year, as of November, and Chrysler has accumulated a six-month unsold inventory of its highly touted new small car, the Dodge Dart.

The auto bailout’s results look different, though, when viewed in conjunction with another controversial federal rescue: that of the global insurance firm AIG.

According to many a pundit, the American people would never get back the $182 billion that the Treasury and the Federal Reserve, fearing a global financial meltdown, committed to propping up AIG, starting in September 2008. No doubt the critics were justifiably exasperated that AIG’s reckless derivatives trading had necessitated a taxpayer-backed rescue in the first place. But it did not, in fact, follow that taxpayers would inevitably get soaked. On Dec. 10, Treasury announced the sale of its last shares in AIG — and a positive return for the government as a whole of $22.7 billion.

Yes, the auto bailout was an issue in the campaign. But, contrary to much punditry, the federal financial bailout fund that paid for it, known as the Troubled Assets Relief Program (TARP), was not. The quiet success of the AIG rescue — for which credit is due Treasury Secretary Timothy F. Geithner, Federal Reserve Chairman Ben S. Bernanke and Robert Benmosche, AIG’s chief executive who skillfully restructured the company and sold off its many marketable assets — is one reason for that. In fact, the AIG profit might just offset the GM-Chrysler losses.

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