Obama Inc. Sells GM Stock for $10 Billion Loss

obama-gm

I forget who it was that said the government could lose money running a casino, but over in New York City the government lost money running a circle of horse racing betting parlors. So it’s no surprise that when the government gets into the stock business, it’s going to lose and lose big.

The U.S. Treasury and United Auto Workers union, capitalizing on the automaker’s rising stock price, will sell a combined 50 million shares of General Motors stock today…

Stock analysts say the return to the S&P will prompt significant demand for GM shares. The stock has recently traded near its highest level since February 2011…

In total, Treasury has recouped $30.6 billion. At current trading prices, Treasury would lose around $10 billion on its GM bailout.

A similar argument made about Tesla and Solyndra is that if the government is going to get into the bailout business, it should at least take a cue from Obama pal Warren Buffett and actually make money.

Yet despite all the public celebration, both Solyndra and Tesla stand as warnings of the dangers in deputizing bureaucrats to play bankers and venture capitalists. In both loans, the government walked away laughably undercompensated for the risk it accepted in the startup companies. In fact, the Tesla deal was arguably far more costly for America than the Solyndra fiasco.

Solyndra exposed the first way the taxpayer could lose out. The traditional advantage of making a loan (as opposed to buying stock in a company) is that lenders often get paid something even when the borrowing company fails, because they hold collateral. Solyndra’s bankruptcy revealed the ephemeral value of the government’s collateral. Taxpayers have yet to recover a penny from the company.

Tesla’s runaway success, by contrast, is demonstrating how making venture capital–style investments in risky companies—without demanding venture capital–style compensation in return—can end up costing taxpayers even more. In Silicon Valley, one Google pays for a dozen Pets.com. The government made the key mistake of loaning money to Tesla without insisting on receiving stock options, options that could have allowed the Department of Energy to pay for the Solyndra losses several times over.

Tesla is still largely a government subsidized enterprise, making money from government mandated emissions credits, but there’s a larger point which is if you’re going to risk money, then you should be able to profit from the risk. But this isn’t really about profits for anyone except for donors who hand out piles of cash of Obama Inc.

The government always loses because it’s playing with two sets of accounts. One account is funded by the taxpayers and it’s always meant to lose, because those losses go into the second account controlled by friendly crony capitalist donors.

  • WeaponZero

    Isn’t this article contradicting itself? That is the thing with taking stock over taking loans, with a loan you get money guaranteed unless the business fails. If it fails you have potential to liquidate and recoup some loses. But if the government takes stocks, they are putting taxpayers at exponential risks. Just like with GM above. Since the government is incapable of acting like a venture capital firm (forcing companies to fire people and outsource productions to china to make stock value go up). Stock to the government is far riskier then a VC firm due to those limitations.

    • objectivefactsmatter

      “Isn’t this article contradicting itself?”

      Do you know the difference between holding stocks and holding options?

      • WeaponZero

        Yes I do, the government had conditioned options in Tesla. The loan was for 10 years, if Tesla paid the loan back in 5 years or less they just pay interest. If Tesla takes longer then 5 years, the government would get options.

        • objectivefactsmatter

          OK. I think some options should have remained regardless of when they paid back the loan. “We” (the decision makers) weren’t demanding enough.

          OTOH, It’s easy to criticize the deal looking back, which leads to the real point that the federal government is not in a good position to make these kind of deals pay off for the taxpayers, but the decision makers are in a position to enrich their cronies. That’s what seems to happen most often.

  • Spikey1

    GM stock today
    Volume: 30m, 15m above average
    Price: Open 34.79, Close 35.03

    If the 15m above average volume is the result of the government and union selling it would be impossible for the price of the stock to close at a price above the open (or yesterdays close 34.44) for someones (or groups) would have to be buying to support the price. I have a funny feeling, and on the short time I’ve looked at this (so far), there is probably some market manipulation going on. Probably a pay out to union (selling) and government (selling) from the pension funds (buying) I’d suspect. Someone (groups) gobbled up all the shares.

    I’ll look into this a bit more and see if I can decipher what happened when I get a chance, this reeks really bad…

    • Spikey1

      It would appear that the sale had to of lasted a few days with a huge volume on June 6th. I still contend that there is a fix somewhere in the market.

      • objectivefactsmatter

        “…I know GM is a sucky investment but it is now time to pay the piper.”

        Scary stuff. That’s the reality of “socialism” in action.

  • Gee

    Actually the quote was that the government could lose money running a bordello and they did. The IRS took over the Mustang Ranch in Nevada and within a year it had to declare bankruptcy.

  • MLCBLOG

    Wow! if this doesn’t say it all. O and his gang of Alynskiites must be happy, happy about this. What a coup. Sold one of the greatest American companies right out from under us. Started with the commie labor unions and their thugs who were sent to do the dirty work. Disgusting!!

    • objectivefactsmatter

      “Wow! if this doesn’t say it all. O and his gang of Alynskiites must be happy, happy about this. What a coup. Sold one of the greatest American companies right out from under us. Started with the commie labor unions and their thugs who were sent to do the dirty work. Disgusting!!”

      Social capitalism = stealth wealth redistribution. They wouldn’t mind making even more money, but they have no problem losing taxpayer money in order to enrich their cronies who theoretically deserve it for looking after the poor…in theory…by supporting the Democratic Party.

      • MLCBLOG

        Exactly!! They can’t lose our hard-earned money fast enough!! Hard won by our forebears and earned by us.

        They must be quite giddy with what they are getting away with!! Remember, I know them well. I used to be one.

  • DogmaelJones1

    GM’s old ad tag line was, “GM! A mark of excellence!” These days it’s more like, “GM! A mark of execration!”

  • CowboyLogic

    Government simply does not understand business. Any business. Not even a cat house. Truth, is stranger than fiction……………

    http://archives.starbulletin.com/content/20081204_Feds_couldnt_even_manage_a_bawdyhouse

  • Michael Shreve

    Bottom line, governments are, by definition, inept. YET, MANY BELIEVE government can solve ALL our problems.

  • miserableoldfart

    Yeah, much better to just “lose” $10 Billion in cash in Iraq.. The government bailout of GM has been a spectacular success, but of course, people who believe the corporatist economic narrative won’t accept FACT.