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.