A couple of weeks ago I suggested that the person responsible for Ford’s anti-bailout ads was deserving of a raise. Today, I wonder how that extra income will be spent…in Siberia. According to media accounts seemingly originating with the Detroit News, Ford has pulled that ad after learning the Putin Obama White House was none too pleased.

It is unclear from the Detroit News article whether overt threats, implied repercussions, or mild expressions of regret best characterize the communications from the White House to Ford. Regardless, something spooked Ford enough to prompt it to pull the popular ad (no longer available on YouTube), which sought to differentiate the Ford brand over the “bailout” characteristic, which is not insignificant to auto purchasing decisions.

Hopefully, some probing journalists will discover the true nature of what transpired. In the meantime, it’s important to reflect on the fact that—contrary to the views of E.J. Dionne and others who cannot contemplate what is not seen—the auto bailout was not a discrete event, which happened and now resides in our memories. It is an ongoing tipping of the scales of competition—intentionally and inadvertently. Ford’s mere perception that the administration might stir up trouble if it didn’t fall into line is a vestige of the bailout.

To the extent that the administration wants to tout the bailout as evidence of its “successful” economic stewardship, it should know that there are plenty of us willing and able to do the auditing on that claim.

Ongoing Ripples from the Auto Bailout is a post from Cato @ Liberty - Cato Institute Blog

Back from vacation, I’m catching up on things I missed last week. Dan Ikenson did a fine job on President Obama’s boasting about how he saved the automobile industry. But a few days later Glenn Kessler, the Washington Post‘s “Fact Checker,” was more brutal:

We take no view on whether the administration’s efforts on behalf of the automobile industry were a good or bad thing; that’s a matter for the editorial pages and eventually the historians. But we are interested in the facts the president cited to make his case.

What we found is one of the most misleading collections of assertions we have seen in a short presidential speech. Virtually every claim by the president regarding the auto industry needs an asterisk, just like the fine print in that too-good-to-be-true car loan.

Here’s a sample of the specific analyses:

“GM plans to hire back all of the workers they had to lay off during the recession.”

This is another impressive-sounding but misleading figure. In the five years since 2006, General Motors announced that it would reduce its workforce by nearly 68,000 hourly and salary workers, creating a much smaller company. Those are the figures that generated the headlines.

Obama is only talking about a sliver of workers — the 9,600 workers who were laid off in the fourth quarter of 2008.

And that’s why President Obama’s speech was awarded Three Pinocchios.

President Obama and the Auto Industry is a post from Cato @ Liberty - Cato Institute Blog

With his appearance at a Toledo factory today, President Obama seems to want to make the auto bailout a campaign issue. Let’s welcome that. Americans should understand what transpired.

Fancying himself “Savior of the Auto Industry,” the president deserves credit only for choosing to insulate two companies (and the UAW) from the consequences of their decisions. But with that credit he must accept responsibility for sluggish U.S. business investment, limited job creation, and the anemic economic recovery, which is due in no small measure to the regime uncertainty that descends from his intervention in the auto industry.

The administration suggests that the entire cost of the auto bailout is captured by the outlays that haven’t or won’t be returned. Despite much smaller claims from the administration, that figure will be about $5.5 billion in Chrysler’s case (the administration is overlooking $4 billion written off when New Chrysler emerged from bankruptcy) and somewhere from $7 to $15 billion in GM’s case (depending on average share price for 500 million shares). Should that loss have to be reported to the FEC on a dollar-per-auto-worker-vote basis?

But the costs are much greater than these outlays.

The most compelling objections to the bailout were not rooted in the belief that the government couldn’t use its assumed power to help Chrysler and GM. On the contrary, the most compelling objections were over concerns that the government would do just that. It is the consequences of that intervention — the undermining of the rule of law, the confiscations, the politically driven decisions, and the distortion of market signals — that animated the most serious objections. Ford never publicly objected to the interventions to rescue its rivals. Do you think Ford may feel entitled to a future bailout if needed, having foregone the recent one? Does Ford think it has a pretty good insurance policy if it takes excessive risks that go awry?  This is a cost that’s tough to measure, but an important cost nonetheless.

Any verdict on the outcome of the auto industry intervention must take into account, among other things, the billions of dollars in property confiscated from the auto companies’ debt-holders; the higher risk premium built into U.S. corporate debt as a result; the costs of denying the other, more successful auto producers the spoils of competition (including additional market share and access to the resources misallocated at Chrysler and GM); the costs of rewarding irresponsible actors (like the UAW) by insulating them from the outcomes of what should have been an apolitical bankruptcy proceeding; the effects of GM’s nationalization on production, investment, and public policy decisions; the diminution of U.S. moral authority to counsel foreign governments against market interventions that can adversely affect U.S. businesses competing abroad; and the corrosive impact on America’s institutions of the illegal diversion of TARP funds to achieve politically desirable outcomes.

Let’s make the auto bailout a campaign issue and see if we can’t reconcile all of its costs.

Whitewashing the Auto Bailouts is a post from Cato @ Liberty - Cato Institute Blog

• It is false to assume that GM’s earnings report means the auto bailout was a success.
• It is false that, among other things, failing to raise the debt limit means defaulting on our obligations.
• It is false that Osama bin Laden’s death means torture is a good idea.
• It is false that international institutions can deliver what they say they can deliver.
• It is false that oil speculators are to blame for fluctuating oil prices:

Monday Links is a post from Cato @ Liberty - Cato Institute Blog

I don’t particularly relish picking on a president who, on virtually every policy front, is showing all the markings of a man in way over his head.  But the president’s actions and statements are becoming excruciating to watch—like a highly-touted Olympic figure skater who can’t complete a maneuver without falling to the ice. 

President Obama’s salutary statement about GM’s IPO yesterday reveals a man so focused on defending his policies that he can no longer conceal the incongruity between his political objectives and the country’s imperatives.

American taxpayers are now positioned to recover more than my administration invested in GM, and that’s a good thing. (My emphasis)

Besides revealing the president’s preference for LIFO accounting procedures, the statement strikes me as sub-presidential.  Shouldn’t the POTUS be concerned about  American taxpayers getting back all of the money invested in GM?  Even though former President Bush is complicit, shouldn’t the sitting president of a country that owes its wealth, freedom, and future to the endurance of the rule of law and the other long-standing, bedrock institutions that were defiled and abused to bail out two automakers issue a statement of regret and reassurance that such extreme measures will never be undertaken again? 

I think President Obama missed an opportunity to make amends, build a bridge, and reassure businesses and investors that the White House will do its part to reduce the economy-stifling problem of regime uncertainty going forward.  But, then again, that might have been too presidential for a politician who appears motivated more by avoiding blame than by advancing the country’s best interests.

President’s Statement about GM IPO Reveals a Defensive Politician is a post from Cato @ Liberty - Cato Institute Blog

There seems to be a lot of confusion about the meaning of GM’s IPO today.  A common narrative in today’s media is that GM’s return to the stock market affirms the wisdom of the auto bailout.  Some tougher customers in the media insist on a higher threshold being met—that taxpayers get back the entirety of their $50 billion investment in GM—before declaring “mission accomplished.” And then there are the rabid partisans who—in their seething animosity toward the Obama administration—reach conclusions devoid of logic and rich only in conspiratorial-mindedness.  For example, yesterday I was contacted by a media outlet vetting this conclusion: “The IPO is evidence of the failure of the bailout because taxpayers were excluded from buying shares at the IPO price and, therefore, denied the opportunity to get their money back.”  Huh?

All of those analyses are wrong.  Let me dispense with the last one first, as it simply betrays a gross misunderstanding of how taxpayers are on the hook.  By divesting of GM (i.e., selling its shares), the government is beginning to make the taxpayer whole.  But just as there were no checks written directly from taxpayers to GM, there will be no checks written to taxpayers, as the Treasury liquidates the public’s share of GM.  Whether main street Americans could participate in the IPO has nothing to do with making the taxpayer whole.  And, by the way, IPOs typically limit sales of shares at the initial price to a chosen few.  So let’s just shelve the canned indignation on this claim.  It’s a distraction.

Here’s the real issue.  Today’s IPO is nothing more than testament to the fact that the government threw GM a lifeline, enabling the company to expunge most of its debts and firm up its balance sheet on terms more favorable than a normal bankruptcy process would have yielded.  That enabled GM to partake of the cyclically growing U.S. auto market in 2010 and turn a profit through the first three quarters.  So what?  Did anyone really think that a chosen company so coddled and insulated from market realities couldn’t turn a short-run profit?  Yes, even GM, under those favorable conditions should have been expected to turn a profit this year.

But at what cost?  That answer—even the question—seems to be elusive in the public discussion of the IPO.  The cost was not only $50 billion—the amount diverted to GM in the first place.  Nor was it that $50 billion minus the proceeds raised in today’s IPO (and minus the proceeds raised later when the government divests entirely of GM – it will still hold 33% of GM after today).  In other words, making taxpayers whole does not absolve the Bush and Obama administration’s for the auto intervention.  Recouping the $50 billion only gets us partially out of the hole.  (And I’m not even sure who “us” includes because the costs are so far reaching.)

Yes, GM is making sales and accounting for market share, but only at the expense of the other automakers.  Had GM been forced to severely atrophy or liquidate, the other automakers would have had greater revenues, more market share, and probably higher profits).  They would have been able to attract GM’s best engineers and line workers.  They would have more money to invest in R&D and to lead the industry into the future.  Instead, by keeping GM in the mix, some of those industry resources remain misallocated in a company that the evolutionary market process would have made smaller or extinct. 

The auto industry wasn’t rescued with the GM bailout.  GM was “rescued.”  By rescuing GM, the government overrode market forces, and there are significant costs to assign for that.  Witness the stagnant economy with 9.6 percent unemployment.  Is it not plausible that businesses are sitting on their cash and not investing or hiring because of the fear inspired by the government interventions starting with the bank and auto bailouts?  It’s more than plausible.  The regime uncertainty that persists to this day was spawned by the GM bailout and other interventions.

What about the weakening of the rule of law?  Doesn’t the diversion of TARP funds by the Bush administration, in circumvention of congress’s wishes and in contravention of the language of the law, represent a cost?  How about the property right of preferred bondholders who were forced to take pennies on their investment dollars under the Obama bankruptcy plan?  Any costs there?  What about U.S. moral authority to dissuade other goverments from meddling in their markets or indulging industrial policy?  That may be costly to U.S. enterprises.  And with the government still holding a third of GM, its hard to swallow the idea that public interest will be the driver of policies affecting the auto industry.  And that suggests even more costs.

But don’t mistake this blog post for an anti-IPO rant.  I’m in favor of the IPO.  It couldn’t have happened sooner.  But I suspect the investment bankers, the administration, and the other members of GM’s Board of Directors reckoned that, with the hype over the new Chevy Volt and the recent newsleak of GM’s $43 billion in unorthodox tax deferrments on the balance sheet, now was the perfect time to go public.

A Successful IPO Does Not a Justifiable Bailout Make is a post from Cato @ Liberty - Cato Institute Blog

Though it has been relatively successful in the marketplace lately, the Ford Motor Company continues to confound in its public policy commitments.

First, the company remained silent for the better part of two years as its chief domestic rivals General Motors and Chrysler were nursed back to viability by a doting government dispensing $65 billion of taxpayer-funded nourishment. Not once (to my knowledge) did Ford publicly complain that the government bailout of its struggling competitors was an affront to its own prospects or that it would deny the company its rightful increase in sales and market share (the so-called spoils of competition).

But now Ford is trumpeting its opposition to the U.S.-Korea Free Trade Agreement. In a full page ad in today’s Washington Post, Ford implores Americans to reject the agreement as it currently stands, arguing that it would “allow Korea to remain one of the most closed automotive markets in the world.” So all of a sudden Ford is concerned about sales and market share?

Had GM and Chrysler been allowed to contract to a degree commensurate with their reckless decisions over the years, Ford might have hit the mother lode of sales and market share. But Ford didn’t even attempt to make that case. If Ford is so concerned about sales and market share, where is the outrage over the $45.4 billion in unconventional tax deferrals being granted GM as part of the ongoing bailout bonanza? Aren’t those deferrals just subsidies to help GM regain market share … at Ford’s expense?

Instead, Ford has chosen to target a trade agreement that promises enormous benefits to American businesses and consumers, a slew of new domestic employment opportunities, and annual increases in GDP of anywhere from $17 to $43 billion (bailout-type sums!) on the grounds that the agreement contains no guarantees of increased U.S. auto sales in Korea.

There are no guarantees in trade. But that’s what Ford and others in the U.S. auto industry and in Congress want: guaranteed sales figures, bilateral trade balance within the auto sector, managed outcomes. Is that what Ford means in the ad where it claims to support free trade?

Granted, the Korean auto market has been notoriously difficult to penetrate. Behind-the-border taxes levied on engine size and other non-tariff barriers have discouraged purchases of U.S. automobiles in Korea. But without the agreement, none of that will change. With the agreement, Korea reduces its tariff on passenger vehicles from 8% to 0 immediately, while the United States reduces its tariff on passenger vehicles from 2.5% to 0 immediately. So both are good reforms, but there is no question that U.S. auto exporters get a relatively bigger boost from the agreement. And though there are no guarantees of hard sales quotas, one can be pretty well assured that only the most inept producer/exporter would fail to capitalize on an 8 percent cost reduction granted with the stroke of a pen.

Ford should stop politicking and stay focused on the goal of making better automobiles.

Ford Motor’s Curious Policy Priorities is a post from Cato @ Liberty - Cato Institute Blog

When you believe in things that you don’t understand,
Then you suffer,
Superstition ain’t the way

- Stevie Wonder

David Ignatius is entitled to this opinion:

We have just lived through one of the more notable successes of government intervention in modern times – the auto and bank rescues that almost surely saved the country from another Great Depression.

But if his intention is to convince skeptics—and not just to rally the deflated spirits of those who came to Washington with high hopes of teaching Americans how to love their government—he does a lousy job.  A bold assertion like his requires supporting evidence more rigorous than hearsay, superstition, and the opinions of his friend, and former “Car Czar,”  Steven Rattner.

Ignatius considers the bailouts successful because GM is still in business and the banking sector didn’t collapse.  According to Ignatius (often channeling Rattner):

Private companies made bad decisions that put the U.S. economy at risk; government made good (if politically unpopular) decisions to keep these mismanaged companies afloat, fearing that a collapse would mean much worse trouble…Private actors made bad decisions, but public officials generally made good ones…Washington is such an easy target that we forget the real villains of this story are the bankers and auto executives who steered their companies toward disaster.

Well.

Where is the credible evidence that without the interventions we were headed for another Great Depression?  Where is support for the argument that it’s smart to keep “mismanaged companies afloat”?  Where are the convincing facts (not the figures produced by the Big Three’s PR machine in November 2008) that the auto industry would have shed 2 to 3 million jobs had the government not intervened to save GM and Chrysler on the administration’s terms?  Where are the soothing facts that the incentives to avoid failure in the banking and auto sectors have not been weakened by the interventions?  Where is the compelling defense against the charge that government policies that subsidized chosen firms in the mortgage industry created the incentives for risk-taking—that Ignatius pegs as the root cause of the problem—in the first place?

Apparently, Ignatius doesn’t swell with desire for limited constitutional government. He writes, “It’s one thing to denounce government when it fails to achieve its goals.  But to ignore government’s achievements in times of crisis is willfully stupid.”

It’s clear that Ignatius column is more of an ideologically-driven rant doubling as a pitch for Rattner’s new book about the heroic role of the Auto Task Force in saving the auto industry.   As I wrote a few months ago in response to Rattner’s chest-puffing:

Rattner’s verdict rests on the singular consideration that “a year after the government-sponsored bankruptcies of GM and Chrysler, both patients are alive and progressing well toward recovery.” But that’s like hailing the stable medical condition of a drunk driver after an accident, while ignoring the injuries to the family in the vehicle he struck.

The impact of the auto intervention on its victims doesn’t factor into Rattner’s analysis.

Rattner’s claim of auto “rescue” success is the product of a straw-man set-up. The most compelling objections to the bailout were not rooted in the belief that the government couldn’t use its assumed power to help GM and Chrysler.  On the contrary, the most compelling objections were over concerns that the government would do just that.  It is the consequences of that intervention—the undermining of the rule of law, the confiscations, the politically-driven decisions, and the distortion of market signals—that animated the most serious objections.

Thus, any verdict on the outcome of the auto industry intervention must take into account, among other things, the billions of dollars in property confiscated from the auto companies’ debt-holders; the higher risk premium built into U.S. corporate debt, as a result; the costs of denying Ford and the other more successful auto producers the spoils of competition (including additional market share and access to the resources misallocated at GM and Chrysler); the costs of rewarding irresponsible actors, like the United Autoworkers union, by insulating them from the outcomes of what should have been an apolitical bankruptcy proceeding; the effects of GM’s nationalization on production, investment, and public policy decisions; the diminution of U.S. moral authority to counsel foreign governments against market interventions that can adversely affect U.S. businesses competing abroad, and; the corrosive impact on America’s institutions of the illegal diversion of TARP funds under two presidential administrations.

It is willfully deceptive to direct the public’s attention away from these less discernible, but very consquential costs of the bailout.

Glory-of-Government Religiosity Finds Bailout Skeptics “Willfully Stupid” is a post from Cato @ Liberty - Cato Institute Blog

GM announced yesterday its intention to go sell shares on the New York Stock Exchange, thus officially beginning the process of re-privatizing the company.

A GM initial public offering is the right move, and cannot happen soon enough.  Let’s get the government out of the car business now. 

But successfully reprivatizing GM should not be seen as a sign that the intervention itself was successful.  The intervention was akin to theft — from Ford, Honda, Toyota, the other automakers and taxpayers — and was highly damaging to crucial longstanding institutions in the United States, like property rights and the rule of law.

The costs of GM’s ”turnaround,” if it is to happen, will never be fully appreciated.  The other auto companies were denied the spoils of competition.  Had they been able to pick up the market share that the nationalized GM has maintained, then more resources would have flowed to the companies that are best at making the products that people want to buy.  These are huge implicit costs–the costs that are not seen–that are happily swept under the rug by Obama administration officials.

It is also highly likely that the timing of the IPO talk is politically motivated.  Democrats want to have a business success to tout for their campaigns this fall.  But there is the real prospect that that the IPO won’t raise anywhere near the amount of cash to make taxpayers whole, which could generate a lot of bad press before the election.  With economic growth and auto sales prospects apparently in doubt and the $41,000 Chevy Volt about to be unveiled when gas prices are relatively low, investors may not be ready to own GM stock.

GM IPO ASAP, SVP is a post from Cato @ Liberty - Cato Institute Blog

Ronald Brownstein points to the many measures showing Americans have lost confidence in their government and in some private institutions.  He concludes that these signs of distrust “point toward a widely shared conviction that the country’s public and private leadership is protecting its own interest at the expense of average (and even comfortable) Americans.”

Maybe. But there is another interpretation. Consider the recent performance of the government and of more than a few businesses. Most Americans do not pay attention to the details of governing. They have other things to occupy their time. They do, however, notice important matters like war and the economy. Since about 2004, Americans have steadily soured on the wars in Iraq and Afghanistan. The economy remains weak despite promises to the contrary from the current administration. Banks and auto companies flouted the presumed rules of the capitalist game by seeking and taking bailouts when bankruptcy loomed.

The last nine years have given the public little reason to have confidence in the performance of the federal government and of some business leaders. The lack of public confidence Brownstein notes might better be seen as a rational response to what is becoming a decade of incompetence in DC combined with bad faith elsewhere.

They Should Earn Our Trust is a post from Cato @ Liberty - Cato Institute Blog

General Motors chairman Ed Whitacre is appearing in ads on all the Sunday morning shows repeating the message of his Wall Street Journal op-ed, titled “The GM Bailout: Paid Back in Full,” and the company’s full-page newspaper ads:

We’re proud to announce: We’ve repaid our government loan. In full. With interest. Five years ahead of the original schedule.

But wait: In the Wall Street Journal, Whitacre says the company has made a $5.8 billion payment to the governments of the United States and Canada. But don’t I recall that the GM bailout was $50 billion? Shikha Dalmia of the Reason Foundation explains the whole story in Forbes: First, part of the bailout went into an “escrow fund,” and that government money is being used to pay back the small part of the bailout that was officially a loan. Second, GM is asking for another $10 billion loan to retool its plants to meet the stiffer Corporate Average Fuel Economy standards, and paying back one government loan — with other government money — will make it easier to get another government loan.

And finally, of course, most of the bailout money was transferred to GM in return for a 60 percent stake in the company. And the taxpayers will get that money back if and when GM becomes a publicly traded company again, provided that the company’s market capitalization is eventually higher than it’s ever been in history. Don’t hold your breath.

These are called GM ads, but they could just as well be called BS ads.

Don’t Be Fooled — GM Is Still Government Motors is a post from Cato @ Liberty - Cato Institute Blog

Over at Downsizing Government, we focused on the following issues this week:

• Central Michigan defeated Troy in the “Bailout Bowl,” but taxpayers are the biggest losers.
• The 2010 census will pave the way for subsidies to state and local governments.
• Secure property rights and government support help make U.S. farmland a good investment. But what about the property rights of taxpayers?
• The federal government’s IT budget increases by $5 billion while Uncle Sam’s private sector counterparts make do with less.
• New York’s fraud-ridden Medicaid program is a prime example why government involvement in healthcare is part of the problem, not the solution.

This Week in Government Failure is a post from Cato @ Liberty - Cato Institute Blog

As described in the current Cato Policy Report, one of the “Hard Lessons from the Auto Bailout” is that management at GM is likely to be “highly erratic, as the president and Congress wrestle for decisionmaking primacy at this majority taxpayer-owned entity.”  The “dealerships” issue is Exhibit A.

One of GM’s first decisions upon emerging from bankruptcy was to announce closures of a number of dealerships to help reduce costs. Then-nominal-CEO Fritz Henderson explained that the planned closings would save GM about $100 in distribution costs per vehicle–a few hundred million dollars per year when factoring in the millions of units GM expects to produce.

But many of GM’s congressional CEOs cried foul, demanding reconsideration from a company that had taken public funds.  The House of Representatives even passed a bill requiring companies that received federal funds to reestablish terminated dealership agreements, though no action was taken in the Senate.

However, as reported in The Hill today, Congress is fast-tracking legislation to restrict GM’s (and Chrysler’s) closings, by subjecting each decision to an arbitrator, who will “balance the economic interests of the terminated dealership, the car companies and the general public.”  A Senate aide is cited as saying legislators intend to pass this measure before Christmas.

Well, look, EVERY decision GM makes will produce winners and losers in terms of real and opportunity costs.   Hence, EVERY decision is just as worthy of legislative or executive scrutiny, if the dealership issue is the litmus test. 

With 537 CEOs, all but one of whom have bigger priorities than GM’s bottom line, GM’s future will be dictated by splitting differences, political logrolling, and managing by consensus–tactics that will assure GM’s demise.

How to Kill a Company: A Beginner’s Guide (Chapter 1, P. 1.) is a post from Cato @ Liberty - Cato Institute Blog

Time and again my colleagues and I have warned that the government’s takeover of GM would divorce business decisions from economics and wed them to politics ‘til death do they part. But I won’t gloat. Better to be right and satisfied that government is reasonably restrained than right and house hunting in Galt’s Gulch.

We’ve already seen the president insist on the firing of a CEO, design and negotiate a bankruptcy plan devoid of much economic merit, impose preferences about which models to produce, and assure the diabolical, undeserving management of the UAW that GM won’t import small cars from its foreign plants to make space for its U.S.-produced budget-busting green vessels.

Now Congress is attempting to legislate its way into the boardroom. Last month, GM/Obama announced plans to terminate 1,300 dealerships, as part of a larger effort to reduce costs and, ultimately, turn a “profit.” (The term “profit” is, shall we say, imprecise in this case given the amount of production subsidization, fuel taxation, and tax code inducements that will be necessary to sustain GM for the foreseeable future). But many in Congress don’t like the idea. As reported in the Detroit Free Press:

By a unanimous vote, a U.S. House committee has approved a measure that would restore 2,100 dealers either cut or scheduled to be closed by General Motors Corp. and Chrysler Group LLC.

…The bill would turn back the clock to before the companies filed for bankruptcy, restoring the 789 dealers cut by Chrysler and 1,300 dealers GM chose to wind down.

…Executives from GM and Chrysler have both told Congress that cutting dealers was essential to their survival outside of bankruptcy, saving each company billions of dollars a year and strengthen their remaining sales force.

“This legislation, if passed, would put our long-term viability at risk,” said GM spokesman Greg Martin.

I suppose you can’t really blame Congress for trying to impose its wishes on GM. After all, the Constitution is silent on the matter of which branch of government furnishes the CEO of nationalized companies.

But in all seriousness, this legislative effort is an affront to common sense and an insult to our heritage of free enterprise and capitalism. It is stunning enough to watch the slow-motion nationalization of an iconic behemoth like GM, but Congressional meddling at the operational level to stop the company from following through on an obviously wise cost-cutting measures should be a wake up call to all Americans that we are doomed to politically-driven micromanagement of the economy–into the ground no less–unless we register our disgust and dissent now!

What makes these actions evil, and not just stupid, is that Congress really does not care about whether GM is profitable or not. The Henry Waxmans of the Hill only care that GM produces green vehicles, regardless of their exorbitant costs of production and scant consumer demand. And the John Dingells (among whom are included the 200 sponsors of the bill to restore the dealerships) only want GM to provide jobs, regardless of the fact that GM needs to scale back its labor force substantially to even approach the realm of commercial viability. In other words, Congress demands that Americans subsidize GM because GM’s short-term viability is good for their political fortunes.

Enough. Show Congress that you won’t comply and that you won’t be pawns. Boycott GM. Boycott GM until the government relinquishes its grip on the company’s decision making process.

Strike a Blow for Freedom: Don’t Buy GM is a post from Cato @ Liberty - Cato Institute Blog

As my colleague Doug Bandow pointed out this morning, today’s Washington Post has an analysis about the uncertain prospects of GM ever making taxpayers whole again. It is a very similar analysis to the one I gave in this L.A. Times Dust-Up installment four weeks ago, although I find prospects unlikely, rather than just uncertain.

If GM emerges from bankruptcy next month in accordance with the pre-packaged Obama plan (as expected), taxpayers will be on the hook for $50 billion. That $50 billion will buy taxpayers a 60 percent stake in the company, which according to the laws of mathematics means that GM has to be worth $83.33 billion for the taxpayers to get their equity back without making a dime in capital gains or interest.  In the L.A. Times, I asked:

How and when will that ever happen? At its peak in 2000, GM’s value (based on its market capitalization) stood at $60 billion. Thus, the minimum benchmark for “success” will require a 38% increase in GM’s value from where it was in the heady days of 2000, when Americans were purchasing 16 million vehicles per year. U.S. demand projections for the next few years come in at around 10 million vehicles. Taxpayer ownership of GM is something we should all get used to, and the “investment” is only going to grow larger. Think Amtrak.

Attention GM Shareholders (That Means You!) is a post from Cato @ Liberty - Cato Institute Blog

It has been a good run, but it appears government might finally bring America’s love affair with the car to an untimely end, says Cato Mencken Research Fellow P.J. O’Rourke. The author of the new book Driving Like Crazy, spoke at Cato last week about classic cars, government regulation, the takeover of GM and the forthcoming “Obamamobile.”

P.J. O’Rourke on the New “Obamamobile” is a post from Cato @ Liberty - Cato Institute Blog

Thursday, the House Committee on Oversight and Government Reform questioned Ken Lewis about Bank of America’s purchase of Merrill Lynch and the subsequent injection of tens of billions of taxpayer funds into Bank of America.

While much of the hearing focused on Lewis’ leadership of Bank of America, the hearing also touched upon the more important questions of government regulators pressuring BoA to purchase Merrill even after BoA realized that Merrill’s losses were greater than expected.

One of the basic tenets of sound regulation, exercised in the public interest, is that regulators remain at “arm’s length” from the entities they regulate. As defined by Black’s Law Dictionary, “arm’s length” relates to “dealings between two parties who are not related or not on close terms and who are presumed to have roughly equal bargaining power; not involving a confidential relationship.”

If anything, it appears that BoA and the federal government were in a bear hug, rather than at arm’s length. As described in Lewis’ notes on one of his many conversations about the Merrill deal with Fed Chairman Ben Bernanke, Bernanke told Lewis, “We will not leave you in the lurch.” Given the funds subsequently injected into BoA, one can say that Chairman Bernanke is at least a man of his word.

One of the significant problems arising from extensive government ownership of private entities is that in regulating those entities, the government no longer has the ability to be a neutral, objective arbitrator. Whether it is BoA or GM, government officials will come under increasing pressure to see a positive return on the taxpayer’s investment. One should not be surprised if that pressure manifests itself by government officials favoring the very companies they have invested in.

While BoA has been saved, it appears that the rule of law has been “left in the lurch.”

Fed to BoA: ‘We Will Not Leave You in the Lurch’ is a post from Cato @ Liberty - Cato Institute Blog

The matter of Chrysler’s bankruptcy seems to have rendered quaint our system of checks and balances. President Obama is breaking the law and the other two branches are letting him get away with it. One can probably understand how a smitten public might casually allow this president a stipend of unconstitutional acts, since he doesn’t scowl like Nixon or stutter like Bush. But, even a popular president (in particular, a popular president) must be held in check by the legislative and judicial branches.

And that’s not happening.

On Tuesday at 4:00 pm, Justice Ruth Bader Ginsburg “stayed pending further order” the bankruptcy-related transactions of Chrysler, giving hope the Supreme Court might hear the appeal filed on behalf of certain Indiana state pension and construction funds, who claim that their property rights as secured creditors were violated by the forced sale and that the use of Troubled Asset Relief Program funds to support Chrysler and facilitate its restructuring was illegal. Only 28 hours later, the Supreme Court decided against taking the appeal, despite the seemingly compelling issues at hand.

Just as the Bush administration was telling Congress last September that there was no time to debate the merits of a financial bailout and that the only course was to give Treasury Secretary Paulson carte blanche immediately to spend $700 billion, the Obama administration was telling the Supreme Court this week that time was of the essence and that Fiat would walk away from the Chrysler deal if it wasn’t allowed to proceed right away. Was that the decisive factor in the Supreme Courts rejection of the appeal? It seems to me the appeal contains some serious constitutional issues worthy of judicial consideration (consideration that goes beyond merely rubber-stamping the Obama administration’s pre-packaged, politically-driven bankruptcy plan for Chrysler, which is what Judge Gonzalez appears to have done).

But it’s now a done deal, possibly facilitated by illegalities.

I’m struck by the relative quiet about this issue (in the mainstream media and the blogosphere). Maybe we’re all just too numb and shell shocked by the blitzkrieg of government interventions over the past 9 months that it’s no longer possible to feel alarmed or outraged by just another government act that would have been unthinkable this time last year.

Well wake up!

There is a compelling legal argument against using TARP funds to support automobile producers. (Obviously, there is a compelling economic argument, as well.) Convincing the courts to hear the argument and subsequently persuading judges (probably up to the Supreme Court) of its merits will likely be the last chance to spare us the nationalization of General Motors.

As you may recall, there wasn’t a whole lot of clarity about how the Treasury’s use of TARP funds would be limited or defined. Lots of discretion was granted the Treasury Secretary. However, Section 101(a)(1) of the law establishing the TARP stipulates:

“The Secretary is authorized to establish the Troubled Asset Relief Program (or ‘TARP’) to purchase, and to make and fund commitments to purchase, troubled assets from any financial institution, on such terms and conditions as are determined by the Secretary, and in accordance with this Act and the policies and procedures developed and published by the Secretary.” (My emphasis).

Neither Chrysler nor GM is a financial institution and therefore neither can receive TARP money.  There’s the argument, plain and simple.  Congress authorized funds for a defined use; the executive breached those boundaries, and thus acted illegally. Is it more complicated than that?

President Bush was the first to break the law by authorizing $17.4 billion in TARP funds for GM and Chrysler, circumventing the wishes of Congress, which had recently voted against an auto bailout.  And President Obama has followed suit, providing funding the Chrysler and GM during bankruptcy.

If there’s any doubt that TARP funds were not to be used for automobile companies, consider the fact that the same House of Representatives that passed the legislation creating the TARP in October also passed a bill specifically authorizing the use of TARP funds for automobile companies in December. (There was never a vote in the Senate so it never became law.)  Such legislation wouldn’t have been necessary if the intent of Congress was to allow TARP funds to be used for automakers originally.  Thus, there are two conclusions to draw here. First, the 110th Congress didn’t think the TARP legislation, which it had passed two months earlier, allowed TARP funds to be used for automakers; and second, Congress was too cowardly to bring the matter to the Supreme Court, thereby exercising its constitutional responsibility and allowing the judiciary an opportunity to exercise its.

Let’s hope the judiciary finds the opportunity to check the legality of the executive’s implementation of the legislature’s instructions, as far as the people’s money is concerned.

A Nation of Lawlessness is a post from Cato @ Liberty - Cato Institute Blog

It’s not as if we didn’t know this was going to happen to GM for a long time now.

GM’s bankruptcy announcement today is perhaps the least shocking news we’ve heard about the company in more than seven months. It might well be remembered as the company’s last act of capitalism.

If GM emerges from bankruptcy organized and governed by the plan created by the Obama administration, it is impossible to see how free markets will have anything to do with the U.S. auto industry. With taxpayers on the hook for $50 billion (at a minimum), the administration will do whatever it has to — including tilting the playing field with policies that induce consumers to buy GM or hamstring GM’s competition or subsidize its costs — in order for GM to succeed.

Thus, what’s going to happen to Ford? With the public aware that the administration will go to bat for GM, who will want to own Ford stock?  Who will lend Ford money (particularly in light of the way GM’s and Chrysler’s bondholders were treated).  Who wants to compete against an entity backed by an unrestrained national treasury?

Ultimately, if I’m a member of Ford management or a large shareholder, I’m thinking that my biggest competitors, who’ve made terrible business decisions over the years, just got their debts erased and their downsides covered.  Thus, even if my balance sheet is healthy enough to go it alone, why bother?  And that calculation presents the specter of another taxpayer bailout to the tunes of tens of billions of dollars, and another government-run auto company.

GM’s Last Capitalist Act: Filing for Bankruptcy Protection is a post from Cato @ Liberty - Cato Institute Blog

At the New York Times Economix blog, economist Nancy Folbre of the University of Massachusetts writes:

The libertarian Cato Institute often emphasizes the issue of corporate welfare, but it’s remained remarkably quiet so far on the topic of bailouts.

Excuse me?

Since she linked to one of our papers on corporate welfare, we assume she’s visited our site. How, then, could she get such an impression? Cato scholars have been deploring bailouts since last September. (Actually, since the Chrysler bailout of 1979, but we’ll skip forward to the recent avalanche of Bush-Obama bailouts.) Just recently, for instance, in — ahem — the New York Times, senior fellow William Poole implored, “Stop the Bailouts.” I wonder if our commentaries started with my blog post “Bailout Nation?” last September 8? Or maybe with Thomas Humphrey and Richard Timberlake’s “The Imperial Fed,” deploring the Federal Reserve’s help for Bear Stearns, on April 14 of last year?

Cato scholars appeared on more than 90 radio and television programs to criticize the bailouts during the last quarter of 2008. Here’s a video compilation of some of those appearances.

Folbre complains that some people seem more concerned about welfare — TANF, in the latest federal acronym — than about welfare for bankers — TARP. Google says that there are 138 references to TANF over the past 13 years or so on the Cato website, and 231 references to TARP in the past few months.

Now she has a legitimate point. Welfare for the rich is at least as bad as welfare for the poor. And as much as welfare for the poor has cost taxpayers, the new welfare for banks, insurance companies, mortgage companies, and automobile industries is costing us more. Samuel Brittan of the Financial Times has written that “reassignment,” an economic policy that changes individuals’ ranking in the hierarchy of incomes, is far more offensive than a policy of redistribution, which in his idealized vision would merely raise the incomes of the poorest members of society. By that standard, taxing some businesses and individuals to subsidize the high incomes of others is certainly offensive. Of course, Brittan underemphasized the harm done by welfare to people who become trapped in dependency. But there’s good reason to oppose both TANF and TARP, and Cato scholars have done both.

Lest the good work of Cato’s New Media Manager Chris Moody go under-utilized, here’s a probably incomplete guide to Cato scholars’ comments on the bailouts of the past few months. (Note that it doesn’t include blog posts, of which there have been many.) Quiet? I don’t think so:

Articles:

September 9, 2008, “Fannie/Freddie Bailout Baloney,” Gerald P. O’Driscoll Jr., New York Post.

September 18, 2008, “Why Bailouts Scare Stocks,” Alan Reynolds, New York Post.

September 17, 2008, “Bailout-Mania,” Jagadeesh Gokhale and Kent Smetters, Forbes.com.

October 1, 2008, “The Bailout’s Essential Brazenness,” Jay Cochran, Cato.org.

October 3, 2008, “The Big Bailout – What’s Next?” Warren Coats, Cato.org

October 13, 2008, “Should Taxpayers Fund the American Dream?,” Daniel J. Mitchell, Los Angeles Times.

October 20, 2008, “Is the Bailout Constitutional?,” Robert A. Levy, Legal Times.

November 11, 2008, “There’s Nothing Wrong with a “Big Two”,” Daniel J. Ikenson, New York Daily News.

November 21, 2008, “Don’t Bail Out the Big Three,” Daniel J. Ikenson, The American.

November 5, 2008, “Is it Constitutional?,” Richard W. Rahn, Washington Times.

December 14, 2008, “Consequences of the Bailout,” Richard W. Rahn, Washington Times.

December 5, 2008, “Bail Out Car Buyers?,” Daniel J. Ikenson, Los Angeles Times.

December 3, 2008, “Big Three Ask for Money — Again,” Daniel J. Ikenson, Los Angeles Times.

December 10, 2008, “Dissecting the Bailout Plan,” Alan Reynolds, Wall Street Journal.

January 14, 2009, “Bailing out the States,” Michael New, Washington Times.

February 28, 2009, “Stop the Bailouts,” William Poole, The New York Times.

Papers:

“Bailout or Bankruptcy?,” by Jeffrey A. Miron (Cato Journal, Winter 2009)

“Freddie Mac and Fannie Mae: An Exit Strategy for the Taxpayer,” by Arnold Kling (September 8, 2008)

“Financial Crisis and Public Policy,” by Jagadeesh Gokhale (March 23, 2009)

“Bright Lines and Bailouts: To Bail or Not To Bail, That Is the Question,” by Vern McKinley and Gary Gegenheimer (April 20, 2009)

On Television and Radio:

Dan Ikenson discusses auto bailout

September 30, 2008 Daniel J. Mitchell discusses the failed bailout on NPR Affiliate KPCC’s “The Patt Morrison Show”

September 29, 2008 Peter Van Doren discusses government bailouts on WTTG FOX 5.

September 29, 2008 Daniel J. Mitchell discusses the failed bailout on NPR Affiliate KPCC’s “The Patt Morrison Show”

September 26, 2008 Jagadeesh Gokhale discusses the bailout on BNN (CANADA)

September 26, 2008 Steve H. Hanke discusses the bailout on BBC Radio’s “Have Your Say”

September 25, 2008 Patrick Basham discusses the bailout on Radio America’s “The Michael Reagan Show”

September 24, 2008 William A. Niskanen discusses government bailouts on WUSA 9

September 24, 2008 William Poole discusses government bailouts on NPR DC Affiliate WAMU’s “The Diane Rehm Show”

September 23, 2008 William A. Niskanen discusses government bailouts on CNBC’s “Closing Bell”

September 23, 2008Bert Ely discusses government bailouts on WOR’s “The John Gambling Show”

September 22, 2008 Daniel J. Mitchell discusses government bailouts on the CBS “Early Show”

September 22, 2008 William Poole discusses government bailouts on Bloomberg Live.

September 22, 2008 William A. Niskanen discusses government bailouts of financial institutions on Bloomberg TV

September 22, 2008 Steve H. Hanke discusses government bailouts of financial institutions on Bloomberg Radio’s “On the Money”

September 19, 2008 Daniel J. Mitchell discusses government bailouts on Federal News Radio

September 18, 2008 Daniel J. Mitchell discusses the AIG bailout on KTAR’s “Ankarlo Mornings”

September 17, 2008 Daniel J. Mitchell discusses the AIG bailout on WTTG FOX 5

September 17, 2008 Daniel J. Mitchell discusses the AIG bailout on FOX’s “America’s Election HQ”

September 10, 2008 Daniel J. Mitchell discusses a proposed bailout for the auto industry on Marketplace Radio.

October 24, 2008 Gerald P. O’Driscoll Jr. discusses the fallout of the bailout on FOX Business Network’s “Cavuto”

October 15, 2008 Daniel J. Mitchell discusses the bailout on Federal News Radio

October 14, 2008 Daniel J. Mitchell discusses the financial crisis on CNN’s “American Morning”

October 14, 2008 Daniel J. Mitchell discusses the banking crisis on BBC World

October 14, 2008 Gerald P. O’Driscoll Jr. discusses the banking crisis on WBAL Radio. (Baltimore, MD)

October 13, 2008 Daniel J. Mitchell discusses the financial crisis on the FOX Business Network

October 9, 2008 Jim Powell discusses the economy on FOX Business

October 9, 2008 Daniel J. Mitchell discusses the current treasury plan on Reuters TV.

October 9, 2008 Daniel J. Mitchell discusses the bailout on the WIBA’s “Upfront w/Vicki McKenna” (Madison, WI)

October 2, 2008 Daniel J. Mitchell discusses the bailout bill on WRVA’s “Morning Show” (West Virginia)

October 1, 2008 Daniel J. Mitchell discusses the bailout plan on CNBC’s “On the Money.”

October 1, 2008 Daniel J. Mitchell discusses the bailout plan on CNBC’s “Power Lunch”

October 1, 2008 William Poole discusses the bailout on KMOX’s “The Charlie Brennan Show” (St. Louis, MO)

October 1, 2008 Daniel J. Mitchell discusses the failed bailout on WTOP Radio (Washington, D.C.)

Cato and the Bailouts: A Correction for the NY Times ‘Economix’ Blog is a post from Cato @ Liberty - Cato Institute Blog