During his speech before the Democratic National Convention last week, Barack Obama offered a gem to rival his pledge from his 2008 campaign “moment when the rise of the oceans began to slow and the planet began to heal.” In his words: “We reinvented a dying auto industry that’s back on top of the world.”
His statement must come as news to investors, who have watched General Motors’s stock price fall steadily since its return to public trading in late 2010. It must come as a surprise to Ford, an American car manufacturer who received no government bailout and now has to compete against an Italian Chrysler that did. And it comes as shock to political observers such as myself, who never would have thought the president would run as pro-bailout, let alone lead off this strategy by taking ownership of a bailout that failed.
I’ve written before about the inappropriateness of “bailout” as a term to describe the government’s loans to the banking industry. A bailout implies a net transfer of funds from public to private hands — but the relief program was not about covering the losses of insolvent businesses, it was about loaning money to illiquid financial institutions, made illiquid by a global financial crisis. In theory, the government should actually come out ahead on such interventions, and in practice this has been the case, with Troubled Asset Relief Program making its money back plus interest.
But in the case of automakers, bailout is the appropriate term. Neither GM nor Chrysler were merely illiquid; they were insolvent, bankrupt, made so primarily by their ruinous labor agreement with the United Auto Workers union. There was never any realistic hope of taxpayer’s money being returned — even after the government forced tens of billions of dollars of losses on bondholders (the rightful owners of GM and Chrysler’s assets), and even after the administration waived tens of billions of dollars of tax obligations, the bailout proper is still set to lose tens of billions of dollars. It’s a failure of cosmic proportions.
The claim made at the time by promoters of the bailout was that the loss of taxpayer money was a necessary evil to save the jobs of U.S. factory workers. Even then, this was a shaky defense. If GM and Chrysler went through bankruptcy proceedings, their factories were unlikely to sit idle. Creditors, interested in getting their money back, would quickly reopen the plants or sell them to someone who would. Today, with the benefit of hindsight, we can see that the perils of bankruptcy proceedings are moot. With the UAW’s ridiculous contracts still in place, the company’s inept management virtually untouched, and the “re-invention” of GM consisting solely of the Chevy Volt — a car that Reuters estimates loses the company almost $50,000 per unit sold — it is clear that the massive infusion of taxpayer and bondholder money into GM has only delayed the inevitable. Bankruptcy will come, and the time bought has been of little benefit to the American worker; GM has added only 4,500 jobs since the bailout.
The true reason behind Obama’s massive political favoritism toward these corporations is easy to guess. Normal bankruptcy proceedings would have ended the UAW’s parasitic hold on its host companies. As the midterm elections approached, and with the very real possibility that Democratic losses would mean the end of the president’s push for healthcare reform, Obama decided that he needed the votes of union members more than the nation needed its tax dollars. So he gave the union a way to retain its status quo, in return for its money and manpower. He even sweetened the deal by handing the UAW a 20 percent ownership of the resurrected GM. And why not? If you’re going to commit a robbery, there’s no point in leaving money in the register.
As the presidential campaign enters the post-summer stretch, there’s no doubt that the UAW will once again pledge their fealty to the man who gave them everything, returning their ill-gotten money back to Obama in the form of campaign contributions, and manning his operation with their members. It’s a matter of survival for them — in two years’ time, when GM is drowning and the midterms are near, they’ll need a man in the Oval Office who will pour another bucket of other taxpayers’ dollars into their trough. What Obama must hope for is that voters don’t realize it is a matter of survival for them as well; in the words of Alexis de Tocqueville, “The American Republic will endure until the day Congress discovers that it can bribe the public with the public’s money.”