The Swine Flu Is Already Infecting American Business

The Washington Post reported today that the Treasury Department has created a plan to take a 50-percent ownership stake in General Motors; however, bondholders, who are critical ownership stakeholders, are recalcitrant.  The other major decisionmaker is the United Autoworkers (UAW).  An analysis of the plan follows.

US Government Wants to Partially [sic] Nationalize GM

Below I list the three major ownership constituencies of GM, the capitalization invested or owed by each party*, and the resulting ownership stake the government will "grant" each party.  (*Note that, while the UAW has not invested directly in GM, it is owed $20 billion for a health fund for retired workers.  This trust is roughly equivalent to an ownership stake.)

You don't have to have solved Fermat's Last Theorum to do the math:  Bondholders have invested almost fifty percent more than the union, yet the union will own almost four times the amount of GM as the bondholders will.  Bondholders have invested more than fifty percent than the federal government has, yet the government will own more than five times as much GM as the bondholders will.

So, in keeping with the Statist, worker-friendly, business-unfriendly attitude of the Obama Administration, this much is clear:  The government takes care of itself and the union, and leaves bondholders out to dry.

The bondholders still have until May 8th to agree to this plan, or else GM will almost assuredly have to declare Chapter 11 bankruptcy, under which its assets will be sold off for a fraction of their sticker price.  Nevertheless, the bondholders believe that bankruptcy might present them with the best salvage opportunity.

This formula does not bode well for "kick-starting" the economy, because "bondholders" will be a dying breed -- potential investors will treat future bond offerings like the plague.  Not exactly the best way to encourage investment.

The Fatuity of the Supporters of the Gov't Nationalization Plan

And, again, we see the so-called mainstream media acting as the government's press agency.    The Washington Post story buried the details of the government's plan in the middle of the story, and did not even provide a simple analysis of the relative winners and losers of the plan.

Defenders of the government plan offered up biased, feeble support that was rife with errors of principle and purpose.  The Washington Post reported the Obama Administration's (unattributed, of course) defense of the union's proposed ownership stake:

"Administration officials argued that the UAW was making other sacrifices in wages and benefits, and that the company could not function without workers."

Actually, Unnamed Administration Officials, GM can function just fine without workers -- without UAW workers, that is.  Plenty of foreign automakers have plants operating in the U.S. without UAW workers.  The big difference between their plants and every UAW-dominated plant, of course, is that the non-unionized plants are ... profitable.

The very next paragraph showed how little Representative Gary Peters (D-MI) understands basic business concepts:

"Our state has been hit hard enough already," Rep. Gary Peters, (D-Mich.) said in a statement. "The purpose of providing General Motors taxpayer funded loans was not just to keep GM in business, but to preserve American jobs. . . . We all know that GM must make cutbacks, but preserving as many American jobs as possible must be the primary goal of all restructuring efforts."   [emphasis mine]

No, Congressman Peters, the primary goal of "all restructuring efforts" is to return GM to profitability, so it becomes a going concern -- without the need for continued taxpayer welfare to prop up GM's fetid business model.  "Preserving as many ... jobs as possible" is exactly what GM (and Chrysler and Ford, for that matter) has been doing for years.  That business practice, without buyer demand to soak up the supply of cars, led GM to bleed itself dry of cash.

And, to top it off, the Washington Post reports the infamous politician's trick of saying exactly what the public wants to hear, shamelessly ignoring facts that dispute his assertions:

"But the Obama administration said yesterday that it would not seek any seats on the company's board and vowed to take a hands-off approach to GM management. "This administration and this government have no desire to run an auto company on a day-to-day basis," said White House press secretary Robert Gibbs."  [emphasis mine]

How quickly Mr. Gibbs (conveniently) forgets.  Not one month ago, the Obama Administration forced out Chief Executive Officer Rick Wagoner because officials felt he was unable to lead GM to success.

And, does anyone believe that the Administration will stand by and let GM continue to build SUVs and pickups (its only profitable vehicles)?  The Administration merely needs to assert that it must intervene in GM's operations in order to act as a "prudent steward" of the taxpayers' money.  It can then claim the high moral ground, and proceed to implement the Administration's wishes -- not the wishes of GM.  Or the taxpayers.

Not quite 100 days into office, President Obama is doing a fine job of putting big business under the thumb of the State.  The potential long-term damage is clear.  In addition to investment in American industry potentially being snuffed out, big business now understands that the once-unthinkable step of the federal government injecting itself into (or making) corporations' financial, strategic, and structural decisions is not only real, but commonplace.  (For any doubters, see: entire investment and commercial banking sector.  See: Chrysler.)

And, for anyone who thinks that GM will be the last company in which the Administration wants to tamper, I have a blank sheet of paper entitled "The Government's Guide to Better Business Practices" to sell you.