Taxpayers lost Obama’s bailout bet
“I placed my bet on the American worker,” President Obama told the United Auto Workers conference in Washington, D.C., Tuesday. “And now, three years later, that bet is paying off.”
Obama is right about one thing, his bet is paying off … for him and the UAW. But not for American taxpayers.
The first thing to remember about Obama’s auto bailout is that it was not the first time the federal government came to Detroit’s rescue. In 1979, President Jimmy Carter pushed through the first bailout of Chrysler at a bargain basement price of just $1.5 billion. Almost 30 years later, General Motors and Chrysler would need another $85 billion to “save” the industry again.
But unlike the 1979 bailout, which Chrysler did finally pay back, the U.S. Treasury admitted last month that taxpayers will never see at least $24.77 billion of their $85 billion back this time around. And that doesn’t include the $13 billion in tax benefits that General Motors will receive over the next decade. Add those foregone revenues in, and the bottom line bailout cost is closer to $40 billion.
So what did U.S. taxpayers get for their $40 billion? Not much. President Obama claims his intervention saved 1 million jobs, but that claim is completely unverifiable. It assumes that if General Motor and Chrysler had gone through Chapter 11 bankruptcies without government interference, that all of their employees would have been immediately fired. That’s just not true.
Reality would have been much different. Brand names and patents could have been put to use by other carmakers. Factories could have been sold and re-purposed. Other carmakers like Ford, Nissan, and Toyota would have had to hire more workers to meet the shift in automobile demand.
Obama’s preference for taxpayer bailouts, rather than orderly bankruptcies, did lasting damage to the rule of law generally and to the U.S. bankruptcy system in particular. A linchpin of U.S. bankruptcy law is the absolute priority of secured creditors in the bankruptcy process. If creditors aren’t assured they will get their money back first in the event of a bankruptcy, lenders will only assist troubled companies at crippling interest rates.
President Obama violated this rule, forcing Chrysler’s secured creditors to take 29 cents on the dollar. This was simply an unprecedented violation of contract law. And a quick look at who Obama did prioritize in the Chrysler bankruptcy, reveals the true reason for Obama’s intervention.
One would expect that the president who told the Occupy Wall Street movement, “You are the reason I ran for office,” would stick creditors with pennies on the dollar. But what about Chrysler’s workers? Well, if you were a member of the United Auto Workers union you got 100 percent of your pension and health benefits. But if you were a non-union employee you only got about 30 percent of your pension and none of your health benefits.
Obama’s auto bailout “saved” the U.S. auto industry at the expense of taxpayers and the rule of law, but it was a success at rewarding his political allies.