Wayne State auto taskforce hearings reveal much

In an unusual hearing by a congressional oversight panel held at the Wayne State University law school on Monday, a couple of interesting items about the bailout and subsequent bankruptcies of General Motors and Chrysler were revealed. The first was that the government would seek to sell off its equity interest slowly once those companies go public:

The government will not sell its entire 61% stake in General Motors Co. all at once next year when it begins to return the company to public investors, the head of President Barack Obama’s auto task force said Monday in Detroit.

“Success” after the government’s intervention “will be measured by whether taxpayers get their money back,” said Ron Bloom, senior adviser at the U.S. Treasury Department.

But selling such a large percentage of the company in a short period could push the stock price down and limit the return on taxpayers’ investment, which in GM’s case exceeds $30 billion.

This is exactly as we predicted weeks ago. The selling off of the government’s stake in both companies will have to be slow and deliberate to avoid dumping huge amounts of stock into the market all at once, driving down the value of that stock.

The other interesting item from the hearing was testimony from an expert on the costs of not bailing out the auto industry and just letting GM and Chrysler go to a liquidation sale instead.

Sean McAlinden, chief economist at the Center for Automotive Research in Ann Arbor, testified that doing nothing would have eliminated about 1.8 million jobs this year and next.

Under the current scenario, with both companies out of bankruptcy, McAlinden estimates 63,200 jobs will be lost this year and an additional 179,400 next year from automakers, suppliers and the ripple effect through lower retail and government spending.

CAR also found that the government-backed bankruptcies prevented $114 billion in lost wages and lower tax receipts in 2009 and 2010.

This is exactly why we wrote several weeks ago that the spending of tens of billions of dollars in government money was inevitable whether we bailed out the automakers or not. There was never a choice between spending that money or not spending it, the only question was whether we would spend it with some hope of getting it back or just pouring it down a rathole.

We could spend $70 or $80 billion on loans to help get GM and Chrysler back on their feet, exchanging those loans for equity that will hopefully allow us to repay those loans and give that money back to taxpayers, or we could let them liquidate — and lose an additional 1.6 million jobs, pull hundreds of billions of dollars out of the economy and out of local and state government coffers, incur the $29 billion cost of taking over the pensions for those companies and the tens of billions of dollars in expanded government services for those newly unemployed workers and see hundreds of thousands more homes in foreclosure because of the layoffs and loss of income. And the second option comes with no chance at all of recovering that money for taxpayers.