Stephen Foley: A rare victory for US intervention
Saturday 04 June 2011
US Outlook: Every now and again I cuddle up with some old newspapers from 2008, just to remind myself I am not crazy.
The bailouts of Wall Street and the car industry are so loathed here in the US – and pitch me into so many arguments with friends, colleagues and acquaintances – that I like to immerse myself in the horrors of those few months after Lehman Brothers collapsed and the US economy was about to go into a depressionary tailspin. It was a sudden and rare lesson in how everything is connected to everything else, from the highest of high finance to metal-bashing in the American rust belt, to the wealth and wellbeing of every household in this country and beyond.
Given the public antipathy to the bailouts, President Barack Obama's victory party at a Chrysler factory in Ohio looked rather odd to the rest of the country yesterday (though the importance of the state to the presidential election explains why he went). The US government has agreed to sell its remaining 6 per cent stake in Chrysler to Fiat for $560m, which means that of the $12.5bn US taxpayers pumped into the company in 2008 and 2009, they will have got back $11.2bn. Or, the other way round, we lost $1.2bn.
The numbers don't come out great on General Motors, either. After selling most of its stake in an initial public offering last year, Treasury must now sell the remainder of its GM shares at an average of $53 apiece to break even on its $50bn bailout of the company. GM was trading just below $30 last night.
But these losses are tiny compared with the economic consequences of GM and Chrysler having gone bankruptcy suddenly amid the economic chaos of late 2008, pulled under by the collapse of their financial arms in the Wall Street panic, consumers' fear of the gathering recession and – yes – years of mismanagement and onerous pension obligations.
At least one million jobs were dependent on GM and the other bailed-out Detroit car-maker Chrysler, either directly or through a network of suppliers which could have been snuffed out one by one. Large swaths of the American Midwest are dependent on the industry for their economic wellbeing. The US government's involvement in propping up GM and Chrysler, before their bankruptcy and through it (don't forget – they did go through bankruptcy and their bondholders did have to eat some losses), just about kept the economy on the road. These modest losses are a tiny price to pay for a great victory for government intervention.
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