American Elephants

Chrysler Celebrates, Obama Takes Credit, Taxpayers— Not So Much. by The Elephant's Child

Sergio Marchionne, CEO of Chrysler and Fiat, made the following statement today:

We received confirmation this morning…that Chrysler Group repaid, with interest, by wire transfer to the United States Treasury and by bank transfer to the Canadian government, every penny that had been loaned less than two years ago.

Victory dances, a statement from the President from Europe lauding the “tough decisions” he made to help the firm.  He made plans to visit a Chrysler plant in Ohio next week for a congratulatory photo-op. The Democratic National Committee predictably launched an ad campaign attacking those who opposed the bailouts, and saying that if the critics of the bailout had succeeded Detroit would have gone bankrupt.

Despite all the whoop-de-do, the Foundry blog at the Heritage Foundation notes:

But the pro-bailout jig is a bit misplaced. First, despite the congratulatory statements, Chrysler had hardly paid back its debt to the American taxpayer. Notice the careful wording in the Marchionne statement: Every penny that had been loaned “less than two years ago” has been repaid. That conveniently leaves out some $3.5 billion loaned to Chrysler more than two years ago. That includes $1.9 billion provided to Chrysler on May 1, 2009, as well as another $1.9 provided to Chrysler in late 2008.

Some  of this will get paid back when the government sells the remainder of it 6.6 percent of stock in Chrysler(supposedly this summer) but this will not come close to putting taxpayers in the black.  But this doesn’t count other subsidies for Chrysler, and there’s a request for a new $3.5 billion loan from the Department of Energy to fund retooling of plants to build more energy-efficient cars.

This is the enormous problem with the Obama Administration. On the one hand, he wants Chrysler to succeed, on the other he loads them up with demands for more energy-efficient cars (not, as they can figure out how to do it, or not when the market supports it, but right now!). As he gives subsidies and bailouts with one hand, he imposes extra costs with favors to unions and his green-economy fantasy. You could call it trying to have your cake and eating it too.

The bailouts did not prevent Chrysler and GM from going bankrupt — they did go bankrupt. Obama does get credit for forcing them into bankruptcy, but not into the bankruptcy court that has been so successful.  Bankruptcy came with a massive infusion of taxpayer cash, government ownership of the two firms, and an illegal dumping of bondholders interests in favor of politically connected unions.

Bailouts must not become a standard tool of economic policy.  Incentives matter, and firms and investors must face up to the consequences of their own decisions. The public’s view of the bailouts has been largely negative, and the public is correct.  Bailout supporters are attempting to change that perception in order to add bailouts  to the economic toolbox. Bad idea. We need far fewer interventions by Washington in the nation’s economy. Washington just doesn’t do it very well.

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