The Financial Bailout Fiasco

General Motors Corp. became the second-largest industrial bankruptcy in history Monday as it filed its landmark case, with President Barack Obama predicting the humbled corporate titan will emerge from Chapter 11 "a stronger and more competitive" company within months. ....
The government-orchestrated shrinkage will cost taxpayers $30 billion, on top of $20 billion in U.S. funds already put into the company. In exchange, the U.S. will own 60% of the new GM. In all, the rescue of the car industry could cost taxpayers close to $100 billion. .....
GM -- which hasn't made a profit since 2004 -- declared in its filing that it had $172 billion in debt and $82 billion in assets.

In a reverse position twist liberal economist and former Clinton labor secretary Robert Reich slams the GM bailout for being a waste that will ultimately prove pointless:
But why would US taxpayers want to own today’s GM?
Surely not because the shares promise a high return when the economy turns up. GM has been on a downward slide for years. In the 1960s, consumer advocate Ralph Nader revealed its cars were unsafe. In the 1970s, Middle East oil producers showed its cars were uneconomic. In the 1980s, Japanese auto makers exposed them as unreliable and costly. Many younger Americans have never bought a GM car and would not think of doing so. Given this record, it seems doubtful that taxpayers will even be repaid our $60 billion. But getting repaid cannot be the main goal of the bail-out. Presumably, the reason is to serve some larger public purpose. But the goal is not obvious.

It cannot be to preserve GM jobs, because the US Treasury has signaled GM must slim to get the cash. The company has only slightly more than 60,000 Americans today (83,000 around the world), and plans to shut half-a-dozen factories and sack at least 20,000 more U.S. workers this year. It has already culled its dealership network. Plans call for laying off another 18,000 U.S. workers by the end of 2010.

The purpose cannot be to create a new, lean, debt-free company that might one day turn a profit. That is what the private sector is supposed to achieve on its own and what a reorganization under bankruptcy would do.

Nor is the purpose of the bail-out to create a new generation of fuel-efficient cars. Congress has already given auto makers money to do this. Besides, the Treasury has said it has no interest in being an active investor or telling the industry what cars to make.

The real answer is clear: it's to slow the economic decline. At a time when the financial and economic system rests at a particularly precarious state, we've decided that it's better to just keep a zombie firm running for the stake of slow stability, rather than risk the shock to the system of an out-and-out liquidation and its attendant follow-on effects. This should be pretty indisputable.

http://online.wsj.com/article/SB124385428627671889.html
http://www.businessinsider.com/robert-reich-the-gm-bailout-is-a-waste-we...