Calling With Another Update On That GM Investment

Hello, Mr. Webner.  It’s one of your friendly securities analysts at the Treasury Department.  Hot enough for you?  Ha, ha!

What?  Oh, no!

Yes, Mr. Webner.  It’s me again.  Time for you to get another update on that GM investment.  This time, I’ve got good news and bad news.  Which would you rather hear first?

The bad news, I suppose.

Well, I’m sorry to say that GM’s stock price has hit another new low.  GM has lost more than one-third of its market value since it went public less than two years ago.  We’re shocked.  We thought those great commercials with likable folks talking about how smart they were to buy Chevy Volts would really cause a boom in sales.

So, how much have we lost?

Between the plummeting value of our GM stock and the tax breaks we’ve given the company to try to help it recover from decades of mismanagement, bad decisions, and short-sighted labor contracts, we’re out $35 billion.

$35 billion?!?!  But I thought my Senator was boasting about what a smart move it was to bail out GM?

He’s saying it saved jobs, Mr. Webner.  They just happen to be jobs that have been heavily subsidized by your tax dollars.

Wait — you said you had bad news and good news.  What’s the good news?

Oh, yes!  Right now, it looks like President Obama, the Democrat-controlled Senate, and the Republican-controlled House won’t be able to agree on an extension of the Bush era tax cuts.  So, after the end of the year everyone’s taxes will probably increase, and we’ll have even more of your money to invest!

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Be Vewy Vewy Careful

This week the Senate will be debating a bill that would require the Treasury Department to identify countries whose currencies are under valued and then in turn order the Commerce department to impose duties on imports from such countries. Countries that hold down the value of their currency do so to give their exporters an edge over their global competitors. The bill has bi-partisan support and is backed by both Republicans and Democrats. Mitt Romney is in favor of such legislation while Speaker Boehner sounds as though he is against it.

The fact that the Congress is going in this direction is worrisome. A couple of weeks ago I finished a book called The Forgotten Man by Amity Shlaes who is a Libertarian. Ms Shlaes book details the history of our country from the Stock Market Crash in 1928 until the late 1930’s. Her basic premise is that government intervention kept us in a Depression during that time up until our involvement in WWII.

In 1928 the Republican platform included protectionism and a bill called Smoot – Hawley made its way quickly through Congress in an effort to protect American jobs from foreign competition 9sound familiar). The bill imposed tariffs on exports from other countries who in turn imposed tariffs on our exports.

Many economists at the time warned that such legislation may do the opposite of what the bill intended and cause more job loss. The unemployment rate went from 7% the year Smoot – Hawley was passed to 25% three years later and exports dropped 61% during the same time frame.

I am in agreement with Ms Shlaes and Speaker Boehner on this one – passage of the bill being debated would give those voting for it some political cover, but if history is any indication those voting for the bill may have the look that Elmer Fudd has on his face above !

Calling To Report On That GM Investment

“Mr. Webner, this is one of your securities analysts over at the Treasury Department calling to discuss the status of your investments.”

I beg your pardon?

“Yes, this is one of your analysts over at Treasury.  You’ll recall that we decided to invest $50 billion in tax dollars from you and other taxpayers in General Motors.”

Who is this, really?

“It’s the Treasury Department, Mr. Webner.  Don’t make me read your Social Security number over the phone.  I’m calling you today to report on the GM investment.  You see, we’ve decided to sell our holdings of GM stock this summer.”

Okay . . . so, how did the investment do?

“Mr. Webner, I’m very pleased to report that, if we sell at current prices, we’re likely to lose only about $11 billion.”

Wait a minute — did you say we are going to lose 11 billion dollars?!?

“Yes, that’s right.  It means we’ve only lost a bit over 20 percent of the investment!  Of course, prudence compels me to point out that the loss could be greater if the share prices fall.”

How is the stock doing, then?

“I’m sorry to say the current stock price has fallen to below the initial public offering price.”

Why?

“Well, Mr. Webner, have you been to the gas station lately?  With gas prices increasing every day, consumers surprisingly aren’t motivated to buy those huge GM pickup trucks.  And during the first part of this year, GM had to offer big sales incentives and rebates to get people to buy those quality cars that your tax dollars helped to manufacture.  Oh, and there’s been some management turnover, too.  Of course, gas prices could go down before summer, Mr. Webner.  And those Chevy Volts could start flying off the showroom floors.”

So, you are telling me that we are likely to lose even more than $11 billion unless gas prices go down and the Chevy Volt takes the country by storm?

“That’s about it, Mr. Webner.  Now, can I talk to you about our planned investments in green technology companies?”

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