The Other GM Bailout

[dogtowner]

yet another reason to let the NORMAL Chapter 11 process do it's job

I wonder how many other rocks need to be turned over ? This thing stinks worse by the day.

President Obama appeared at a United Auto Workers tent revival meeting Tuesday, and he made several notable claims. Critics of the Detroit bailout of 2008-09 are motivated, apparently, by their antipathy to American workers. The alternative to a government rescue was letting the entire auto industry "die." But one particular claim stood out. Mr. Obama said the bailouts succeeded not "because of anything the government did."

The lacuna in this account is the $81.8 billion that taxpayers surrendered to General Motors and Chrysler, and we detailed the many other costs in a February 25 editorial "Halftime in Detroit." As it happens, however, we missed one big thing the government did that deserves more attention: GM's tax gift courtesy of the U.S. Treasury.

Corporations in the red, as GM was for years, are allowed to carry forward net operating losses that reduce their future tax liability when they are making money. GM had accumulated about $45 billion in such profit-shielding chits by 2008, with a book value of about $18 billion. When companies enter bankruptcy, carry-forwards disappear or are greatly limited under IRS section 382, which kicks in when ownership changes by more than 50 percentage points.

The point is to prevent companies from buying assets solely for tax arbitrage or tax avoidance. But starting in 2009, Treasury began to issue regulatory "notices" that suspend this law when it comes to Treasury-owned stock. The provisions also apply to AIG and Citigroup.

So when GM entered bankruptcy in June 2009, the government swapped the debt the auto maker owed it as a creditor for 61% of "new GM," while handing another chunk to the United Auto Workers. But new GM also inherited the accumulated net operating losses that would have turned into a pumpkin in normal bankruptcy.

In a 2011 working paper, J. Mark Ramseyer of Harvard and Eric Rasmusen of Indiana University argue that by manipulating corporate tax rules by fiat, "Treasury gave the firm (and its owners, including the UAW) $18 billion more in assets." Thus a Democratic Administration gave "a massive tax benefit to one of the party's biggest supporters." The other problem is that the move put Ford and GM's other competitors at a disadvantage, as bailouts always do.

 

[GenSeneca]

Corrupt: guilty of dishonest practices, as bribery; lacking integrity; crooked.​

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Crony capitalism is a term describing an economy in which success in business depends on close relationships between business people and government officials. It may be exhibited by favoritism in the distribution of legal permits, government grants, special tax breaks, and so forth.​

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Crony capitalism is believed to arise when political cronyism spills over into the business world; self-serving friendships and family ties between businessmen and the government influence the economy and society to the extent that it corrupts public-serving economic and political ideals.​

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Under Market socialism, or any other mixed economy, the political sector is more powerful and possesses more influence compared to a free-market system where the government sector remains small and therefore provide less opportunities for businesses to seek political favors. The larger the government budget and the more the economy is regulated, the more opportunities for cronyism exists.​

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Such practices are wrongly associated with Capitalism despite the fact that such practices are nearly impossible, and completely illegal, under a Free Market-Capitalist system.

 

[dogtowner]

Corrupt: guilty of dishonest practices, as bribery; lacking integrity; crooked.​

​

Crony capitalism is a term describing an economy in which success in business depends on close relationships between business people and government officials. It may be exhibited by favoritism in the distribution of legal permits, government grants, special tax breaks, and so forth.​

​

Crony capitalism is believed to arise when political cronyism spills over into the business world; self-serving friendships and family ties between businessmen and the government influence the economy and society to the extent that it corrupts public-serving economic and political ideals.​

​

Under Market socialism, or any other mixed economy, the political sector is more powerful and possesses more influence compared to a free-market system where the government sector remains small and therefore provide less opportunities for businesses to seek political favors. The larger the government budget and the more the economy is regulated, the more opportunities for cronyism exists.​

​

Such practices are wrongly associated with Capitalism despite the fact that such practices are nearly impossible, and completely illegal, under a Free Market-Capitalist system.

Not so sure its legal under our mess of a system.

 

[Gipper]

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Under Market socialism, or any other mixed economy, the political sector is more powerful and possesses more influence compared to a free-market system where the government sector remains small and therefore provide less opportunities for businesses to seek political favors. The larger the government budget and the more the economy is regulated, the more opportunities for cronyism exists.​

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That quote is excellent and self evident. But, many on the Left are completely unaware that the Socialism they so desire, is nothing short of evil and most unfair. They complain about crony capitalism, not realizing that it is an aspect of Socialism.

How can they be so ignorant?