Take heart, taxpayers. Your retirement savings may be a fraction of what they were, you're defaulting on mortgages in ever-growing numbers and more of you are unemployed with each passing day. But look on the bright side. In addition to taking over the country's largest insurance company and its two biggest sources of mortgage financing, not to mention holding a controlling interest in the world's largest bank, you're poised to acquire more than half of what used to be the world's most popular automaker. Good times!
In a notice filed with the Securities and Exchange Commission on Thursday, General Motors laid out a plan, backed by the Treasury Department, to shrink the company's crushing debt load by paying off bondholders with shares of newly issued stock. The largest of the company's lenders is the U.S. government, which is expected to extend upward of $50 billion to GM -- about twice as much as the private sector. Under the plan, which some bondholders are likely to contest in Bankruptcy Court, GM would give U.S. and Canadian taxpayers 72.5% of the reorganized company's common shares and $2.5 billion in preferred stock while continuing to owe them $8 billion.
Assuming the plan goes through, taxpayers will add GM's flailing business to a portfolio that also boasts sizable holdings in Chrysler (which is soon to emerge from bankruptcy), American International Group, Freddie Mac, Fannie Mae, Citibank, Bank of America and more than 500 other banks. Many of these investments will actually yield a return on the taxpayers' investment, although the intent was simply to prevent the recession from getting even worse.
Administration officials say they're reluctant investors in GM, just as they were with the financial institutions they deemed too big to fail. For the automaker to have any chance of succeeding in the long run, it has to prune its operations significantly and bring its costs per vehicle into line with its competition. It's in the process of doing those things -- shedding some brands, winning union concessions, eliminating scores of dealerships, reducing the cost of retirement benefits and converting debt to equity. But just as taxpayers are reluctant investors, GM would be far better off with no government ownership. There are just too many conflicts between what the country's political leaders want to accomplish and GM's need to make a profit. The feds' support has been crucial to keeping GM running while it struggles to reorganize along the lines demanded by the Obama administration. But once it gets through this process, the best thing the administration can do for the company is to sell it to someone else.