GM is Heading Towards Bankruptcy Yet Again

The state spent billions of tax victim dollars to keep General Motors (GM) from filing bankruptcy and it appears, unsurprisingly, that GM is heading for bankruptcy yet again:

Right now, the federal government owns 500,000,000 shares of GM, or about 26% of the company. It would need to get about $53.00/share for these to break even on the bailout, but the stock closed at only $20.21/share on Tuesday. This left the government holding $10.1 billion worth of stock, and sitting on an unrealized loss of $16.4 billion.

Right now, the government’s GM stock is worth about 39% less than it was on November 17, 2010, when the company went public at $33.00/share. However, during the intervening time, the Dow Jones Industrial Average has risen by almost 20%, so GM shares have lost 49% of their value relative to the Dow.

This is why bailouts are such a joke, they reward companies that misallocate resources. When a company allocates resources towards fulfilling the desires of consumers that business is rewarded with more resource, which are voluntarily given to them by consumers. When a company misallocates resources by putting them towards producing goods and services consumers don’t want that company doesn’t receive further resources and eventually fails. When you insert government into the mix you destroy the market feedback mechanism as companies are given additional resources even though they’ve failed to provide for consumer wants. If GM gets another bailout there will be even less motivation for them to fulfill consumer desires as they would be rewarded twice for failing to do so, and the government seems more than happy to deliver GM another bailout less it be embarrassed by the dismal failure that the bailout programs have been.