Hacker News Reader

Comment by bcoates | Hacker News Reader

Huh, and I though GM was saved by the government giving them $50 billon dollars to play with, of which they managed to lose $10 billion. I guess the success criteria was that they didn't lose all of it?

http://www.nbcnews.com/business/u-s-reports-9-7-billion-loss...

View on HN

Yea this guy really trivializes the fact that GM got a $50 billion dollar loan on incredibly favorable terms from the USG when the banking industry was reeling. No matter how brilliant his plan was it would have all amounted to nothing had they not gotten that money, so congress/the Obama administration (and even the Bush administration) can take all the credit they want.

That's why GM means "government motors", then again Tesla is no better. Maybe it's time for America to get out of the auto manufacturing business altogether, just like Britain did. We do still have factories here mind; they're just owned by people like Honda.

I'd sort of agree but when you stop producing vehicles domestically and rely on foreign manufacturers building cars in your country you lose a lot of the surrounding infrastructure since much of the design and testing is done abroad.

The ability to produce a car and similar heavy-industry type production is a strategic asset (which is I think one reason why the French government has been so supportive of it's native car industry for so many years even when French cars didn't sell well outside of France).

It's a hard balance, support an unprofitable industry to protect a capacity you might one day need.

If I recall correctly the US has(had?) a policy where american flagged cargo ships that mostly traded in and around America had to be built in America, this made them much more expensive but kept the major ship yards in business as it was seen as a bad thing if that capacity was lost.

GM did not lose that money, that was the money lost on government stock sales.

The government chose to sell its shares underwater for political reasons. Americans, unlike Europeans and Canadians, don't long tolerate partially nationalized companies, even if it makes them money.

The $10b loss is probably a lot smaller than the impact on the deficit if GM were allowed to go bankrupt. Keep in mind that most US deficits these past few years were not due to the stimulus, TARP, or any Obama legislation - they were due to the automatic stabilizers (medicaid, EI, food stamps, etc.) that have been law for decades, and skyrocketed with the financial crisis due to the vast numbers of people (over 1.5% of the entire US population) dropping out of the labour force between late 2008 and late 2009. It's up to 2.8% now.

there is no such thing as "underwater" when it comes to stocks. In a big liquid market, like the stock market for big companies, the price reflects the true value.

Even for big companies, the stock market isn't always liquid enough over the short term to reflect the true value. In March of 2008, a lot of big company stocks were selling for well under their expected long-term value because there simply weren't enough buyers with enough liquidity to keep up with the selling frenzy.

Temporary spikes in supply (or demand) can drastically distort the value of any asset.

[EDIT: clarity]

But that was at the height of the financial crisis, that doesn't apply to gm stock today

It doesn't apply to the amount of gm stock an individual investor might hold, but it does apply to the amount of gm stock the government holds. Putting 26% of the company on the market would qualify as a spike in supply, and would distort the price.

I didn't see any price spike

I didn't say "price spike", I said "distort the price". There is no question that the government's large stake in GM -- and their desire to unload it over the next 6 months or so -- means that there is some degree of "oversupply" of GM stock. Investors, whether buyers or sellers, have to factor that into their decisions regarding GM stock.

I'm not convinced that the market for GM stock is sufficiently liquid to mitigate that.

underwater: the current market price for an asset you hold is less than the price you paid, or have the option to pay

Did you forget to count the wars?

The obvious success metric that springs to my mind is whether the outcome was positive for the United States in comparison to our best estimate of what would have happened if GM had ceased as a going concern because the government hadn't given them that money "to play with."

Reply on news.ycombinator.com