GM

Failures of Auto Bailouts Hidden by Deceptive Accounting and Bogus Jobs Figures

by Hans Bader on June 7, 2011

in Bailout Watch, Economy, Employment, Stimulus to Nowhere, Trade

Mounting evidence shows that the auto bailouts weren’t worth it. They have been far more costly, and less successful, than claimed, as even liberal commentators now have admitted. The Washington Post fact-checker criticizes President Obama’s phony accounting on the auto industry bailout: “What we found is one of the most misleading collections of assertions we have seen in a short presidential speech. Virtually every claim by the president regarding the auto industry needs an asterisk, just like the fine print in that too-good-to-be-true car loan.”

Obama cites various figures of jobs allegedly saved through the bailout. But he’s playing deceptive numbers games that take credit for jobs actually created by foreign car manufacturers that didn’t participate in the bailout. As the Washington Post’s Charles Lane earlier noted, Obama’s jobs figures cite jobs created by the foreign competitors of GM and Chrysler, and their competitors’ auto dealers, including “not only the Detroit 3, but also all of the plants operated by foreign car makers in the U.S., the entire supply chain and all car dealerships around the country!”

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Even Liberal Washington Post Casts Doubt on Auto Bailouts

by Hans Bader on June 3, 2011

in Bailout Watch, Deregulate to Stimulate, Economy, Employment

“Only 16 percent of executives in the auto industry” support the Chrysler bailout, according to the Washington Post’s editorial today. I think the bailout was a bad idea, for the reasons I list in my own commentary at this link, where I also chronicle how the Obama administration has deceived the public about the cost and consequences of the bailouts, and disseminated misleading claims by GM about allegedly repaying taxpayers.

As the Washington Post editorial board, which has not endorsed a Republican for president since 1952, noted, the bailout sent a harmful “message” that the automakers are “too big to fail.” And the bailouts might not have been necessary to save most auto jobs, since even “If GM and Chrysler had failed, their profitable parts would, eventually, have been bought up and put to work by others … expanding production and hiring workers in the process. Government dollars spent propping up the two automakers might have created jobs elsewhere.”

Even if a bailout had been a good idea, the Obama administration did not handle its execution well. As the Post notes, it is questionable whether having “decided to aid the industry, the administration chose the best way of doing so. The administration … did not press the United Auto Workers, its political ally, for even deeper labor cost reductions” needed to maximize the automakers’ long-run chances of survival. Moreover, bailing out Chrysler was harmful to GM, since “propping up Chrysler would saddle GM with additional competition, thus complicating survival for the larger, stronger company.”

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Temporarily Buoyed by Japanese Earthquake, General Motors Looks for Profit Overseas

by Hans Bader on May 14, 2011

in Bailout Watch, Economy, International, Trade

“GM sees China as a road to profit,” reports the Washington Post today. “GM last year sold more cars in China than in the United States,” ranging from “high-end Buicks” to “low-end Chevrolets.” It’s good that GM is expanding its markets overseas, because its current share of the U.S. auto market may not last.

Even GM’s own shareholders seem to recognize that, and the fact that its recent profits may only be temporary. As Mickey Kaus noted recently in the Daily Caller, General Motors’ “sales and prices are up recently in part only because competing Japanese car suppliers have been crippled by the earthquake and tsunami. GM’s stock fell today and is still below the initial IPO price” (that is, below the price of the stock when it was sold to shareholders by the U.S. government).

Before that, GM’s finances were temporarily buoyed by bad PR regarding Toyota’s alleged safety defects in its cars, which turned out to be largely bogus. (The Toyota crashes turned out to have been caused by driver error, not manufacturing defects).

These setbacks for Toyota temporarily drove buyers away from Toyota to GM, artificially propping up GM’s profitability. But devastating earthquakes like the one that hit Japan occur there only once or twice a century, and can’t keep GM profitable in the long-run.

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Obama Includes Toyota, Hyundai and Kia in 75,000 Jobs “Created” by GM Bailout

by John Berlau on November 23, 2010 · 1 comment

in Bailout Watch, Economy, Legal, Mobility, Odds & Ends, Politics as Usual, Property Rights, Regulation, Sanctimony, Trade, Zeitgeist

This post was coauthored by CEI Research Associate Andrew Kwiatkowski

As we write, President Obama and Vice President Biden are doing a victory lap around a Chrysler plant in Kokomo, Indiana, in the wake of last week’s successful initial public offering of General Motors. They will likely rattle off a litany of positive statistics that they and an adoring audience will attempt to attribute to the $82 billion bailout of Chrysler and GM.

But the figures the president has cited, and will likely cite today, of jobs added to the auto industry over the past year include jobs at Toyota, Hyundai, Kia and other foreign automakers with U.S. plants — job growth at nonunion plants that can hardly be attributed to the bailout of the domestic companies.

Since last Thursday’s IPO, prominent news outlets have erroneously reported that Chrysler and GM have added 75,000 jobs since the bailout. National Public Radio’s Mara Liasson reported that Obama “said that since GM and Chrysler have emerged from bankruptcy, they’ve created more than 75,000 new jobs.” A story on CNN.com similarly states, “He said GM — with fellow Michigan-based auto giants Ford and Chrysler — have created more than 75,000 jobs in recent months.”

But if you listen closely, this is not exactly what the President says, even though he probably doesn’t mind being misquoted in this instance. In fact, his statement almost lures readers into making this error. In one sentence he speaks of rescuing GM and Chrysler, yet in the same breath cites job growth figures for the entire automotive sector. Obama said Thursday, “Since GM and Chrysler emerged from bankruptcy, the industry [emphasis added] has created more than 75,000 new jobs.”

Just what did the president mean by “the industry?” Here’s the rub. An earlier White House “fact sheet” touting this job growth cited the Department of Labor’s Bureau of Labor Statistics (BLS). And indeed, if one were to look at BLS’s industry category of “motor vehicles and parts” and measure from its low point in May 2009, when there were 626,000 jobs, to July 2010, when 705,000 jobs, this would be a growth of 79,000 (see the figures on the BLS chart here). The number fell in August to 684,000, and the project number for October is only slightly higher, but that’s still growth of about 60,000, and I’ll cut the White House some slack.

The problem for Obama is, though, whether we’re talking about 60,000 or 80,000 additional jobs, this figure includes U.S. jobs created by all manufacturers — foreign and domestic. As Sam Foster wrote in the Daily Caller, “That means Toyota jobs, Hyundai jobs, Ford jobs or any other job creation from an automaker so long as they were residing in America.”

And it is of course very good news, as well as a tribute to the quality of America’s labor force, that foreign auto and auto parts makers want to hire here. The trend seems to be growing, as BMW recently announced it would hire 1000 new workers at its plant in South Carolina. (Amazingly, Ralph Nader is complaining about this, because the $15-per-hour wage is less than what workers are paid in BMW’s native Germany!)

But it is very difficult to attribute this new hiring by foreign firms to the U.S. government’s bailout and takeover of our domestic dinosaurs. A plausible argument could be made that Ford, which wasn’t directly bailed out, was helped by the bailout assistance to Detroit suppliers. No such assertion can be made, however, for foreign global automakers that buy and sell all over the world. Plus, it goes against the “we’re number one” theme that Obama seems to be stressing in Kokomo on behalf of the bailed-out automakers.

In fact, despite the $82 billion from taxpayers and despite GM’s successful IPO, a look at GM and Chrysler alone still shows a huge net job loss from the bankruptcy. And this does not even count the losses from the rapid closure of car dealers, as well as the likely loss of jobs due to the higher cost of capital as a result of the disparate treatment of “old GM” bondholders in the bankruptcy in favor of the United Auto Workers.

Let’s go through the dismal job numbers. In the one area of White House “fact sheet” that discussed jobs specific to the Big 3, it projects that “in total, the big three will have added as many as 11,000 new jobs before the end of 2010.”  But according the book Overhaul by Steven Rattner, one of the Wall Street “whiz kids” who designed the automaker bankruptcy on the Obama administration’s “Team Auto,” GM and Chrysler shed almost 34,000 jobs during bankruptcy. So that’s still 23,000 jobs to break even.

And that’s not including the jobs that were shed in the hyper-quick dealership closings. Some dealers would have and should have been closed in a normal bankruptcy, but Rattner and Team Auto forced 25 percent of GM and Chrysler dealers to close within less than four months.

The National Auto Dealers Association projected that 110,000 jobs would be axed, resulting a loss in total compensation of $1oo million. The automakers challenged these figures as too high, but respected special inspector general for Neil Barofsky agreed that “tens of thousands of dealership jobs were immediately put in jeopardy” by the “rapid pace” of dealer closings.

In his report, Barofsky also faulted the administration for not preparing a formal “cost savings estimate” before closing the dealers. Jobs were put at risk, Barofsky wrote, without “any explicit cost savings to the manufacturers in mind.”

And then there are the jobs not created and businesses not opened because of the likely increase in the cost of capital from the shabby treatment of bondholders. The Obama administration designed a restructuring that disregarded two centuries of bankruptcy precedent to massively favor the United Auto Workers over bondholders, many of whom were middle-class retirees served by pension funds.

This abrogation of contracts, prominent scholars say, could discourage lenders from financing businesses due to fear of future politicized bankruptcies. As CEI adjunct fellow Todd Zywicki, professor of law at George Mason University, eloquently put it in a Wall Street Journal op-ed: “By stepping over the bright line between the rule of law and the arbitrary behavior of men, President Obama may have created a thousand new failing businesses. That is, businesses that might have received financing before but that now will not, since lenders face the potential of future government confiscation.”

Photo Credit: Zach K.’s Flickr Photostream

GM IPO Raises Billions, But Company Faces Hidden Challenges; Bailout Still Not Repaid

by Hans Bader on November 20, 2010 · 2 comments

in Bailout Watch, Economy, Energy, Labor, Legal, Regulation

General Motors raised more than $20 billion in an initial public offering (IPO) this week, selling millions of shares owned by the federal government, and reducing the government’s ownership of GM from 61 percent to 33 percent.

GM stock is worth money partly because its government ownership stake allows it to claim up to $45 billion in tax savings that it would otherwise have had to forfeit as a result of its bankruptcy. GM is also receiving lots of taxpayer subsidies for its Chevy Volt, despite recent revelations that it lied about that car, which it was trumpeting in a “publicity stunt” to curry favor with politicians crusading against global warming.

GM still owes taxpayers at least $29.4 billion, and its finance arm owes taxpayers an additional $14.6 billion. In a sense, taxpayers lost money on the sale. (They got at least $9 billion less for the stock that was sold in last week’s IPO than they originally paid for that stock.)

Slate’s Mickey Kaus, who reluctantly supported the auto bailouts, thinks that people who bought GM stock were “suckers,” since GM faces hidden perils, still has too much red tape and inefficiency, lacks “effective internal controls,” and is the beneficiary of accounting gimmicks and unrealistic assumptions about its future market share.

John Berlau, who studies financial markets at CEI, had a much more grim assessment of the GM bailout and its IPO.

Earlier, GM lied about whether it had paid back taxpayers for its bailout, triggering an FTC complaint by CEI.

Image credit: hanneorla’s flickr photostream.

GM IPO Date Set for Tomorrow: What’s Good for New GM is Bad for the Rest of America

by John Berlau on November 17, 2010 · 7 comments

in Bailout Watch, Economy, Labor, Legal, Property Rights, Stimulus to Nowhere

In his 1953 confirmation hearing for Secretary of Defense in the incoming Eisenhower administration, former General Motors CEO Charles “Engine Charlie” Wilson was asked how he would handle conflicts of interests in the Defense Department’s dealings with his old firm. Wilson replied that “for years I thought that what was good for our country was good for General Motors, and vice versa.”

For decades, Wilson’s comment — misquoted as “What’s good for General Motors is good for the country” – has been paraded by liberals as an example of conservatives putting the concerns of a giant corporation ahead of those of the rest of America.

But since GM’s multi-billion dollar bailout and government takeover, the misquote from Wilson has become the philosophy of the Obama administration. They are treating the success of the initial public offering of the new GM, which will likely happen this Thursday, as proof positive that that the auto industry rescue and much of the rest of Obama’s economic polices must be good for the country.

But what exactly is so remarkable about a company coming back to life after a $65 billion taxpayer bailout, additional billions in tax breaks not available to other companies, and even an amazing “sovereign immunity” exemption for this IPO from anti-fraud securities laws and lawsuits? With this massive infusion of government aid and favors, even a company selling ketchup Popsicles to women wearing white gloves would likely show a profitable quarter! (Hat tip for the Popsicle analogy to David Spade in Tommy Boy — one of my favorite movies about business.)

But how successful and profitable the new GM will be — and there are still many doubts that linger on the company’s financial condition and unfunded liabilities (see this NPR piece) – is not the right question to ask if its bailout and takeover were good for the economy. As I wrote a year and a half ago on OpenMarket, “The measure of success should not be how fast Chrysler and GM emerge from this bankruptcy, but the degree to which contracts are honored in an impartial process.”

By this measure, due to the precedent set by the government running roughshod over the contractual rights of Chrysler’s secured lenders, GM’s bondholders and dealers franchised to sell both brands of vehicles, the bailout/takeover is a complete failure.

The bankruptcy courts rubber-stamped a reorganization plan designed by Obama’s “Team Auto” officials such as Steven Rattner that disregarded two centuries of bankruptcy precedent to massively favor the United Auto Workers over bondholders. As a result, according to several prominent business academics, the cost of capital will likely experience a significant rise for all U.S. businesses and entrepreneurs who wish to form new firms.

As Todd Zywicki, professor of law at George Mason University, so eloquently put it in a Wall Street Journal op-ed: “By stepping over the bright line between the rule of law and the arbitrary behavior of men, President Obama may have created a thousand new failing businesses. That is, businesses that might have received financing before but that now will not, since lenders face the potential of future government confiscation.”

A look at the disproportionate equity stakes received by the UAW shows the depth of the bondholder robbery that took place. As described by Ross Kaminsky of the Heartland Institute and Rossputin blog:

In a stunning transfer of wealth from private investors to the government and unions, the UAW will own 75% more of the new GM than the investors holding $27 billion of debt to the existing company, even though GM’s own bankruptcy filing shows that the “employee obligations” to the UAW are billions of dollars less than the debt owed to bondholders. And bondholders will get 1/6th the ownership stake of the government despite having lent more than half as much money to GM.

In what probably was one of the most shameful moments of his administration, President Obama demagogued GM bondholders and Chrysler secured lenders as “a group of investment firms and hedge funds … who held out while everybody else made sacrifices.” First off, even hedge fund managers — such as Obama supporter and progressive benefactor George Soros — have the right to have valid contracts enforced. This is America, after all, and we still have the rule of law here.

Second, many of the bondholders and lenders were actually pension funds serving the very middle-class families and retirees the president always claims to be “protecting.” The Chrysler bankruptcy was actually halted by an ultimately unsuccessful lawsuit by Indiana state Treasurer Richard Mourdock on behalf of state pensions serving police officers and teachers that had lent to Chrysler.

From a pure analysis from the perspective of what progressives like to call “social justice” – who gets what — there is a striking inconsistency among the disparate treatment of UAW workers and retirees and similarly situated (if not poorer) teachers and police officers. As Barry Adler, professor of law at New Your University, testified to the Congressional Oversight Panel that scrutinizes TARP funds, “one might well wonder why the UAW funds should be favored over other retirement funds.”

Like George Mason’s Zywicki, Adler writes that the precedent set by these arbitrary and capricious bankruptcies are significantly raising the costs of capital for other firms. “The automaker bankruptcies may usher in a period where the specter of insolvency will increase the cost of capital in an economy where affordable credit is sorely needed,” Adler states. He adds that “the cases establish a precedent that could undermine the bankruptcy process in the future, even if the government receded from the scene.”

What about the jobs? It certainly saved some at a very high cost, but probably not for the country as a whole. Unemployment, after all, is still around 10 percent.

Numbers like “a million jobs” are thrown out, but unfortunately the bailout/takeover proponents use the same shoddy “saved or created” methodology used to justify the stimulus. No one knows what would have happened if the government would have stayed out. But during the same time, some pretty big firms — such as the nation’s second largest shopping mall owner General Growth Properties — went through the bankruptcy process and reorganized without any government funding. Even if GM or Chrysler had to liquidate, portions of their businesses would likely have been bought out by rivals such as Ford, Hyundai, and Toyota, and some workers would have been reemployed, albeit with less generous benefits (the workers now have benefits more generous than most blue-collar and some white-collar workers).

In fact, as a whole, the auto rescue may result in net job losses, both because of the likely increase in the cost of capital from bondholder treatment, and because of the rapid shutdown of auto dealers that has cost tens of thousands of jobs. Some dealers would have and should have been closed in a normal bankruptcy, but the special inspector general for TARP (SIGTARP) found in a report that the extraordinarily “rapid pace” of dealer closings resulted in “tens of thousands of dealership jobs [that] were immediately put in jeopardy.”

The SIGTARP also found that “job losses at terminated dealerships were apparently not a substantial factor in the Auto Team’s consideration of the dealership termination issue.” In other words, the sales forces didn’t have the clout with the Obama administration that the UAW has.

So in this case, what was good for GM, Chrysler, and the UAW, put the screws to almost everyone else. (This column is not intended to offer investment advice on the GMO IPO being offered on the back of taxpayers, car dealership workers, and pension funds.)

CEI Research Associate Andrew Kwiatkowski contributed to this post.

Image credit: hanneorla’s flickr photostream.

General Motors’ Losses Hidden by Deferral of Union Pension Obligations

by Hans Bader on October 21, 2010

in Bailout Watch, Economy, Employment, Labor, Regulation

Any General Motors bonds issued this year will be classified as junk by a key ratings agency.  Why?  There’s some risk GM will go bankrupt again, and it hasn’t really returned to profitability, the way it appeared to have. That’s because GM’s recent quarterly profit, which came after years of losses and tens of billions of dollars in taxpayer bailouts, was artificially created by the temporary deferral of billions of dollars in pension obligations that it owes to the United Auto Workers union.  Those unfunded pension obligations have risen by $6 billion since the end of 2009.  As Charles Lane of The Washington Post notes,

[A] little-noticed October 6 report from Fitch, the ratings agency, which highlighted the major unresolved issue of the bailout: pension obligations to its United Auto Workers employees. The union successfully resisted efforts to trim this long-term burden on the company through the bankruptcy process, and they continue to weigh heavily on the company’s future. Specifically, GM’s relatively robust free cash position – one of its major selling points in its pending IPO – is being artificially propped up by the fact that it is not yet legally required to make multi-billion-dollar payments into its ‘heavily underfunded’ U.S. pension funds. How underfunded are they? Well, the U.S. plans alone are $17 billion underfunded as of the end of 2009, Fitch says. When you include global operations, the total is $27 billion. . . GM’s pension obligations are actually $6 billion higher than they appeared at the end of 2009.

These obligations will likely have far more impact on GM’s financial future than the recent revelations that it lied about the Chevy Volt, which it was trumpeting in a “publicity stunt” to curry favor with politicians crusading against global warming.

Earlier, GM lied about whether it had paid back taxpayers for its bailout, which resulted in GM getting $50 billion in taxpayer money, and its finance arm GMAC getting another $17 billion.  (GM also received billions indirectly from taxpayers, through programs like the incredibly wasteful Cash for Clunkers, which cost  used-car and car-parts dealers billions.)

The Obama administration used the bailouts to keep the United Auto Workers’ massive compensation (worth up to $70 an hour), pension benefits, and rigid union work rules largely intact, while giving the UAW a big chunk of General Motors‘ stock, even though the UAW helped bankrupt the company.  The auto bailouts were so wasteful and so biased in favor of the UAW that they disturbed even the liberal Washington Post editorial board.

Another reason for treating GM bonds as junk is the way the Obama administration mistreated GM’s past bondholders.  It engineered the wiping out of General Motors’ bondholders, some of whom were non-union employees who had invested their life savings in the company, so that the GM stock that the Obama administration was giving the UAW would be worth more.

GM also faces increased regulatory burdens, such as CAFE rules ratcheted up in the name of global warming  (the initial tightening of those rules will wipe out at least 50,000 jobs in the auto industry), that will make it hard for it to expand its anemic 19 percent market share.  Other EPA global warming rules are expected to wipe out at least 800,000 American jobs and impose heavy costs on suppliers of materials used in manufacturing automobiles.  The EPA’s proposed ozone rules would wipe out 7.3 million jobs, according to one study.

Vincent Vernuccio on Union Shutting Down GM Plant

by Marc Scribner on October 7, 2010

in Labor, Video

[youtube:http://www.youtube.com/watch?v=31i-rRUnMc8 285 234]

CEI Podcast – September 23, 2010: The Frankenfish Myth

by Ryan Young on September 23, 2010

in Agriculture, Environment, Nano & Biotech, Natural Resources, Podcast, Regulation

Have a listen here.

CEI Senior Fellow Greg Conko, author of The Frankenfood Myth, talks about the promise and imagined peril of genetically modified salmon. The controversial creature reaches normal size twice as fast as unmodified salmon.

GM IPO Buyers Beware: Filing Asserts Exemption from Anti-fraud Laws

by John Berlau on August 23, 2010 · 2 comments

in Bailout Watch, Legal, Nanny State, Politics as Usual, Sanctimony, Zeitgeist

General Motors filed paperwork last week to launch its much-anticipated initial public offering. It could be the biggest IPO in U.S. history, raising up to $20 billion, Reuters reports.

But as Reuters and other have noted, that still won’t approach the $50 billion that U.S. taxpayers have shelled out for the GM bailout. And while the government is reducing its ownership in GM, the company will remain “Government Motors” for the time being as the U.S. Treasury, according to press accounts, is expected to retain a controlling interest even after the IPO is completed.

And buyer beware. Government ownership poses unique dangers for new shareholders, according to GM’s own preliminary prospectus filed with the SEC.

Among the very last items in 16 pages of “risk factors” is a small disclaimer containing a bombshell. This IPO is largely exempt from from federal and state anti-fraud laws and corresponding lawsuits.

“Your ability bring a claim … under the federal securities laws may be limited,” says the prospectus on page 27. The document explains that because the main “selling stockholder is a federal agency,” the “sovereign immunity” doctrine “provides that claims may not be brought against the United States of America or any agency or instrumentality thereof unless specifically permitted by act of Congress.”

The GM prospectus notes that “at least one federal court, in a case involving a federal agency, has held that the United States may assert its sovereign immunity to claims brought under the federal securities laws.” GM concludes, “Thus, any attempt to assert a claim … resulting from an alleged material misstatement in or material omission from this prospectus or the registration statement of which this prospectus is a part, or any other act or omission in connection with this offering, likely would be barred. ”

And “thus,” GM’s new private shareholders, in contrast to shareholders who buy into almost any other IPO, will have virtually no recourse against fraudulent claims. To borrow a much-overused cliché with its genesis in a commercial for old GM’s Oldsmobile, this is not your father’s IPO. Nor that of your grandfather, though it may slightly resemble a stock offering your great-grandfather participated in before federal securities fraud statutes were enacted in the 1930s. But then again, even he would have been able to bring fraud suits under state law, something federal sovereign immunity expressly prohibits.

For IPOs with selling shareholders in the private sector, the federal Securities Act “creates liability for any person who offers or sells a security through a prospectus or an oral communication containing a material misstatement or omission,” notes Cornell University’s Legal Information Institute. GM and other IPOs pose risks, and shareholders assume those risks. But this may be the only IPO since the creation of the Securities and Exchange Commission in which the lead sellers are exempt from anti-fraud laws as well as lawsuits in general.

The Competitive Enterprise Institute has criticized frivolous litigation in securities and other areas of law. However, if selling shareholders did not face any liability whatsoever for fraud  in statements regarding IPOs they were offering, the market wouldn’t function. Sellers would be free to create a firm that was deliberately undercapitalized, lie about its finances to new shareholders, and pocket the money from the offering. Buying shareholders would have no recourse as the new firm would likely go bankrupt.

Punishing fraud, along with the unjustified use of force, is what libertarians believe is among the few key government functions. And rules preventing fraud should certainly apply to the government itself. This is especially true in cases involving government ownership of the auto companies, in which the Obama administration jettisoned bankruptcy precedent to give its constituency of labor unions a bigger stake in GM and Chrysler than the firms’ bondholders and secured lenders.

And under the government’s aegis, GM does not exactly have a pristine record for accurate statements to the public about its operations. Earlier this year, CEI asked the Federal Trade Commission to open a fraud investigation regarding GM’s assertion in advertisements that it had paid back the government’s loan “in full.” CEI’s complaint noted that “GM has only repaid a fraction of those funds—barely ten percent,” and that GM ”repaid its loan by using other federal funds.” The complaint argued that such claims could give consumers a false sens of confidence in the companies and induce them into buying decisions they wouldn’t make if they had the facts.

J.W. Verret, assistant professor of law at George Mason University and senior scholar at the Mercatus Center Working Group on Financial Markets, notes that many shareholder issues are affected in GM and other companies in which the government has a stake because of sovereign immunity. “All of the central theories of the corporation, from director and shareholder primacy to team production or even ‘progressive corporate law’ break down with the presence of an immune control shareholder,” he writes.  ”I don’t know about you, but as a shareholder I would never buy into a company with a control shareholder that enjoyed sovereign immunity from the federal securities laws and state corporate law.”

If President Obama and the congressional leadership are as concerned about investor protection as they purport to be when pushing burdensome vehicles like Dodd-Frank, they should push for a law limiting sovereign immunity and allowing for lawsuits in cases in which the government is a controlling shareholder in a private company. When it is “partnering” with the private sector, the government shouldn’t be exempt from the rules it showers on private actors.

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