NPR Gets the GM Deal Wrong

NPR told listeners that the government would be unlikely to get all its investment in GM back. The logic is that we are owed close to $50 billion. This gives the government claim to 61 percent of the company's stock. However, the piece tells us that even at GM's peak, its stock was only worth $57 billion, so GM's stock price would have to go even higher than its previous peak in order for the government to get back its money.

It sounds like someone here forget to adjust for inflation. A more serious analysis would have calculated a reasonable earnings target (the piece refers to $10 billion a year -- a reasonable target) and then took a price to earnings ratio of say 15 to 1. At that level of earnings and with a 15 to 1 PE, GM stock would be worth $150 billion. The government's share would be worth $92 billion.

Is that the best guess of what will happen, perhaps not. It requires some serious analysis of GM's ability to reclaim market share. But, the prospect that the government will recover its money is not absurd.

byw, this piece was prefaced with the ridiculous assertion that the government had already made money on the bailout of banks. This is nonsense.

Some banks have repaid their TARP money, including interest, and the government has cashed out options. This gives us a profit on those loans. But, this does not mean that on net the government has made a profit.

There are many banks that will almost certainly not repay their loans in full including giants like Citigroup and Bank of America. Claiming a profit based on the paybacks to date would be like a clothing store boasting about the profit on the 20 shirts it sold, ignoring the 180 that are sitting unsold on its shelf. We won't know whether we have made a profit on the TARP until we know the payback on all the loans. The paybacks to date tell us almost nothing.

--Dean Baker