US Tax Payers Bailing Out French Unions

As if bailing out the United Auto Workers by giving $billions to GM and preventing them from going through a normal bankruptcy process wasn't bad enough, now we're bailing out French unions and a billionaire French family.

In a move little noticed outside of the business pages, General Motors last week bought more than $400 million in shares of PSA Peugeot Citroen – a 7 percent stake in the company.

Because U.S. taxpayers still own roughly one-quarter of GM, they now own a piece of Peugeot.

Peugeot can undoubtedly use the cash.  Last year, Peugeot’s auto making division lost $123 million.  And on March 1 – just a day after the deal with GM was announced – Moody’s downgraded Peugeot’s credit rating to junk status with a negative outlook, citing “severe deterioration” of its finances.

In other words, General Motors essentially just dumped more than $400 million of taxpayer assets on junk bonds. 

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An analysis by auto industry consultants IHS said it is “somewhat baffling that GM is willing to get involved in an alliance that it frankly does not need for size or complexity, while still avoiding any public plan to rationalise its European production, cut costs, or deal with labour rates.”

The deal will allow the Peugeot family to reduce its share of the family business.  The family, which Forbes estimated to be worth more than $2 billion, still owns about 30 percent of the company.  The Peugeots declined the opportunity to buy a piece of GM.

GM management is making the same kinds of decisions that got them into trouble in the first place.  Why?  Simple; they're confident that the US Federal Government will bail them out again, and you and I will get stuck with the bill.

It's about a clear a case as possible of what economists call "moral hazard".  If someone is irresponsible with their money and you bail them out, you encourage them to be even more irresponsible in the future. 

It's simple; rewarding bad behavior results in more bad behavior.

But GM's bad behavior is even more irresponsible than before, because now they're not just spending their own money, they're spending yours and mine.  If GM management wanted to risk their own money on junk bonds, I would have no problem with that.  Instead, the Federal government gave GM management your money and mine, and now GM is risking that money on junk bonds without even asking permission.

As Ed Morrissey stated:

This is what government bailouts buy.  Instead of clearing the decks at GM and freeing their assets through normal bankruptcy so that more competent hands could put them to better use, the government intervention maintained the same status quo and funded it with taxpayer assets.  It’s no great surprise, therefore, that the leadership at GM would toss away money owed to taxpayers to buy a stake in another failing enterprise.

Tell your Senator and Representative: no more bailouts, of anyone, ever.