President Barack Obama gained some bragging rights this week. The emergence of General Motors by way of a $20.1 billion dollar initial public offering (IPO) was a shot heard around the world. The IPO is the largest in American history, and largely unexpected by most of the financial community.
Just a year ago, General Motors found itself suffocating under the stigma of receiving a government bailout, and the Obama administration was heavily criticized for providing $36 billion in taxpayer funds to keep the company afloat. The argument by Obama was that allowing GM to fail would cause the loss of hundreds of thousands of American jobs, something that the president wasn’t willing to tolerate. In an uncomfortable spurt of patriotism, the president’s camp took the bold step of bailing out the company that many thought should be allowed to fail.
President Obama certainly has both the right and need to brag about the rise of GM. In the same way Republicans were quick to blame him for allegedly worsening the economic downturn, they must also allow him to soak up the credit when good things happen. Whether we are faced with good or bad economic times, the president is usually given more responsibility than he deserves. Such is the nature of politics.
WATCH RACHEL MADDOW’S COVERAGE OF GM’S COMEBACK:
The president also needs the GM victory as a first step toward licking the political wounds he suffered during the mid-term elections. In just one year, President Obama went from being a tremendous Democratic asset to becoming a toxic force for quite a few incumbents seeking re-election. The comeback of GM also coincides with recent trade deals with India, showing that the president is determined to keep economic growth at the top of his agenda.
A critic might point out that neither the India trade deal nor the GM IPO presents substantive improvement in the plight of the American people. A $10 billion dollar trade deal, like the one the president secured with India, is not likely to create very many American jobs. In fact, this amount would only support the U.S. Department of Defense for less than one week.Therefore, we shouldn’t expect the deal with India to make even the smallest difference on our nation’s bottom line.
A cynic could also argue that bragging about GM might be a bit premature. In spite of what some have tried to argue, the GM IPO does not represent a positive return on investment for the American taxpayer. The offer price of $33 per share is far less than the amount the government paid for its ownership share of the company. In fact, the remaining shares purchased by the government would have to sell for an average of $52 apiece for taxpayers to get a positive return on investment. Anything’s possible, but I’d be shocked if GM shares were to rise to a profitable level within the next two or three years.
In most cases, the simple-minded nature of the American public has worked to Obama’s detriment: he is criticized for being too intelligent and the Tea Party is able to use unsubstantiated racial attacks to undermine his leadership. But in the case of GM, the American public’s lack of understanding of IPOs plays to Obama’s advantage. By trumpeting GM’s return to the stock market, he can make the world believe that all of his investments have been good and that we are headed down the road to unmistakable economic prosperity.
At the same time, Obama was right to save GM. The loss of such an important financial force in the American economy would have devastated millions of people. The job loss would have been significant. American productivity would have been dramatically affected. Suppliers of GM parts would have been forced to lay off workers.
Most importantly, a liquidation of this magnitude would have reduced consumer confidence even further, negatively impacting the country’s Gross National Product. So, in spite of the fact that there may have been an illusion or two in the president’s interpretation of the GM IPO, he is stretching the truth about a move that was ultimately good for our country.