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Lasting Implications of the General Motors Bailout

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Lasting Implications of the General Motors Bailout LASTING IMPLICATIONS OF THE GENERAL MOTORS BAILOUT HEARING BEFORE THE SUBCOMMITTEE ON REGULATORY AFFAIRS, STIMULUS OVERSIGHT AND GOVERNMENT SPENDING OF THE COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM HOUSE OF REPRESENTATIVES ONE HUNDRED TWELFTH CONGRESS FIRST SESSION JUNE 22, 2011 Serial No. 112–69 Printed for the use of the Committee on Oversight and Government Reform ( Available via the World Wide Web: http://www.fdsys.gov http://www.house.gov/reform U.S. GOVERNMENT PRINTING OFFICE 71–295 PDF WASHINGTON : 2011 For sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800 Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001 VerDate 17-JUN-2003 12:29 Dec 23, 2011 Jkt 000000 PO 00000 Frm 00001 Fmt 5011 Sfmt 5011 C:\KATIES\DOCS\71295.TXT KATIE PsN: KATIE COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM DARRELL E. ISSA, California, Chairman DAN BURTON, Indiana ELIJAH E. CUMMINGS, Maryland, Ranking JOHN L. MICA, Florida Minority Member TODD RUSSELL PLATTS, Pennsylvania EDOLPHUS TOWNS, New York MICHAEL R. TURNER, Ohio CAROLYN B. MALONEY, New York PATRICK T. MCHENRY, North Carolina ELEANOR HOLMES NORTON, District of JIM JORDAN, Ohio Columbia JASON CHAFFETZ, Utah DENNIS J. KUCINICH, Ohio CONNIE MACK, Florida JOHN F. TIERNEY, Massachusetts TIM WALBERG, Michigan WM. LACY CLAY, Missouri JAMES LANKFORD, Oklahoma STEPHEN F. LYNCH, Massachusetts JUSTIN AMASH, Michigan JIM COOPER, Tennessee ANN MARIE BUERKLE, New York GERALD E. CONNOLLY, Virginia PAUL A. GOSAR, Arizona MIKE QUIGLEY, Illinois RAU´ L R. LABRADOR, Idaho DANNY K. DAVIS, Illinois PATRICK MEEHAN, Pennsylvania BRUCE L. BRALEY, Iowa SCOTT DESJARLAIS, Tennessee PETER WELCH, Vermont JOE WALSH, Illinois JOHN A. YARMUTH, Kentucky TREY GOWDY, South Carolina CHRISTOPHER S. MURPHY, Connecticut DENNIS A. ROSS, Florida JACKIE SPEIER, California FRANK C. GUINTA, New Hampshire BLAKE FARENTHOLD, Texas MIKE KELLY, Pennsylvania LAWRENCE J. BRADY, Staff Director JOHN D. CUADERES, Deputy Staff Director ROBERT BORDEN, General Counsel LINDA A. GOOD, Chief Clerk DAVID RAPALLO, Minority Staff Director SUBCOMMITTEE ON REGULATORY AFFAIRS, STIMULUS OVERSIGHT AND GOVERNMENT SPENDING JIM JORDAN, Ohio, Chairman ANN MARIE BUERKLE, New York, Vice DENNIS J. KUCINICH, Ohio, Ranking Chairwoman Minority Member CONNIE MACK, Florida JIM COOPER, Tennessee RAU´ L R. LABRADOR, Idaho JACKIE SPEIER, California SCOTT DESJARLAIS, Tennessee BRUCE L. BRALEY, Iowa FRANK C. GUINTA, New Hampshire MIKE KELLY, Pennsylvania (II) VerDate 17-JUN-2003 12:29 Dec 23, 2011 Jkt 000000 PO 00000 Frm 00002 Fmt 5904 Sfmt 5904 C:\KATIES\DOCS\71295.TXT KATIE PsN: KATIE C O N T E N T S Page Hearing held on June 22, 2011 ............................................................................... 1 Statement of: Bloom, Ron, former Senior Advisor to the Secretary of the Treasury; and Vincent Snowbarger, Deputy Director for Operations, Pension Ben- efit Guaranty Corp ........................................................................................ 13 Bloom, Ron ................................................................................................. 13 Snowbarger, Vincent ................................................................................. 19 Ikenson, Dan, associate director, Herbert A. Stiefel Center for Trade Policy Studies, CATO Institute; Bruce Gump, vice chairman, Delphi Retiree Association; Thomas Kochan, professor, Massachusetts Insti- tute of Technology; and Shikha Dalmia, senior analyst, Reason Founda- tion ................................................................................................................. 62 Dalmia, Shikha .......................................................................................... 93 Gump, Bruce .............................................................................................. 76 Ikenson, Dan .............................................................................................. 62 Kochan, Thomas ........................................................................................ 86 Letters, statements, etc., submitted for the record by: Bloom, Ron, former Senior Advisor to the Secretary of the Treasury, prepared statement of ................................................................................... 15 Dalmia, Shikha, senior analyst, Reason Foundation, prepared statement of ..................................................................................................................... 95 Gump, Bruce, vice chairman, Delphi Retiree Association, prepared state- ment of ........................................................................................................... 79 Ikenson, Dan, associate director, Herbert A. Stiefel Center for Trade Policy Studies, CATO Institute, prepared statement of ............................ 65 Jordan, Hon. Jim, a Representative in Congress from the State of Ohio, letter dated June 21, 2011 ........................................................................... 8 Kildee, Hon. Dale E., a Representative in Congress from the State of Michigan: Economic Policy Institute Issue Brief #290 ............................................. 39 Prepared statement of ............................................................................... 6 Kochan, Thomas, professor, Massachusetts Institute of Technology, pre- pared statement of ........................................................................................ 89 Snowbarger, Vincent, Deputy Director for Operations, Pension Benefit Guaranty Corp., prepared statement of ...................................................... 21 (III) VerDate 17-JUN-2003 12:29 Dec 23, 2011 Jkt 000000 PO 00000 Frm 00003 Fmt 5904 Sfmt 5904 C:\KATIES\DOCS\71295.TXT KATIE PsN: KATIE VerDate 17-JUN-2003 12:29 Dec 23, 2011 Jkt 000000 PO 00000 Frm 00004 Fmt 5904 Sfmt 5904 C:\KATIES\DOCS\71295.TXT KATIE PsN: KATIE LASTING IMPLICATIONS OF THE GENERAL MOTORS BAILOUT WEDNESDAY, JUNE 22, 2011 HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON REGULATORY AFFAIRS, STIMULUS OVERSIGHT AND GOVERNMENT SPENDING, COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM, Washington, DC. The subcommittee met, pursuant to notice, at 1:40 p.m., in room 2154, Rayburn House Office Building, Hon. Jim Jordan (chairman of the subcommittee) presiding. Present: Representatives Jordan, Mack, Kelly, Issa (ex officio), Kucinich, and Cummings (ex officio). Also present: Representative Burton, Turner, Maloney, and John- son. Staff present: Robert Borden, general counsel; Molly Boyl, parlia- mentarian; Drew Colliatie, staff assistant; John Cuaderes, deputy staff director; Adam P. Fromm, director of Member services and committee operations; Tyler Grimm, professional staff member; Christopher Hixon, deputy chief counsel, oversight; Justin LoFranco, press assistant; Mark D. Marin, senior professional staff member; Jaron Bourke, minority director of administration; Lu- cinda Lessley, minority policy director; Jason Powell, minority sen- ior counsel; and Cecelia Thomas, minority counsel/deputy clerk. Mr. JORDAN. The subcommittee will come to order. I want to thank our witnesses, and I apologize for running late. We will get started as quick as we can here. I will do my opening statement, and I understand Mr. Kucinich is on his way, good. And I just saw Darrell, I think Chairman Issa is on his way as well. American auto companies have long been a symbol of the indus- trial vigor that has made our country strong and prosperous. Gen- erations of Americans have worked for General Motors and Chrys- ler. They should be proud of their service. We are here today because in late 2008 the Federal Government took extraordinary actions to intervene in automotive industry. Among firms that were bailed out was General Motors, which re- ceived roughly $50 billion in taxpayer funded assistance. This decision and its aftermath fundamentally remade the way our government interacts with the private sector. Dangerous prece- dents have been established. In understanding the consequence of the government actions leading up to and during the bailout, it is essential to figuring out the path forward. (1) VerDate 17-JUN-2003 12:29 Dec 23, 2011 Jkt 000000 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\71295.TXT KATIE PsN: KATIE 2 Taxpayers will end up billions of dollars short due to the money given to GM, and its far from clear that the bailout has succeeded in its goals of revitalizing the company. Megan McArtle of The At- lantic has found that we could have given every hourly GM em- ployee $250,000 and still come out on top. Furthermore, the bailout of GM desecrated the rule of law. The bankruptcy proceedings that occurred were simply a patchwork legal vehicle for delivering ownership shares from the auto compa- nies due to the government. What may have seemed expedient at the time disregarded the true intent of our bankruptcy process. In the end, the auto bailouts set a precedent that will make it more difficult for major companies to go through bankruptcy pro- ceedings in the future, resulting in serious moral hazard. It wasn’t even clear that these actions were legal in the first place. After Congress failed to pass legislation to allow for the bailout, only then did President Bush move to do so under the Troubled Asset Relief Program. However, TARP was designed to purchase troubled assets from any financial institution on such terms and conditions as determined by the Secretary. Todd Zywicki, a legal expert and professor
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