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A New G.M., but Not an End to the Bailout Era

Sixteen months after the wheels came off General Motors, the remodeled G.M. is racing back to the stock market.

Chevrolet grille
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Chevrolet grille

It seems hard to believe. G.M. actually has Wall Street panting. Investors are lining up for what is expected to be one of the largest initial public stock offerings in American history.

This offering, expected to be priced Wednesday, is a significant milestone for G.M. and the entire era of big bailouts.

But as G.M. moves into its post-bailout period, Washington is still contending with other costly rescues stemming from the financial collapse of 2008. While the G.M. offering is expected to raise at least $16 billion, the federal government remains deeply enmeshed in American business. Tens of billions of taxpayer dollars have yet to be repaid. Many billions, in all likelihood, never will be.

The final accounting is still years off. Some experts warn that now that Washington has come to the rescue of big companies once, it will be far easier for it to do so again. The bailouts of big banks, Detroit automakers and others, like Fannie Mae and Freddie Mac, have, to some, laid the groundwork for future bailouts.

“If you can do this for one of the largest companies in the U.S., what happens when the next big crisis approaches,” said Hirotaka Takeuchi, a professor at Harvard Business School. “It may send the wrong signal to the rest of the world.”

What is more, though a boom on Wall Street has enabled the government to actually make a profit on many of the stakes it took in financial companies, Washington will probably never recover all of the money handed out to other beneficiaries, like the mortgage giants Fannie Mae and Freddie Mac. And in some cases, billions more may still have to be shelled out.

Even in the best case, the government will have to pour an extra $6 billion into Fannie Mae and Freddie Mac, whose implicit public guarantees suddenly became explicit when the housing market deteriorated in 2008. A more likely projection calls for a $19 billion injection, according to the Federal Housing Finance Agency.

And though most of the big banks have repaid the money the government provided at the height of the financial crisis, Washington still owns nearly all of the American International Group, the insurance giant that has swallowed more than $130 billion in government aid.

In fact, the government’s stake in A.I.G. is going up, not down, rising to 92.1 percent from 79.8 percent under a complex restructuring plan that will be completed early next year.

Then there is GMAC, now known as Ally Financial. Washington anted up about $17 billion to keep it afloat in 2009, but the aid came with fewer strings attached than the financial support for General Motors and Chrysler. The government will not recoup that money any time soon, and it retains a 55 percent stake in the lender.

Indeed, the government’s involvement in a broad swath of industries will continue to linger.

The boards of G.M. and GMAC include several members that the Treasury helped hand-pick, while regulators are swarming the trading floors and mortgage collection operations at the nation’s biggest banks to try to avert a replay of the financial crisis. And the government is still on the hook for tens of billions in guarantees it provided on debt issues by banks during the financial crisis.

Jonathan Koppell, director of Arizona State University’s School of Public Affairs, said that although the General Motors offering was a step in the right direction, “it doesn’t mean this strange period of government ownership is in our rear-view mirror.”

“Once you introduce the possibility of state intervention in support of failing firms,” he said, “the marketplace is fundamentally altered, even after government relinquishes its ownership.”

To be sure, the government has reaped a $28 billion profit on what has been repaid so far. But bailout beneficiaries still owe $180 billion to Washington, or just under half of the $384 billion of federal money laid out during the crisis. Even the $25 billion the government will earn in the coming months as it sells its remaining stakes in G.M. and Citigroup will not make much of a dent in paying it all back.

Before that happens, both companies have to follow through with exit strategies.

At G.M., the government injected about $49 billion to stabilize the company and help it through bankruptcy.

G.M. has repaid $7 billion, and the government will receive $12 billion more this week from its share of the stock offering, assuming the shares are priced in the upper range of expectations, from $31 to $33. Even then, the Treasury Department could be sitting on a $7 billion to $9 billion loss. The investment in Citigroup is expected to fare better, yielding a profit of more than $11 billion.

All told, the government estimates that its other bank investments will yield a lifetime gain of over $9 billion. Most of that comes from the dividend payments and other income it took when the big institutions, like Bank of America , Goldman Sachs and Morgan Stanley , paid back their bailout money. About 590 smaller lenders have yet to repay roughly $38 billion.

After its controversial rescue of A.I.G., the government is now on track to realize a $17 billion gain from that investment when it eventually sells its 92 percent stake. The Federal Reserve is also on track to reap an $11 billion windfall from the assets it took when it made an enormous loan to A.I.G. at the height of the crisis.

The path to profitability from the government’s investments in Chrysler and GMAC is less clear. For now, the government retains a 10 percent stake in Chrysler, as well as a large loan backed by the company’s assets. It also owns a 55 percent stake in GMAC and could ultimately wind up owning more than 80 percent of that company. Exit plans have not been completed, but they could involve an initial public stock offering or another stock sale.

But the real money pits are Fannie Mae and Freddie Mac, the government-controlled mortgage finance giants. So far, they have been kept alive with $150 billion in taxpayer money. Even after the dividends it will receive from the two companies over the next decade, the government could ultimately sustain a $55 billion loss, according to administration data for the 2010 budget. Some of that money could be recouped from income from the assets in the companies’ portfolios.

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