The government bail out of GM

As you head home for Thanksgiving, you liberal friends will no doubt be lauding the government rescue of GM. GM started selling its government shares as the start of the company's return to private ownnership. The IPO was a rousing success, with the "re-born" GM valued at $51 Billion dollars at its IPO price of $30-35 per share. So the jobs of 300,000 GM employees have been saved and perhaps another 600,000 secondary jobs saved in an economy that has lost around 8 million jobs in this recession. As the government sells the rest of its shares, it could conceivably end up getting all of its money back. So there, thank God the Democrats were in power to use the beneficent hand of government to prevent all of that human suffering. All at no ultimate cost to the taxpayor.
The problem with this story can be illustrated with this thought experiment. If government wanted to save GM, why didn't it just lend it the money, like it did with the banks or use an equity infusion like it did with AIG? Bankruptcy, Chapter 11 in this case, is a well defined legal procedure which has always placed lenders, specifically bond holders, ahead of all other creditors. The normal legal procedure is to sell the company and give the money to the creditors, with the bondholders first in line. What the Democrats did, however, was force debtors into a debt-for-stock swab. The government, owed $16B, got 50% of shares, bondholders, owed $27B, got 10% of shares, and the union(UAW) got 40% of the shares for its unfunded "legacy" costs. These were the costs that were such an important cause of GM's bankruptcy in the first place.
What we see then is a good example of crony capitalism. The government stripped legal creditors for the benefit of of its supporters, in this case, organized labor.
So in an industry with overcapacity, will it have been worth saving GM? That will really depend on the company's future success. That, in turn, will depend on how well it changes its culture. Are UAW workers going to shed their worst habits, including restrictive work rules and extravagant benefits? Can GM make cars that people will buy, or is it going to make a mostly electric car with a battery range of 30-40 miles costing $42,00 dollars? In addition, there is no real way to measure this misallocation of capital. We spent $80 Billion dollars up front, with another $45 Billion dollars in future tax breaks, to save a company that made a product that wasn't needed and consumers wouldn't buy. How do we measure the missed opportunity of the new company that wasn't formed or the research for the new product not now imagined? How do we measure the erosion of trust of lenders, who now have to wonder if government is going to strip them of their legal rights to favor a political supporter?