THE TAX ATTIC with Jerry Coon

Out with old, in with new GM

Jerry Coon

The deer season got monumentally better for me on Saturday, Nov. 20. I was able to forget all about my escapades of the opening two days. My split lip is mostly healed up and my flat tire was an easy, albeit $125, fix. I could afford to move those bad memories to the back of my mind because at about 10:30 a.m. I found myself in a position to shoot a spike horn buck.

Where I am hunting, you don’t get much time to dawdle. It’s not like those television shows where the shooter has an eternity to line up the deer and seems to take forever to shoot. Through experience, we have concluded we get about five seconds from the time you hear or see a deer coming to the time it’s gone. The first three seconds you determine if it’s a buck or a doe, calculate how big you think it is, and determine if you are going to shoot at it. Then you have two seconds to make the shot. That’s not much time. It all happens so fast that there is really not even enough time to catch a case of buck fever. Fortunately, I was able to put the five seconds to good use this time and made a good shot.

Other times, I have not been so fortunate. I either missed the shot or didn’t even get a shot off. Of course, those memories go to the same place as the above-mentioned opening two days memories—into the far recesses of my mind. Happy thoughts are always better.

Last week was Thanksgiving. We celebrated and gave thanks to God for all that we have. There is a group of people, however, who may have found their thankfulness tempered by a dose of reality. They are the common share stockholders of the “old” General Motors Corporation.

When our federal government agreed to inject approximately 50 billion dollars into General Motors (GM) in exchange for an equity position in the “new” GM, every person who owned shares in the old GM saw the value of their shares go to zero. They are allowed a tax write-off for the cost of the shares, but a tax write-off doesn’t do them justice. Many of these individual shareholders were current employees of GM, or retirees, or survivors of retirees. They were extremely loyal to GM and deserved better.

The other group of people who didn’t realize they got beat up was the owners of mutual funds. As a blue chip stock, GM was widely held in many, many mutual funds. It’s a sure bet those mutual funds either liquidated the stock at a loss or, in the worse possible case, held it to the bitter end for a total loss. I wonder how this debacle affected the total return of many widely held mutual funds.

The point of my discussion here is these people were not given any consideration when the “new” GM stock came rolling out last week. This just added an exclamation point to the fact that anyone associated with the old GM lost it all.

The fact that the federal government played an integral part in transitioning from old to new was a hot topic of discussion at deer camp while sitting around the campfire, drinking a beer and eating some peanuts. I personally have a philosophical problem with our federal government getting directly involved in funding a private business by owning common stock. I understand the argument that GM was too big a player to let fail. It’s a complicated world we live in. Could this have been worked out without all the old GM shareholders losing everything? After all, Washington got shares in the new GM.

In 1980, Chrysler was in similar dire straits. The federal government gave it loan guarantees but forced it to find private loans and work out union concessions. It would be interesting to find out why Washington back then chose not to get directly involved on an ownership basis. That strategy did work, Chrysler averted bankruptcy, and under Lee Iacocca had many great years.

Would this have worked for the old GM? Perhaps, but we will never know. This time around, Washington permitted GM to short circuit the Chrysler process, thereby allowing it to go directly to bankruptcy. I’m glad it worked out, but the federal government owning common stock, under these circumstances, is precedent setting.

I am concerned that Washington is overreaching its powers. I’m reasonably certain the people who drew up the Constitution would look dimly on a federally funded GM bailout and they wouldn’t care if it cost $500 or $50,000,000,000. The ground rules have been changing over these last 200-plus years, but I’m not sure it’s always for the best. Fortunately, we have the freedom in this country to openly discuss these types of things and even write about them in the Squire. This is Jerry Coon signing off.

Jerry Coon is an Enrolled Agent. He owns Action Tax Service in Rockford. Contact Jerry at

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