Uncle Sam will become a 50% owner of General Motors by forgiving $10 b. of taxpayer money under the plan announced yesterday.  Billions more of taxpayer money is likely to be put at risk, and we'll see how much better the federal government can run GM than its management despite promises from unnamed federal officials that the shares will be put in trust, as if management will have some authority.

On March 30, the market tanked 3.48% when President Obama asserted more power over GM, raising the possibility GM might be nationalized.  GM shares droped 46% in two days, from a $3.62 close on March 27 to $1.94 on March 31.  Yesterday, the market reacted in the opposite fashion, pushing GM stock up 21% to a close of $2.04 versus Friday's close of $1.69.

This is about as pure an example of moral hazard as I've seen.  Will President Obama run GM to make a profit and be spun off as soon as possible, or will he let profits slide and retain control to pursue other goals like: retaining as many United Auto Workers on the job as possible; producing greener cars than buyers want; and producing alternative energy products, like wind turbines, in an effort to create green jobs.  Owning GM will make it much harder for the government to get off corn based ethanol in favor of switchgrass.  Will we raised CAFE auto efficiency standards, particularly on trucks, if it causes Americans to buy more imported cars and trucks and fewer GM cars and trucks?

Although the taxpayers are now 80% owners of insurance giant, AIG, and one-third owners of Citicorp, the Administration disavows any intention of "nationalizing" the banks.  What makes industrial companies different?  Long ago, one could argue that national defense was at stake, but that's no longer true.  Are Midwestern auto jobs more deserving of preservation than financial sector jobs?  Can our leaders really pick which jobs are worth saving?  Can they really save any jobs, or will overall employment suffer the more taxpayer money is squandered?

Nobody said governing a complex democracy was easy.  President Obama undoubtedly made a correct political decision to intervene in the auto industry.  Now let's see if and how quickly he can turn GM into a privately run company that can survive in the marketplace.