Taxpayers Unlikely To See Much Auto Bailout Money
A new report by the Congressional Oversight Panel — an independent, yet totally powerless, group appointed by the Senate to review the results of the recent government bailouts — states that we'll get a few bucks back from the automakers, but shouldn't count on it to cover our car payments:
Although taxpayers may recover some portion of their investment in Chrysler and GM, it is unlikely they will recover the entire amount. The estimates of loss vary. Treasury estimates that approximately $23 billion of the initial loans made will be subject to "much lower recoveries." Approximately $5.4 billion of the loans extended to the old Chrysler company are highly unlikely to be recovered. ... Because Treasury has not clearly articulated its objectives, it is impossible to know if this prospect, indeed, represents a failure of Treasury's strategy.
The report makes a number of recommendations to improve the prospects of the automakers (and, you know, get them to pay us back), including the idea that the government should "use its role as a significant shareholder in Chrysler and GM to ensure that these companies fully disclose their financial status and that the compensation of their executives is aligned to clear measures of long-term success."
The Congressional Oversight Panel has a lot of good ideas, and its head, Harvard's Elizabeth Warren, has been an active critic of mishandling of taxpayer largess. Despite its impressive COP acronym, however, the panel can't actually make the government — or the carmakers that we sort of own — do anything. But don't worry. The agency is empowered to "hold hearings, review official data" and, of course, "write reports." So, expect a lot more 200-page door-stoppers and C-SPAN bloviating before this whole thing runs its course.
The Use of TARP Funds in Support and Reorganization of the Domestic Automotive Industry [Congressional Oversight Panel]
Full Report (221-page PDF) [Congressional Oversight Panel]
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Comments:
I think we all knew this going in, but don't worry those who gave money to the right politicians are getting their piece of the pie.
Ah, naturally, the people who actually make good decisions are of course not empowered to act on those decisions.
The only people who are surprised by this are the media and the government. Every other American knew this wouldn't work.
If you thought it would work then you must be new to politics.
But since we're earning such a great return on the $700 billion bank bailout "investment," this shouldn't be a problem.
These are loans? I thought we got stock in the companies. When you own stock, you sell it when you decide that the stock has gained enough value that you're happy with the return. Isn't it incumbent on the US Treasury, then, to hold our shares until they've gained value to such a point as to give us a fair return?
Or does Treasury have a different definition of "Buy low, sell high"?
@Michael Belisle: The government's job is to *regulate* business, not *participate* and buy shares of companies. I fear for the next recession when the government bails out more companies that are "too big to fail" and the lines are further blurred.
@SteveBMD: Please tell me that was sarcasm.
If not, that claim has been seriously debunked last week. As one person said, it's like calculating the returns on your mutual funds by picking only the stocks in the fund that went up and ignoring the losses.
Here's two articles that debunk this claim:
Can I sell my shares? No? Fooey.
Well, it's a good thing that TARP is turning a 'profit'.
</sarcasm>
We'll just cover it with our profit from the AIG investment.
So by "oversight" it is meant that they can watch Congress spend our money foolishly and note that it is happening.
Of course if they had any real power, the bankers, and the auto companies, and the labor unions would all be lobying them and the COP would amazingly come up with a different result.
Exactly why I will not purchase a GM or Chrysler product now. Ford all the way if I buy anything domestic.
Which is exactly why we need Government healthcare, NOW!
Sounds like the COP is "taking this very seriously"
@Bladefist: I didn't think it would work, but I think it accomplished its goal- to prevent the systemic collapse of both the banking and manufacturing industries at the same time. It's one of those things that is difficult to prove if we saved the "economy" more than $30B+ in loans that we may lose, but think it was worth doing, despite my hatred mismanagement by these companies.
@Bahnburner: I agree that we need it, but I think its a bit of a non-sequitor, unless I'm missing something (which I probably am). Or is my sarcasm meter on the fritz?
@TheFlamingoKing: Citing the Cato Institute? Give me a fucking break.
May as well cite Pat Buchanan while you're at it.
I don't mind the bailout for the auto industry. The god damned richy-rich banks getting bailouts are my issue. AIG, Bank of America, and other owe me money. The banks are the ones who caused this whole financial mess in the first place. The auto industry just got caught up in the financial failures from the banks and their bad decisions.
@Heresy_Fnord: Yeah, that's entirely not true. WE are responsible for the financial failure of this country by allowing corrupt scumbags free run of the government and private industry. Stop trying to blame others.
@Heresy_Fnord: "The banks are the ones who caused this whole financial mess in the first place."
Not true. It's too much of an oversimplification to say the banks caused the problem. More accurate would be to say that the banks took advantage of cheap money from the government, the people took advantage of the cheap money from the banks, and the government didn't fully realize the negative consequences of the passage of some laws (Community Reinvestment Act) and the repeal of others (Gramm-Leach-Bliley). To only blame the banks, to only blame the government, to only blame the loan recipients - that's really disingenuous.
"The auto industry just got caught up in the financial failures from the banks and their bad decisions."
Do you mean the auto industry's bad decisions? Like selling gas-guzzling SUV's when the country wanted more fuel-efficient cars? Then why should it be OK to bail out companies that fail to understand and provide what their customers want? On top of that, why should the government decide that some people that fail to understand and provide what their customers want deserve to be bailed out, while others in different industries deserve to fail?
Do you mean the auto industry failed because of the banks? Because that's also not true. Why didn't all the other industries in America fail as well? The automakers inability to sell reliable cars that people want was the cause of their downfall, not the banks.
No problem, we'll just bail out the government!
Oh, erm, wait....
Not surprised...'Bail Out' to me is a synonymous with 'Funneling' or misdirect monies. Why so much fear pumped in to media & our society ? To distract from the misappropriation of excessive funds floating around the system.
This country is super paid, so much money, legal & illegal, circulates through the U.S.
Why if there is extra, would 'They' share or reinvest appropriately and for the proper growth of this country, its people and the world, WHY?
It's almost human nature to whore everything, by a very limited few. CENTURY OF THE SELF!
@lannister80: Would you like to make an actual argument as to why the article I linked to is incorrect? Or maybe argue why the Cato Institute is not a reliable source to debunk this claim?
Or is your post one of those "LOLbertarians! Ignore everything they say!" kind of posts? You know, devoid of any actual substance but name calling?
@humphrmi: They were loans, but the companies later went into bankruptcy. If my armchair understanding of the bankruptcy reorganization process is correct, the Treasury got stock in the reorganized companies, but the loans stuck with "Motors Liquidation Company" (i.e., the company formerly known as GM) and "Old Carco" (formerly Chrysler). The new companies (the GM and Chrysler that exist today) bought the valuable assets of the Old companies, and the old companies remain to divvied up those proceeds and remaining assets (i.e., not much) among the creditors. In short, none of the creditors will see much in the way of actual money.
However, it may not matter since the government has shares in the new companies, which may well appreciate beyond the value of the loans we gave them. So, it's correct to say that we'll never get those loans repaid, and it's also correct to say that we may yet get fair compensation though the shares we now hold. Obama claims that they don't plan to hold the shares forever. We don't know what those shares are worth since they're privately held, but we'll know how it turns out when they do the IPO (allegedly sometime in 2010).
@Bladefist: The media and the government aren't surprised either. They're just acting surprised, because that's what the media and government do.
@pegr: The Congress shall have Power To ... and provide for the common Defence and general Welfare of the United States.
You're welcome.
@GuinevereRucker: I have developed some possible essay questions on your comments.
1. Define "regulate", as used in the Commerce Clause. How has the concept of regulation changed in the 200 years since the constitution was ratified? Are there forms of commerce today that the authors could not have foreseen?
2. Enumerate acceptable and unacceptable means by which commerce may be regulated. Support your claims with relevant references to case history.
3. Explain how the government's current activities are or are not consistent with the constitutional concept of regulation. For example, consider if extending a loan to a company is a valid method of regulation? Is holding shares in a reorganized company (like any other creditor in the company) valid? What about "too big to fail"? Justify any claims.
@HiPwr: Or we could have listened to the economists who told us the economy was unsustainable and that the bubble would burst, and not bailed out any company.
@ARP: I think the American people spoke, and GM/Chevy was no longer of use to us. Based on what they were making and the quality at which it was made.
I think our attitude got over looked and blamed on the economy, while Ford and foreign autos continued to sell. Sure, they sold way less, and that is obviously the economy (people aren't boycotting cars completely).
And the loan to the company only made real Americans who would buy GMs (middle class) spiteful and therefore even more resistant to giving them a penny.
But who knows what would or would not have happened. I maintain we would have been better off not doing the loan.
I am not a fair weather conservative, private companies, even the big ones, can fail.
@psm321: Wrong, but thanks for playing:
"With respect to the two words "general welfare," I have always regarded them as qualified by the detail of powers connected with them. To take them in a literal and unlimited sense would be a metamorphosis of the Constitution into a character which there is a host of proofs was not contemplated by its creators. If the words obtained so readily a place in the "Articles of Confederation," and received so little notice in their admission into the present Constitution, and retained for so long a time a silent place in both, the fairest explanation is, that the words, in the alternative of meaning nothing or meaning everything, had the former meaning taken for granted."
- James Madison
"Congress has not unlimited powers to provide for the general welfare, but only those specifically enumerated."
- Thomas Jefferson
@psm321: The general welfare would all like a mansion and a pool in the back.
The general welfare does not mean you can steal from the rich to increase the quality of living of the poor.
To interpret it that way is to ignore the founding fathers politically ideology in order to substitute it for your own.
Ah hell, the supreme court justices do it how can I stop you.
As you were.
@Bladefist: But stealing from the poor and middle class while cutting the rich a break has always been a-okay!
I know some people who kept their jobs thanks to this, so I can't really complain.
@JulesNoctambule: Contrary to popular belief, the category of people who benefit the most from the government are the poor. The upper and middle class (what's left of it, anyhow) funds the programs that the poor take advantage of.
The rich, I suppose, can afford this. The middle class is hit hardest, which is why they are disappearing by the truckload. They simply can't afford to transfer such a large portion of their wealth to the poor. And now, the gov't wants to take more!
@TheFlamingoKing: you provide 2 links, but it's obvious that you didn't read SteveBMD's link. the last paragraph plainly states:
But Federal investments in some other banks, including Citigroup and Bank of America, are still in question, and the government could still lose much of the money it spent to bail out insurance company American International Group, mortgage lenders Fannie Mae and Freddie Mac, and automakers General Motors and Chrysler.
as for your links, there are a few problems here. Cato is 100% incorrect on FDIC premiums. the article states that past premiums secure future loss, but that's not how the FDIC pool works. they have an operating budget for bailouts that, once exhausted, can be supplemented by a line of credit with the Treasury. 100% of this money will be paid back - primarily by raising & collecting future premiums from banks. THAT is how FDIC works. not a single dime of FDIC guarantees will be paid for with taxpayer dollars. FDIC is budget neutral by design.
the other article doesn't really add anything new, so there's no point in even linking it.
anyway, it's much to early to tell what will happen. hopefully, the payments will keep coming in & the valuations of these institutions' assets will prove to be incredibly conservative. unfortunately, we just have to sit here & wait until time tells us whether it was a good idea or a bad one. remember that it took the RTC about a decade to liquidate almost a half-trillion dollars worth of s&l institutions & i believe they finally turned a profit - didn't they?
@humphrmi: that's why it's estimated that we'll lose some cash here. according to a summary i read of the report, COP believes the share price would have to be something like 20% higher than it's all-time high 2 years ago in order for us to sell & break even. & it's unlikely that we'll hold onto the stock long enough for it to get there.
@TheFlamingoKing: the failure of the automakers has nothing to do with selling "gas guzzling SUVs". this is evident for 2 reasons: 1) those SUVs have a MUCH higher profit margin than most other vehicles in their fleet. 2) eco-friendly competitors (a la toyota) are having similar profit issues. the entire market has stagnated, due primarily to a weak economy. short version: if people still had a job, they'd still be buying shit.
the GM/chrysler had a higher exposure to risk, which is why they hit the wall. this was exasperated by lending divisions that were greatly exposed to the mortgage bubble (GMAC) & a corporate raid by an outside investor (daimler) that gorged a once very profitable & cash-heavy chrysler.
look it up.
@Michael Belisle: If you want government participation wholly out of the picture, you'd have to get rid of the Tennessee Valley Authority, Hoover Dam, FNMA/FHLMC which were initially government financed, GNMA (same deal). The fact is that the government has had its hand in private enterprise since the digging of canals before the Revolution. GM and Chrysler are just the latest headlines.
@mac-phisto: The SUV problem is that the US automakers put all of their eggs in that one basket. When the market for cars changed so rapidly, the US automakers were screwed. Those years of neglecting the car market came back to bite them.
We're not getting our money back, and in other amazing news, the sun rose again this morning....
@katstermonster: hehe, I knew my reply would bring that sort of folk out, but thought it would be fun to see anyway. :) I'm not going to bother replying to their individual points because they will stretch anything to justify their "everything for me" ideology
Of course we won't get repaid. We got shares in the new companies, in lieu of liquidating to repay the creditors.