The point of my examples was simply to note that recent history reaffirms the truism that short term profits do not, per se, mean long term stability in an industry.
To the list of economic woes squeezing small banks, add another one: government bailouts.
The Treasury Department's bailout program was designed with Wall Street megabanks in mind, according to a new report from a congressional watchdog. The "one-size-fits-all" program may actually be hurting small banks that are struggling to repay the money or even deliver quarterly dividend payments, the report says.
The main bank bailout program anticipated banks springing back from the crisis and raising fresh funds to repay the government, the report says.
That's exactly what happened to most of the big banks that took the most bailout money. Yet small banks continue to struggle, dragged down by souring loans for commercial real estate and high unemployment. Hundreds more small banks are expected to fail by the end of next year.
The 690 small banks that took bailout money are even worse off, according to a report Wednesday from the Congressional Oversight Panel, which monitors the $700 billion financial bailout. Already, one in seven has failed to pay a quarterly dividend due to Treasury. They can't afford the payments, which will nearly double in 2013.
Treasury spokesman Mark Paustenbach disputed the findings, saying in a statement that the bailouts helped many of the banks "weather the storm and continue to extend credit in the economy."
But the bailouts' costs are troubling because of small banks' crucial role in lending to small businesses and supporting economic recovery, said Elizabeth Warren, who chairs the panel.
The program "was not intended as a bailout for Wall Street," said Warren, who also is a professor at Harvard Law School. "It was intended to support ... homeownership, retirement savings and banks across the country."
Warren said the bailout bill, known as the Trouble Asset Relief Program, did stabilize the financial system. But she said that was only one of the program's goals. She said efforts to boost lending and support consumers have been less successful.
"There is very little evidence to suggest that the (bailouts) led small banks to increase lending," the report says.
In the end, that could mean that the biggest banks get even bigger, the report says. Dozens or hundreds of bailed-out banks could collapse or consolidate because they can't afford their obligations to taxpayers, it says. That would leave the handful of biggest banks with an even larger share of the banking system.
"The result could be that 'too big to fail' banks grow even bigger," Warren said.
The Congressional Oversight Panel was created by Congress to report on whether the bailouts are meeting their goals. The law also requires regular audits by the Government Accountability Office and creates a special inspector general to investigate fraud and other problems.
whomod said: I generally don't like it when people decide to play by the rules against people who don't play by the rules. It tends to put you immediately at a disadvantage and IMO is a sign of true weakness. This is true both in politics and on the internet."
Bailout Watchdog Calls Mortgage Programs a Bust: Government watchdogs tell a Senate panel that the Obama administration's multibillion-dollar effort to help at-risk homeowners avoid foreclosure is not working and could put the nation's economic recovery at risk.
Everything you need to know about the nightmare of government-controlled businesses can be found in a damning new inspector general’s report on Dealergate. The independent review of how and why the Obama administration forced Chrysler and General Motors to oversee mass closures of car dealerships across the country reveals grisly incompetence, fatal bureaucratic hubris and Big Labor cronyism. No wonder you won’t hear much about the report’s in-depth details in the so-called mainstream media.
Under the guise of “saving” the American auto industry through a bipartisan, taxpayer-funded bailout now topping $80 billion, President Obama’s know-nothing bureaucrats pushed the car companies to eliminate thousands of jobs — with unjustified haste using dubious economic models.
Obama ordered the bailout recipients to “prove” their long-term viability by submitting restructuring plans. But White House and Treasury Department “experts” rejected the auto manufacturers’ proposals, citing the too-slow pace of their plans to reduce their dealership networks over a period of five years. Once the auto companies modified those plans to meet government-backed timelines, the money flowed.
But Neil Barofsky, the federal watchdog overseeing the bank-auto-insurance-all-purpose bailout fund, found that the White House auto industry task force and the Treasury Department “Auto Team” had no basis for ordering the expedited car dealership closure schedules. They relied on a single consulting firm’s internal report recommending that the U.S. companies adopt foreign auto industry models to increase profits — a recommendation hotly disputed by auto experts who questioned whether foreign practices could be applied to domestic American dealership networks.
Team Obama’s government auto mechanics also ignored the economic impact of rushing those closures. According to Barofsky, they discounted counter-testimony from industry officials that “closing dealerships in an environment already disrupted by the recession could result in an even greater crisis in sales.”
The inspector general also noted that “it is clear that tens of thousands of dealership jobs were immediately put in jeopardy as a result of the terminations by GM and Chrysler.” After extensive investigation, the watchdog concluded that “the acceleration of dealership closings was not done with any explicit cost savings to the manufacturers in mind.” Only after Capitol Hill critics — both Republican and Democrat — started questioning the Dealergate decisions did Obama’s auto “experts” come up with market studies and estimated job loss data to assess the impact of their reckless, arbitrary orders.
In sum, the inspector general found: “(A)t a time when the country was experiencing the worst economic downturn in generations and the government was asking its taxpayers to support a $787 billion stimulus package designed primarily to preserve jobs, Treasury made a series of decisions that may have substantially contributed to the accelerated shuttering of thousands of small businesses and thereby potentially adding tens of thousands of workers to the already lengthy unemployment rolls — all based on a theory and without sufficient consideration of the decisions’ broader economic impact.”
This is no surprise, of course, considering the amount of actual auto business expertise among Obama’s auto czars and key staff. That is: zero. Obama’s first auto czar, Steve Rattner, ran a private equity firm in New York before resigning his position amid a financial ethics cloud.
Rattner’s chief auto expert adviser, Brian Deese, is a 30-something former Hillary Clinton/Barack Obama campaign aide and law school grad with no business experience, who openly boasted that he “never set foot in an automotive assembly plant.”
And Rattner’s auto czar successor, Ron Bloom, is a far-left union lawyer who cut his teeth under Big Labor boss John Sweeney, has ideological ties to the corporate-hating Labor Zionist movement; and opined that “the blather about free trade, free-markets and the joys of competition is nothing but pabulum for the suckers.”
In search of the rationale for Team Obama’s bizarre, job-killing exercise of power over thousands of small car dealerships, the TARP inspector general may have stumbled onto the truth from Bloom. On page 33 of its report, Barofsky writes that “no one from Treasury, the manufacturers or from anywhere else indicated that implementing a smaller or more gradual dealership termination plan would have resulted in the cataclysmic scenario spelled out in Treasury’s response; indeed, when asked explicitly whether the Auto Team could have left the dealerships out of the restructurings, Mr. Bloom, the current head of the Auto Team, confirmed that the Auto Team ‘could have left any one component (of the restructuring plan) alone,’ but that doing so would have been inconsistent with the President’s mandate for ‘shared sacrifice.’”
The Wall Street Journal reported Wednesday that General Motors Co. has once again started to contribute to political campaigns, marking the end of a once self-imposed ban on political spending. The automobile manufacturer accepted taxpayer dollars last year to help finance bankruptcy restructuring and remains majority-owned by the U.S. government. GM plans to return to public trading next year, allowing the U.S. to begin unloading its 61 percent share of the company.
In the meantime, however, GM spokesman Greg Martin defended the company’s political donations despite a potential conflict of interest. “As we’ve emerged as a new company, we’re not going to sit on the sidelines as our competitors and other industries who have PACs are participating in the political process,” Martin told the Wall Street Journal. GM’s political action committee, he said, is “an effective means for our employees to pool their resources and have their collective voice heard.”
In deciding what criteria the company should use to determine which candidates should receive contributions to their campaigns, Martin said the company supported candidates who “approach issues thoughtfully” and “support a strong auto industry.”
So far, the company’s $90,500 in political contributions have favored mostly Midwestern Democratic candidates, including Sen. Debbie Stabenow, D-Mich., Sen. Sherrod Brown, D-Ohio, and Rep. John Dingell, D-Mich.
While taxpayers are footing the bill to keep America's auto industry off life support, an undercover investigation shows illegal activities by Chrysler employees who have enjoyed nearly $15 billion in government money.
Dozens of autoworkers in Detroit were caught on camera drinking beer and smoking marijuana before heading to work at the Chrysler plant that President Obama praised in a speech just two months ago.
The investigation -- conducted over several weeks and based on tips from workers at the plant -- outraged the auto giant's top executives who reportedly called the behavior "totally unacceptable."
Obama spoke July 30 at the plant, where he lauded the American worker, saying, "It's workers like you that built this country into the greatest economic power the world has ever known."
"I want all of you to know, I will bet on the American worker any day of the week." he told the crowd.
"I wish they could see what I'm seeing in this plant and talk to the workers who are here, taking pride in building a world-class vehicle," Obama said, referring to opponents of the multibillion-dollar government auto bailout. "I don't think they'd be willing to look you in the eye and say that you were a bad investment."
Heh. Obama should have told them they were doing a "heckuva job."
Yeah, since it's not on work property and on a break, then they can do what they want in their off-hours and such. If they were doing it in the factory and all that, then I'd have a problem...
Again, though, it's not my company, not my concern. Safety factors would be the only real factor they would have to take into account. It has nothing to do with whether the company got bail-out money or not. That's an entirely different ball of shit to deal with than GM's drug policy...
See what pot does to you, Pro? It's Chrysler, not GM.
whomod said: I generally don't like it when people decide to play by the rules against people who don't play by the rules. It tends to put you immediately at a disadvantage and IMO is a sign of true weakness. This is true both in politics and on the internet."
whomod said: I generally don't like it when people decide to play by the rules against people who don't play by the rules. It tends to put you immediately at a disadvantage and IMO is a sign of true weakness. This is true both in politics and on the internet."
It has nothing to do with whether the company got bail-out money or not. That's an entirely different ball of shit to deal with than [their] drug policy...
Except: (a) this tends to show that the bailout money was being used to prop up non-viable businesses since they can't fix their own employee issues; (b) the President used this plant and its workers as an example of the kind of "good workers" that the bailout was meant to save.
Yeah, it's not a major thing. But it's kind of funny and ironic.
this tends to show that the bailout money was being used to prop up non-viable businesses since they can't fix their own employee issues
Nah, that's a stretch as the only diff between these workers and workers from other companies are that they got caught. It's not an accurate measurement of a companies' viability, just something to bitch about.
Quote:
the President used this plant and its workers as an example of the kind of "good workers" that the bailout was meant to save.
Well, that's because he's a tool of the system and a fucking liar...
Wow what a double standard. You support card check where a few union voters could force all workers into a union represented by those few. When a few are shown to be lazy and inept suddenly you don't like the idea of a few representing all.
Do you think a few bad workers really represent all the employees basams? Just because you have a strong anti-union bias, that still isn't fair to all the other workers.
The Atlantic: The Government Won't Be Getting Its Money Back From The GM Bailout.
In addition, the Wall Street Journal reports that GM has about $50 billion in tax assets stemming from past losses that it can use to avoid paying U.S. corporate taxes.
But at least the UAW kept their country club. That counts for something for the working man.
Former Obama administration official Steven Rattner was sued by the US Securities and Exchange Commission (SEC) and New York Attorney General Andrew Cuomo Thursday for his role in a pay-to-play scheme involving New York's pension fund.
Rattner, the former auto czar, agreed to pay $6.2 million and to a two-year ban from associating with any investment adviser or broker-dealer to settle the SEC allegations, the SEC said Thursday.
Separately, Cuomo's office filed two lawsuits against Rattner, seeking at least $26 million and an immediate lifetime ban from the securities industry.
"Steve Rattner was willing to do whatever it took to get his hands on pension fund money including paying kickbacks, orchestrating a movie deal, and funneling campaign contributions," said Cuomo, who is the incoming governor of New York. "Through these lawsuits, we will recover his ill gotten gains and hold Rattner accountable."
A lawyer for Rattner did not immediately return a phone call seeking comment Thursday.
I still find it funny that everyone is still pushing hybrid cars when 90%+ of our electric power (in most parts of the country) comes from coal fired plants.
When a government sells stock in a company, it is usually trying to maximize short-term revenue. Therefore, the share price is normally pegged at what the market will bear. If the valuation of the total stock offering is less than the value of the company (or a portion thereof) being sold, something is amiss. That is certainly the case with the initial public offering of GM stock sold to investors on November 17. The stock price is telling us something the federal government doesn’t want to admit, all the rhetoric about the supposed success of the GM bailout notwithstanding.
Take, for instance, the last IPO I was involved in, the flotation in 1996 on the London Stock Exchange of RailTrack, the company that owned the infrastructure of the formerly nationalized British Rail. The government of Prime Minister John Major wanted to raise around £2.5 billion in the privatization. However, the plan quickly unraveled.
Major’s government was on its last legs, as it seemed likely to lose the election of 1997. Moreover, spokesmen for the Labour Party — which did go on to win — started making noises about renationalizing the company and toughening regulations on the railroad industry. This scared investors and the government was forced to discount the offering, which sold at a measly 380p per share, ultimately raising less than £2 billion. However, the share price later rose quickly to reflect the market’s true valuation of the company, and investors reaped the benefits while the government reflected on what might have been.
If the federal government wanted to recoup its investment in GM, then the GM stock price should be much higher than the $33 initial price. In order to break even, as the Deal Journal reports, the stock price would have to rise to around $50 per share. So why is the Treasury Department selling off the company at a loss?
First, the government is what is known as a “motivated seller.” By offering such a low stock price, the administration is essentially admitting that it has no place in running an auto company. While GM’s financial position is much better than it was when it should have gone bankrupt, the company’s finances are not great. A quick crunch of any of the numbers in the GM prospectus shows the company is not the healthy organization the politicos would have you believe. They have done a poor job running the company, even if they did save it from going under by ignoring the law and throwing billions of dollars at it. The sale prospectus even admits “our (that is, the government’s) disclosure controls and procedures and our internal control over financial reporting are currently not effective.” Hardly a ringing endorsement!
Second, they’re not the only ones in the game. The unusual bankruptcy settlement for GM granted a significant portion of the company to the United Auto Workers. The union is in this game too, even though it has no investment to recoup. The UAW is selling around 18 million shares, so it stands to gain about $500 million for its pension fund — at taxpayers’ expense.
Finally, just as with RailTrack, there is considerable political risk involved. If the feds could nationalize GM once, they can do it again. The company admits in its prospectus that “The UST [U.S. Treasury] (or its designee) will continue to own a substantial interest in us following this offering, and its interests may differ from those of our other stockholders.” It suggests that government might interfere in “The selection, tenure and compensation of our management; our business strategy and product offerings; our relationship with our employees, unions and other constituencies; and our financing activities, including the issuance of debt and equity securities.” Furthermore, the government has asserted sovereign immunity, meaning that the IPO is not subject to anti-fraud laws.
This might sound familiar to RailTrack investors. The Labour government of Tony Blair eventually forcibly bought out RailTrack stockholders at a price of around 250p — a loss of about 35 percent from the heavily discounted price at which the stock initially traded. By selling GM stock at a loss, the federal government is giving us fair warning, and admitting the bailouts’ enormous cost to the taxpayer.
GM Bailout Losses Worthwhile for Obama as IPO Shrinks Cost to $9 Billion By David Welch and Craig Trudell - Nov 18, 2010 11:01 PM CT
General Motors Co.’s initial public offering showed that while U.S. President Barack Obama’s administration may lose billions on the auto-industry bailout, the national budget and economy might be better off for it.
The U.S. sold almost half of its stake in the nation’s largest automaker for $33 a share -- about $10 less than it needs to break even. The remaining shares will need to sell for about $20 higher to make up the difference. GM opened at $35 and stayed within $1.11 of that price all day. Selling the remaining shares at that price would produce a loss of about $9 billion.
That may go down as a bargain. The U.S. would have lost $28.6 billion in spending on social services and missing tax revenue if not for the bailout of GM, its former lending arm and Chrysler Group LLC, according to a study released Nov. 17 by the Center for Automotive Research in Ann Arbor, Michigan.
“GM ends up an economic contributor to the U.S. economy,” said Barry Ritholtz, author of “Bailout Nation” and chief executive officer of New York investment research firm FusionIQ. “It’s manufacturing products, it’s creating jobs, it’s buying wholesale parts, it’s doing what an industrial company is supposed to do.”
Since the Treasury sold almost half of its stake at $33 a share, the government needs future offerings to sell for an average of $53.07 a share to break even, according to data compiled by Bloomberg.
GM rose $1.19, or 3.6 percent, to $34.19 yesterday in New York Stock Exchange composite ...
That story is a bit odd, it assumes that we didn't lose tax revenue. Yet we spent more on the bailout than we received in tax revenue. The net gain in tax dollars would have been greater without the bailout. Plus there are x amount of cars sold each year, another company would have picked up those sales.
It's like if your wife goes to the store and buys three lamps 100 %50 off on sale that you didn't need. Sure she saved a $100 on lamps, but you already had lamps and would have $200 in your pocket.
They may have been referring to all the little people that pay taxes that would have been out of a job and collecting unemployment. That cut and paste opinion thing basams posted did leave out those costs though.
I was at an auto mall checking out a Nissan when I saw the Kia. Not exactly cheap in price. I went home and did some research. They've actually went with some german designers and engineers on the newer models. I think they're trying to make good on their old reputation as the new models come with a ten year 100,000 mile engine and power train warranty. and a 5 year 50,000 bumper to bumper.
I like ford because they didn't take bailout money and thought about buying one, but the thought of contributing to the UAW was too much for me.
it's funny when you consider that ford has historically been one of the biggest proponents of and donors to 'progressive' causes. the ford family, the foundation, and much of its leadership are avowed liberals (to their credit they've been pretty transparent and honest about their political leanings), but they refused the bailout. makes you wonder about quite a few things...
Former Clinton labor secretary Robert Reich made a couple of rather startling comments on ABC's "This Week" Sunday.
During the Roundtable segment, the devout liberal not only defended former governor Sarah Palin as a "realistic candidate" for president, but also questioned whether or not the government bailout of GM was necessary (video follows with transcript and commentary):
CHRISTIANE AMANPOUR, HOST: Let's switch right back to here and economic security. G.M. today this week had success, initial public offering. The bailout worked? The saving G.M. worked?
ROBERT REICH: Well, it worked, Christiane, to the extent that, indeed, G.M. is now worth $50 billion, if you believe the stock market, and before, in the old G.M., was worth $25 billion.
But what happened during the bailout? Actually, it was a -- it -- it was not so much a bailout as it was a reorganization under bankruptcy, and they got rid of $80 billion of debt, they got rid of thousands of jobs, divisions that were not functioning. Wall Streeters came in and reorganized G.M.
Why do we suppose the exact same thing would not have happened under Chapter 11 bankruptcy, reorganization? It's not clear that the $50 billion of taxpayer money was necessary.
I could have glanced up at the article, but I figure they're all interchangeable...
