Bailouts Still Very Costly

  • Today the Congressional Oversight Panel (COP) released a

    report     on the automotive bailouts that clarified the ongoing
    risks taxpayers are facing. According to the COP, 66 percent of the
    $81.4 billion extended to GM and Chrysler through TARP remains
    outstanding, and taxpayers can expect to ultimately lose $14.7
    billion on the deal.


    The COP included a number of helpful summary tables and charts
    showing the administration of TARP funds to the auto companies and
    the amount of funds recouped. This chart shows the total
    disbursement of TARP dollars and the amounts still outstanding:



    Keep in mind that these were not the only form of government
    assistance given to GM and Chrysler (Cash for Clunkers, various
    green initiatives, and other programs also benefited the auto
    companies). Also remember that the public never agreed to assist
    the automakers. Instead, President Bush and Treasury Secretary Hank
    Paulson redirected TARP, which was only supposed to affect banks,
    to help GM and Chrysler.


    This more complicated graphic illustrates the GM bailout
    specifically (click for a larger version):



    The bottom line is that the Treasury has committed almost $70
    billion to GM though TARP, including a $17 billion bailout of their
    finance arm (formerly GMAC, now Ally Financial), a $2.4 billion
    bailout of GM's suppliers, and a $361 million guarantee of its new
    vehicle warranties. Despite all this support, taxpayers are going
    to lose billions on their "investment." Previous reports that GM
    had paid back the bailout funds it received were based on a little
    deception and a lot of transferring different government outlays
    into various accounts....

    The government still has a 33 percent stake in GM, which
    presents the greatest potential for loss for taxpayers. The TARP
    investment in GM would be repaid if the government were able to
    sell those stocks at a price around $53 per share. GM shares are
    currently trading below $40.


    The Wall Street Journal
    reported     this morning on the government's plans for that
    remaining stake in GM:



    The Treasury's point person on the auto bailouts, Ron Bloom,
    said Tuesday the government welcomes the recent rise in GM's share
    price, and said the administration wants to sell its remaining
    shares "as soon as practicable."


    Former Sen. Ted Kaufman, a Delaware Democrat who is the
    Congressional Oversight Panel chairman, said the administration
    should more clearly define its goals regarding GM so taxpayers can
    properly analyze the bailout efforts. The administration should
    define whether its top priority is to sell its shares quickly or to
    recoup taxpayer funds, he said. The administration has said only
    that it is balancing those goals.




    The administration would probably prefer to hold onto the shares
    until they reached the price at which they could claim that they
    made a profit on the bailout. Of course, whether or not the GM
    bailout is able to turn a profit with nearly unlimited government
    aid has little to do with whether or not the government should be
    involved in bailing out, owning, and managing auto companies.