Surprise, surprise the American people will not be getting much of its money back from General Motors and Chrysler that was lent them as loans before they went to bankruptcy. Big shocker! General Motors and Chrysler probably won't be able to pay back all those loans we've extended them! From the just-released September report of the Congressional Oversight Panel assigned with keeping an eye on the Troubled Asset Relief Program: 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. The Congressional Budget Office earlier calculated a subsidy rate of 73 percent for all automotive industry support under TARP and recently raised its estimate of the cost of that assistance by approximately $40 billion over the previous estimate.
This comes as we've been getting mostly good news about the money Treasury extended to banks last fall. Even Fannie Mae and Freddie Mac might, if we gave them long enough, be able to pay us back eventually. Why the difference between financial firms and automakers? Part of it is just that GM and Chrysler were struggling companies that had been losing market share for years before the financial crisis hit, while U.S.-based financial firms were doing quite well. The banks simply aren't in the same competitive bind GM and Chrysler are. But another really important part of the equation is that it's pretty easy for the Federal Reserve to create conditions that allow banks to make lots of money—mainly by keeping short-term interest rates really low—whereas doing that for the automakers is much harder. Cash for Clunkers was definitely a gift to the auto industry, but compared with all the Fed's lending programs it wasn't very big, and it benefited other companies more than it did GM and Chrysler. The only way to guarantee GM and Chrysler's profits would probably be to impose a big surcharge on cars made by other manufacturers. Which isn’t going to happen? Basically, it's politically easier in the U.S. to extend corporate welfare to banks than to carmakers. Strange, no?
Does this mean the GM/Chrysler bailout was a failure? Well, as the Elizabeth-Warren-led COP points out again and again in the report, it depends on what the Administration was trying to accomplish: Was the primary purpose of this intervention to provide bridge funding to the automakers, with the expectation that these were viable companies that could eventually repay taxpayers in full? Was it to prevent an uncontrolled liquidation because such a prospect posed a systemic risk to the financial markets and the overall economy? Was it to advance broader policy goals, such as improving fuel efficiency or sustaining American manufacturing and jobs? Or was it some combination of these? To date, Treasury‘s public statements provide little clarity, as each of these objectives has been cited at various times.
Sure seems like that second reason—"to prevent an uncontrolled liquidation"—is the one Treasury ought to be playing up because by that standard the bailout has been a spectacular success. Still last week on the day of President Obama’s big health care speech, there was yet another lesson on why it’s important for the administration to be clear about its goals. The panel that oversees another big and controversial government initiative — the Troubled Asset Relief Program (TARP) — says the taxpayers probably won’t get a lot of their auto bailout money back, and no one can say for sure that that’s a failure because the Treasury Department was so unclear about what it was trying to achieve in propping up the nation’s failing automakers. That’s a bit of a problem, given that Treasury Secretary Timothy F. Geithner has been spending so much time arguing that the federal government is making an overall profit off of the TARP program.
As mentioned, according to the latest report from the Congressional Oversight Panel, which was set up to monitor the bailout program, about $23 billion in loans probably will have “much lower recoveries” than expected — out of the $81 billion the taxpayers are expected to pay for the bailout of General Motors and Chrysler — and about $5.4 billion in loans to the old Chrysler company probably won’t be recovered at all, out of the $14.3 billion Treasury is spending on that company alone. It doesn’t sound like a runaway success, but the panel didn’t come right out and say so. And that’s where the importance of clear goals comes in. If Treasury had put out one set of clear and consistent goals for the auto bailout, the panel said, it would have been easier to measure how well or how poorly the bailout is going. But since Treasury has given lip service to three different goals at different times, the panel basically threw up its hands and said it can’t tell whether the record is better or worse than overseers should have expected it to be.
The three possible goals, according to the panel, were to prevent a broader threat to the economy because of the companies’ collapse; to advance social policy goals, such as preventing greater job losses or stabilizing retirement benefits; and/or to keep the U.S. auto industry alive at a respectable level. But while Treasury has talked about all three goals at one time or another, “it is unclear which objective, or combination thereof, Treasury deems most important — or if all three carry equal weight,” the panel concluded. “As such, in the absence of a clearly articulated unifying strategy, it is difficult for outside observers to determine which metrics are the best indicators of Treasury’s performance.”
Of course, it could be that the panel just didn’t want to take a stand and that blaming Treasury for a lack of transparency was a convenient way to avoid the issue. Still, taxpayers generally do like to have clear goals when their money is being spent. And it can’t just be one presidential speech that sets out those goals. The department that’s in charge of the program has to be able to explain those goals too, in a clear and consistent way. So when President Obama made his case for a critical but potentially expensive makeover of the health care system, he was under pressure to explain exactly what he wants. But the same will be true for the lawmakers writing the bill and the agencies that would implement the new law, too. The clearer the goals are, the easier it will be for the overseers to measure how successful the overhaul is. And it wouldn’t hurt if the public knows what to expect, either.
To a degree President Obama answered many of those questions last Wednesday night. However what should make many people taxpayers angry is that prior to the auto companies going into bankruptcy is that many Congressional leaders advocated for bankruptcy last December before the Bush administration extended GM and Chrysler a life line in the form loans which were suppose to be paid back. Nonetheless the Obama administration came into office and gave them another life line in the form of loans before sending them into bankruptcy where both companies received even more government dollars in order to come out bankruptcy. Therefore, the blame of the auto industry and the fact that they won’t be paying us the taxpayers back billions of dollars doesn’t rest on one administration or one political party. Both Democrats and Republicans are to blame for this and it is clear that we the taxpayers are the ones who get hurt in the end.
Think about it people, this issue was first reported on back when GM and Chrysler were just going into bankruptcy. Now months after General Motors and Chrysler have emerged from bankruptcy, the Treasury Department is telling us the American people that we will not be getting back all the money we gave GM and Chrysler prior to them going into bankruptcy. Nearly $50 billion plus in loans is what we the American people will not recover from GM and Chrysler so that means future generations of Americans will have to find a way to plug up that gap in future budgets. Also this means that this is yet another thing that we the American people have to find a way to prevent in the future as well as another thing that will be added to the national debt that will be permanent since it can’t be paid back, thus resulting in generational theft from future generations of Americans.
Just imagine if GM and Chrysler had of went into bankruptcy last November and December and how much better off, this nation would be financially in terms of deficits and debt. There are some people who will say that GM and Chrysler going into bankruptcy than would have be disastrous for the economy but I beg to differ because we the American people still would have been giving them either way it goes but at least we would have saved some billions from being wasted which is the case right now. This is why goals must be set for all money coming out of Washington and all government programs. Time will tell just how successful cash for clunkers was but if early signs are true, cash for clunkers was more successful for foreign car makers than American auto makers which it was intended to help.
Therefore, we the American people should be very skeptical of any government programs these days because of the fact that much of our tax dollars won’t be paid back to us or it wasn’t used properly in the first place. The auto industry, half of TARP and some of the stimulus money are all examples of just how bad the government has mismanaged us tax dollars in trying to fix the economy. What’s next people and how long will we stand for this mismanagement and abuse of our tax dollars? These are the questions indeed.
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