By on January 14, 2010

My commitment is to the American taxpayer. My commitment is to recover every single dime the American people are owed… We want our money back and we’re going to get it.

Without even getting into the politics of President Obama’s proposed “financial crisis responsibility fee,” it’s easy to see that the initiative holds a wealth of implications for America’s TARP-recipient automakers. In Obama’s new rhetoric, taking TARP money put businesses in a new category of special obligation to the taxpayers. Though the fee is targeted at financial institutions, the principle applies just as much to Detroit.

Banks owe the government about $60b in TARP money, while GM and Chrysler owe about $50b. Unlike the financial institutions though, it’s clear that GM and Chrysler will never be able to pay back their full obligation to the taxpayers. This has Wall Street types in a fury, accusing the White House of forcing them to subsidize Detroit.

The real irony in all this isn’t that successful banks will be penalized while failing Detroit gets a pass. That makes perfect sense, because as Rep Barney Frank puts it “getting money from these banks is a good way to expand government revenue without expanding the deficit.” There’s no such money to be had from GM and Chrysler.

The real irony is that the bank bailout allegedly took place because nobody understood the real nature of the crisis, shrouded as it was in the opacity of financial industry jargon. Now that the moment of crisis is over, the banks are back to making money, while the automakers are still dreaming of that first post-bankruptcy profit. Which one turned out to be the more difficult, complex industry?

If you don’t want banks making risky bets you can tie “fees” to their leverage ratios. But how do you legislate your way to a successful automaker?

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31 Comments on “Quote Of The Day: Payback’s A Bitch Edition...”


  • avatar
    Cynder70

    I disagree with the premise that a bank, businesses don’t have a fundamental responsibility to fund the market in which they operate.  It’s possibly true that the government threw the kitchen sink at the problem but what’s the down side? We saved too many jobs or eeked out a small margin for Detroit cars?

    It’s a lot of money but we’ve been in worse shape–we’re not even close to as our historical lows.

    The fundamental problem is our tax rate is too low and has too many loopholes.

    • 0 avatar
      jkross22

      The fundamental problem is our tax rate is too low and has too many loopholes.

      You’ve got the last half right, but the first half is a woefully ignorant statement.  Ever read a utility bill, phone bill (cell or land line), or maybe even your check stub?

      Tell you what… rather than having deductions taken out of your check, just write the Feds and your state government a check once a quarter.  Do this and I promise you will feel as though you’re being taxed plenty.  Unless you’re earning around 50k/yr, in which case you likely pay little or no income tax.

      Just for the interests of asking the question, in your world, what should the tax rate be so that it’s not too low?

  • avatar
    pleiter

    Government mandated vehicles for public servants. Take a pay-cut, and get a car as an offset.

  • avatar
    Telegraph Road

    “subsidize Detroit”…”failing Detroit”…I think you mean GM, Chrysler and GMAC.  Capitalism is alive and well in Dearborn.

    • 0 avatar
      superbadd75

      Ford took money too. Don’t be fooled just because the little memo line on the check didn’t say “TARP”. And it’s not over yet, one more slow year and Ford might be standing in the line at the bailout buffet too.

    • 0 avatar
      Steven02

      The DOE money has very specific restrictions on it.  It was also available before GM and Chrysler went bankrupt.  While Ford isn’t out of the woods yet, they aren’t doing poorly either.

  • avatar
    ihatetrees

    But how do you legislate your way to a successful automaker?
    They need to get card-check passed ASAP to kneecap the transplants.
    Administratively, they can gut funding for corruption and racketeering investigations into unions. And they need to move quick before they get hammered in November…

  • avatar
    grifonik

    Wait, I know how the goverment can fix this. It’s soooo simple. Just have the government implicitly back all automobile purchases! If the car turns out to be junk, just walk away and buy another one. The government will pickup the tab on the bad car loan. And make the backing implicit for everyone. Poor, rich, whatever! Car loans for all with no silly credit checks! Oh, and lets call the new program CarnieMAC.

    Wait a second. Something in recent history… Nope. Its gone.

  • avatar
    KixStart

    The proposed bank tax/fee/fine/what-have-you was the subject of an interesting discussion on today’s BBC World Business News report:

    http://www.bbc.co.uk/podcasts/series/wbnews

    This particular episode:
    http://downloads.bbc.co.uk/podcasts/worldservice/wbnews/wbnews_20100114-2255a.mp3

    There’s a lot to like about the idea.

    Possible future Question of the Day: Why doesn’t the “insert link” button work any more?

  • avatar
    John Horner

    The way the bankers have manipulated all aspects of the American economy to their own personal benefit is far bigger than most people realize. Do you wonder why the price of gas has been going up these last several months even though demand is still stagnant? Mostly due to market speculation by the proprietary trading operations of large banks and hedge funds. The bankers and their hedge fund/buyout fund buddies have been taking a massive blood transfusion out of the rest of the system and feeding it into their own pockets. The gap between the almost non-existent interest banks pay on deposits and the extraordinarily high rates they are getting from credit card suckers is at an all time high. The fees banks are shaking down customers for at every turn are at all time highs.
    So yes, extraordinary taxes on the sector of the economy which have been sucking the life out of everyone else seems like a reasonable thing to consider.
     

    • 0 avatar
      DanM

      Although it’s fun/easy to get pissed at banks for manipulating oil prices, keep in mind that the price of oil converges to the marginal price at the point of demand.  i.e. whatever may happen to the “future” price of oil (and profit/losses based on it), the current price is based on supply and demand.  At some point a commodity must by consumed — and that dictates the running price.  The problem with oil is that the BRIC’s have decided to start using it now … and despite their relatively small vehicles, they’ve got a few more people than us to drive demand given a supply-limited environment.

      Not that I’m opposed to taxing banks more heaviy … but when we do it, we should be realistic as to why:  they’re profitable (and hence taxable) due to the spread/difference between the high interest paid by borrowers (due to the huge risk given the current economy) and the low interest paid to depositors (due to the high level of deposits by folks unwilling to put money into stocks & other investment vehicles).

      BTW:  I’m an engineer, not a banker

      //dan.

    • 0 avatar
      MikeAR

      Actually prison would be a better outcome and RICO prosecutions of the banks. But you are right about market manipulation, it’s a story that has been avoided by the media.

    • 0 avatar
      Mark MacInnis

      JohnHorner:  +1  I have been tracking oil prices in relation to currencies and other commodities and other general financial data.  Oil prices are being manipulated by the few, for the benefit of the few,  at the cost to the many, and this is largely flying under the radar.

  • avatar
    criminalenterprise

    The banks are “back to making money” because the Fed is floating them as much 0% paper as they want.  Anyone could make money under these conditions with access to the Fed window.  The financial powerhouses in our nation threatened our solvency, sovereignty and almost plunged us into a depression the likes of which would have set us back decades.

    They got a $700B blank check.  Many firms have been able to say they’ve paid it back, but they also won’t brag about how they collected, thanks to the government, 100 cents on the dollar for AIG swaps that would have been negotiated with a substantial haircut in a normal workout.
     
    To even obliquely wish GM and Chrysler could be more like Wall Street is madness.

    • 0 avatar
      Disaster

      That about sums it up.  The banks are getting money at 0% and loaning it out at 5% (secured auto loans) to 29.9% (unsecured credit cards.)  Meanwhile they still aren’t freeing up loans to small businesses or homeowners like the Fed thought they would.  It reminds me of “trickle down” economics. Funny how the current administration likes to rail on the previous ones for it but our current economic stimulus amounts to the same thing. Bottom line is it doesn’t matter which party is in power. They both are beholding to large business money machine.

  • avatar
    TonyJZX

    obama should put a tax on GM and Chrysler cars to get their bailout bucks back…

    • 0 avatar
      Steven02

      Did you actually think about this?  Higher car prices would make the cars less competitive.  Less cars being sold would be the end of both Chrysler and GM, and then all of the money put forth would be wasted.
      The difference between the banks and the auto industry is that most of the banks are making money again, and lots of it.  Not so much for Chrysler and GM.
      Don’t get me wrong, I am not opposed to having GM and Chrysler pay back the money, but imposing a tax or something too soon would just kill them off.  If you were going to do that, there would be no sense in bailing them out.

  • avatar
    jpcavanaugh

    The other reason that the banks will get taxed and GMsler won’t is that the bank tax will not harm the UAW.
    The whole TARP thing still steams me.  Let’s all recall that the whole reason this thing was passed in the first place was to allow the Gummint to buy up all of the “toxic assets” which were worthless.  For every $1 that an asset depreciates, accounting rules required the banks to find another $1 in capital to make up for it.  Thus, banks were themselves scrambling for money and not lending any.
    Then the Gummint did a bait and switch on us.  So far as I am aware, not a dime of TARP money was used to buy the toxic assets (and wait for most of them to rebound once the panic was over) but was instead used to prop up the institutions themselves.
    Once this jump was made, everyone wondered why not use this money to prop up other companies too, like GMsler.  If the administration could stick to principle over politics, there is no reason to treat the banks different from the automakers (like when the money was getting doled out).  But in the current political environment, this administration cannot do anything which would cost it the support of the UAW, so the banks will get taxed and the automakers will not.
     

    • 0 avatar
      ClutchCarGo

      The switch from using TARP funds to buy toxic assets to using TARP to inject cash into the banks was made by the Bush admin, not Obama (altho Obama has not changed things). I doubt that the Bush admin did that to appease the UAW. The primary reason for injecting cash instead of buying troubled assets is that it proved nearly impossible to find a way to price the assets in a way that would save the banks without screwing the taxpayer. Banks continue to hold the assets in the hope that the economy recovers and the assets recover their value, since selling them now would require reporting losses on the assets.

  • avatar
    TonyJZX

    my question is this… the Bush Administration did what it had to do… did they do a good job? did their actions do something positive?

    what exactly can obama do to ‘fix’ the situation? he can’t put the toothpaste back into the tube
    this may not be too ‘fair’ but i doubt he’s gonna get much opposition from anyone since everyone hates banks anyway…

    • 0 avatar
      superbadd75

      People may have a negative view of banks, but when they start charging their customers for taking money from the ATM or letting their balance get too low, we just all need to remember it’s because they’re getting charged fees for money that they’re already paying for with interest. It’s a political move being made by a man that has it in for Wall Street and financial institutions. Meanwhile, GM and Chrysler will get a free pass on money that they’ll never pay back because his UAW cronies propped him up and it’s time to return the favor and keep them employed. It’s a bunch of crap, and we’re all going to wind up paying for it.

  • avatar
    tedward

    Well, it’s a bit more involved than the article says. The White House is required to propose a method where they can raise these funds by law, period. In my view the President is being so confrontational on this issue to show good faith to the legislature (he really isn’t a bully-pulpit kind of guy, see healthcare debate, he leaves it to others). Also, regardless of any individual bank’s TARP status (or lack thereof) the tax would apply to the largest institutions as a leverage penalty (which you briefly mentioned).

    The banks could have done a lot of things with their profits of late, many of which would have been construed as “playing ball” by voters and politicians alike. They chose not to, despite the fact that doing nothing different would certainly be viewed as a overtly political move by the nation as a whole. They screwed up, plain and simple, unless of course then can bribe their way out of this proposed tax.

  • avatar
    VanillaDude

    In Obama’s new rhetoric, taking TARP money put businesses in a new category of special obligation to the taxpayers. Though the fee is targeted at financial institutions, the principle applies just as much to Detroit.

    It doesn’t matter if a bank took TARP money, because Obama is taxing all banks, regardless. It would be as if Obama decided to tax all American-manufactured cars because of GM and Chrysler.  Where is the incentive to do a good job and avoid risk when Obama is going to tax you to pay for the stupid people?

    These taxes will raise the costs of doing business, not as the President claims will force these businesses to cut back on bonuses and salaries. If he believes that, he doesn’t understand basic economics. He also doesn’t understand that these additional taxes will make these businesses less competitive globally.

    This is a political stunt, not a well thought out policy. It is taking what was a bipartisan solution, and ripping it to shreds for partisan political benefit. That kind of leadership cannot unite the US. Obama isn’t reaching out, he is slamming doors in the hopes that his political opponent’s fingers will get caught. He is dividing America by class with this kind of stunt. That isn’t being presidential. It is being a partisan politican, the kind of guy Obama said last year – he wasn’t. We lose!

    • 0 avatar
      tedward

      VanillaDude

      I half agree with what you’re saying. What the President is trying to do is threaten these financial institutions with the full weight of his popularity and office (even if you’re a Republican, you have to admit this is quite considerable, especially where banks are located locally) if they don’t conform their business practices to the political neccesities of the day. On the other hand, he knows full well that he does not currently have the means to control how they spend their profits at the moment (hence my half agreement on you “political stunt” claim), and he might not be able to marshall it at all.

      What makes this leverage powerful is not an appeal to class warfare however, it is the fact that incompetent risk management and short sighted lobbying efforts (and the aquiescence of one very self interested political party) on the part of our financial institutions have led us into this mess in the first place. Everyone knows that, and it makes it possible for him to threaten the banks with a popular president advocating real reform, not just a tax.

      In short, sure, they COULD pass on this tax to consumers. Or they could cut internal costs such as reducing pay packages to executives and trimming management, and avoid a fight with the White House and over half of Congress. When he makes the implicit threat publicly like this, he makes choice two a palatable option  for angsty shareholders and bank executives.

    • 0 avatar
      Steven02

      tedward,
      I have to disagree with you. I think the banks will call his bluff. If he does pass this, while we are still in a recession, I would expect banks to cut jobs and blame it on the economy. While the office has clout, nothing is going to happen without executive order or passing a law through congress. If it does happen, which will be quite hard, I don’t see banks cutting back on the higher ups.

      Many corporations look to cut costs daily. Whether that is less 401k contributions, less health benefits, fewer employees, or less salary for the employees, it is a very rare thing that any corporation actually take away benefits from the executive level. I live in corporate America and see my health benefits cut year after year. While the higher ups may see the same dollar amount effect, it will likely be offset by a better stock price and bonuses. Bottom line, all this will do is make it more expensive to deal with banks.

    • 0 avatar
      tedward

      Steven02

      I agree with your disagreement with me. Hence my closing sentence in the first post, “unless of course then can bribe their way out of this proposed tax.”

      He’s threatening them with an all out confrontation that centrist Democrats would not endorse, or at least would waffle on publicly in order to raise campaign funds from these same institutions. To top it off, Republicans would reap the financial benefits in grand style across the board. It’s extremely unlikely it’s more than a bluff. Still, that’s one hell of a bet for the banks to take.
       

  • avatar
    gslippy

    While I am fundamentally opposed to the banks subsidizing Detroit, the fact is that bailout recipients are all ‘owned’ by the US government until the debt is paid, and are in no position to dictate terms.
     
    The price of selling yourself into slavery is quite high.

  • avatar
    TonyJZX

    good point
    the CEOs,  merchant bankers and other leeches will always get their cut

  • avatar
    VanillaDude

    <i>What makes this leverage powerful is not an appeal to class warfare however, it is the fact that incompetent risk management and short sighted lobbying efforts (and the aquiescence of one very self interested political party) on the part of our financial institutions have led us into this mess in the first place.</i>

    This tax goes against all banks. Even the ones who played by the rules and didn’t take risks. It will increase the costs of banks, both good and bad. It paints all banks and banking institutions as bad. It takes the sins of the few, and forced everyone to pay for those sins.

    And the financial lobbyists gave over 70% of their political financial support to Democrats. The old “Monopoly Banker” GOP guy has been long gone and only exists in pop myths. Wall Street supports Obama. This political move by Obama innoculates him from any charges that exposes him to the deal making he did in 2008 and last year.

    And by your comments it sounds like Obama has reasons to believe he can play this game and win.

    • 0 avatar
      tedward

      VanillaDude

      Well, I’m not sure if you read my posts thoroughly.

      First of all, the tax applies to the biggest financial institutions, those that a. can afford it without necessarily having to pass the buck on and b. have all benefited substantially from the expenditure of bailout funds (whether or not they received any they breath easier today (or at all) because of it). Not all banks, not by any reasonable standard. They all made more money, one way or another, on this deal than they will ever pay out, especially once they are done trading in their own leverage. Think of this as similar to Lahood’s embracing the pay-per-mile scheme as the boogeyman to everyone else’s (all of sudden quite reasonable sounding) gas tax hike. 

      I specifically noted that many Democrats will milk this for campaign funds, while never having any intention of voting for it, and also noted that Obama is only willing to go all out on this (speech at least) because of his legal and political obligations to Congress. They, in effect, mandated his full and public support of some sort of tax levy, and he is delivering.

      Re: financial lobbyist’s donation tendencies in the last election. When, in recent politics, has there been a more clear cut landslide in the making? The financial lobbyists always, ALWAYS, donate to the likely winner. The amount they donate to a clear loser is only enough to ensure they don’t wean those politicians off of the fundraising teat or make real enemies. Everyone knows this.

      The dig at Republican politicians was, I thought, well deserved and lacking in the usual political hyperbole. They did trade votes for donations on a grand scale, and they did so in a transparent and immediate (most importantly) fashion. It was shameful and obvious. That is why Obama is in any kind of position to begin trading shots with the banks. I’m hardly drinking any kool-aid in acknowledging this.


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