By on October 5, 2010

While some have questioned why TARP was used to support the automotive industry, both the Bush  and Obama Administrations determined that Treasury’s investments in the auto companies were
consistent with the purpose and specific requirements of EESA.  Among other things, Treasury
determined that the auto companies were and are interrelated with entities extending credit to
consumers and dealers because of their financing subsidiaries and other operations, and that a
disruption in the industry or an uncontrolled liquidation would have had serious effects on financial
market stability, employment and the economy as a whole.

Translation: credit dependence killed the car companies. And from the 0% Red Toe Tag Sales to GM Daewoo’s $2b currency gambling loss, the glove fits. It’s a lesson that isn’t brought up often enough, and it’s one of the only passages of note in the Auto Industry Financing Program section of Treasury’s two-year TARP retrospective [PDF here]. Otherwise, the document is swallowed up in accounting for the billions spent on banks, despite the fact that

We now have recovered most of the investments we made in the banks.  Taxpayers will likely earn a profit on the investments the government made in banks and AIG, with TARP losses limited to
investments in the automobile industry and housing programs.

So, why not explain why projected auto rescue losses were reduced to $17b with more than just a footnote? [#2 on Figure 2-B shown above]

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35 Comments on “The Auto Bailout Explained...”


  • avatar
    jacob_coulter

    I love how much outrage there was over banks getting bailed out, but almost no ire towards the car companies that largely stiffed the American taxpayer.
    The government MADE money off the banks, all of the largest banks repaid the loans with interest.
    I’m against ALL corporate bailouts, my strategy for financial regulation is LET THEM FAIL. The auto bailouts were a gift from Obama to the UAW for helping elect him President, and I think we should demand all profits go to the taxpayer until the “loan” is paid in full.

    • 0 avatar

      Bush’s bailout was the equivalent of a McDonald’s worker reaching into the drawer and stealing enough money for him and his friends.  No one saw a thing and no one understood what was happening. There sure weren’t any Ron Paul’s or tea baggers to speak up against him.

      Obama’s bailout however was caught on tape.  I have NO IDEA where Bush’s bailout money went.  Every night on Fox, I KNOW where Obama’s money went.
      And for these tards questioning why Obama had to bail out “ALL” the banks rather than just the insolvents…its because OTHERWISE, THERE’D HAVE BEEN A RUN ON THE BANKS.

      Remember INDYMAC when people were lined up trying to get their money out after SMUCK SCHUMER suggested it was insolvent?
       
      Imagine that happening at Wells Fargo, Washington Mutual, Chase and Citibank… SIMULTANEOUSLY.
       
      I work for JP MORGAN Chase and I understand the subprime crisis and the consequences in a way that only bankers do. Obama did what he had to do. If the banks failed, we’d be in serious shit right now. YES, I think the stimulus wasn’t targeted well enough, but it was definitely better than Bush handing out $600 checks like he did 3 years ago.
       
      The car companies WERE THE AMERICAN TAXPAYER.  regular American’s with crappy jobs, pathetic salaries and totally reliant on the Banks that were rping them with high interest rates on relatively lame cars.
      Chrysler and GM had NO TROUBLE moving cars before the housing market defaulted. After that happened, their numbers were cut in half.
       
      YET THESE tarded’ REPUBLICANS tried to make it as if The Big 3 weren’t producing cars people wanted just so they could break the unions.
      Regardless… I’ll be voting against the right wing and their “commin sense conservuhtive valyaz” till my dying breath.

    • 0 avatar
      darkwing

      I was at a sporting event recently, and when a GM vehicle was trotted out for the crowd, distinctly heard a few grumbles and snide “I already paid for it; why should I buy it?” comments. I think there’s plenty of outrage about it — just ask your friendly neighborhood Tea Partier — but it gets downplayed because “corporate fat cat” attracts more eyeballs than “UAW fat cat”.

    • 0 avatar
      psarhjinian

      The auto bailouts were a gift from Obama to the UAW for helping elect him President

      One, the UAW vote was a given.  Democrats don’t have to pander to the unions any more than Republicans have to pander to libertarians.**  Do you really expect the UAW to endorse the Republican Party?  Really?

      The auto and bank bailouts were a necessity.  You can tell by how pragmatists on both sides of the fence were holding their nose and saying “Yes, we must do this”, including some people who made some dubiously ideological decisions on other matters.

      The only people opposed were actual socialists (who hate the idea of wealth redistribution in the “wrong” way) and actual libertarians (who don’t like government doing anything).

      ** Pandering to your more extreme ideological wing is a really good way to destroy yourself as a political entity.  Witness the Republicans today: instead of trying to reclaim the centre, they’re doing their damndest to hand the Democrats the middle ground.

    • 0 avatar
      Educator(of teachers)Dan

      Democrats don’t have to pander to the unions any more than Republicans have to pander to libertarians.
       
      Ummmm… no they don’t.  I’m a libertarian and I don’t believe that the Republican party has come close to having someone leading the party who was even mildly libertarian since perhaps the time of Barry Goldwater (10+ years before my birth.)  If the Republicans pandered to true libertarians then they would be the party of personal freedom.  They would be the party of reproductive freedom, sexual freedom, drug legalization, ect… and they’re not.  They would show the Right Wing Moralists of the party the door and tell them not to let it hit them in the arse on the way out.  I don’t see that happening during my lifetime and I’m only 33.

    • 0 avatar
      psarhjinian

      Ummmm… no they don’t.  I’m a libertarian and I don’t believe that the Republican party has come close to having someone leading the party who was even mildly libertarian since perhaps the time of Barry Goldwater

      And that’s my point.  The Republicans don’t need to pander to you: you’re as likely as not to not vote in disgust as you are to vote Republican.  You probably won’t vote Democrat.  The Democrats don’t need to pander to socialists and hardcore trade unionists for the same reason: those people will never, ever go to the other side.

      Government works like this, generally: you make vague statements about how things could be once you’re elected, and then you do your best to not rock the boat and quietly pay back all the people who donated large sums to and/or with whom you have an “understanding”.  You do not, ever, stick your ideological neck out because it’s as likely as not it’ll get your head chopped off.

      The Republican Party, for reasons I don’t understand, is not doing this.  It’s trying very hard to marginalize itself when it ought to be presenting itself as a centrist option.  Try to imagine if the Democrats, during the election, had started talking about “Nationalizing the means of production” (and I mean really nationalizing it, not the limp-wristed version we’re seeing here) and you’ll get the idea of how whacked the Republicans are.

      I’d love to see someone like Goldwater back, but closest there is would be Ron Paul or Bob Barr and they’re functionally un-electable.  I’d have also liked to see Kucinich run for the Democrats.  While we’re at it, I’d like a pony.

      You’re talking to someone who, if he held American citizenship, would be voting for Nader.  Interestingly, on social matters, Nader has more in common with your views than just about anyone with an (R) in their affiliation.

    • 0 avatar
      Educator(of teachers)Dan

      I know sometimes I feel like the two parties have damn near switch positions on things that were important to them a generation ago.  I do vote but it’s damn hard to select the lesser of the two evils.  The great irony now is that I’m teaching a Comparative Government class (liberal democracy, communism, socialism, postcommunist, ect…) and a class on The Legislative Process at the local college.

    • 0 avatar
      geeber

      bigtruckseries: No one saw a thing and no one understood what was happening. There sure weren’t any Ron Paul’s or tea baggers to speak up against him.

      You must have been in a coma during that time. There were plenty of Republicans and Libertarians who opposed the bailout of the financial institutions.

      One reason that John McCain failed to gain traction against candidate Obama was because he never really came out against the bailouts – indeed, in several respects he supported strong government intervention – and he thus turned off conservatives and libertarians. They saw little reason to support him over the alternative.

      Then you post this:

      I have NO IDEA where Bush’s bailout money went.  Every night on Fox, I KNOW where Obama’s money went.

      Then you post this:

      I work for JP MORGAN Chase and I understand the subprime crisis and the consequences in a way that only bankers do.

      Sure you do…unfortunately, your post doesn’t seem to reflect this special, insider knowledge. After all, you admit that you have no idea where the TARP money used to bailout financial institutions went. You also seem unaware that the reason TARP is likely to make money for American taxpayers is because of the banks and financial institutions, not because GM and Chrysler are now making money.

      I would believe that someone who works at a major financial institution would understand where TARP money went, and how it was used.

      bigtruckseries: YES, I think the stimulus wasn’t targeted well enough, but it was definitely better than Bush handing out $600 checks like he did 3 years ago.

      I believe you are referring to the initial Bush tax cuts, which were enacted in 2001-02, or more than “three years ago.” And please show what proof you have that the Obama stimulus worked better than the Bush tax cuts.

      Then we get to the real howlers in your post:

      bigtruckseries: Chrysler and GM had NO TROUBLE moving cars before the housing market defaulted. After that happened, their numbers were cut in half.

      Completely wrong. GM and Chrysler could only move cars by either piling massive incentives on the hood, or dumping them on rental car companies. They had been losing money long before the financial crisis hit in September 2008. They have been on the financial edge for most of the 21st century.  

      An auto company doesn’t succeed my merely moving the metal. It succeeds by moving the metal while making a profit. Dumping vehicles on Avis, Hertz and Alamo, or piling massive incentives on the hood, erodes brand equity and wipes out any profits.

      GM and Chrysler have failed miserably at the effort to build and sell cars for a profit for well over a decade now.

      bigtruckseries: YET THESE tarded’ REPUBLICANS tried to make it as if The Big 3 weren’t producing cars people wanted just so they could break the unions.

      More delusional “thinking.” The cars from the Big Three have been rated as inferior to the offerings from Honda, Toyota, BMW, Mercedes and even Nissan for years now. Their products were simply uncompetitive, and everyone knew it, except, apparently, you.  

      This is changing as Ford and GM improve their offerings, but it, in the case of GM, it was too little, too late.

    • 0 avatar
      ClutchCarGo

      People are more outraged about the bank bailouts than the auto bailouts because it seems that few (if any) of the people responsible for the bank’s problems were held accountable. In fact, it seems that many of them were actually rewarded for their disasterous decisions once the bailouts were necessary on the premise that they were the only ones who understood the situation well enough to unwind it. It was like lending your car to someone who got drunk and didn’t return it, then made you pay him to retrace his steps in order to find it. At least some of the people responsible for screwing up the auto business got fired.

    • 0 avatar
      psarhjinian

      I know sometimes I feel like the two parties have damn near switch positions on things that were important to them a generation ago.

      They actually did something like that, but I think it was more than a generation ago.  It’s hard to draw parallels between the Republican Party of Lincoln and the Republican Party today, just as you have to work to reconcile the Democractic party of the Dixiecrats with it’s modern equivalent.

      The problem is that there are two parties, and that those two parties are expected to cover a lot of ground, much of which is hard to reconcile, if not outright ideologically mutually exclusive.  Moralists and libertarians are very much on opposite sides of the spectrum, socially, and in other countries would be separate parties.  In the US, both are stuck being Republicans.  The Democrats, meanwhile, have to cover the spectrum from greens to anachro-syndicalists to autocratic socialists to a share of the capitalist social-liberals, none of whom like each other much.   For two parties, spread across a country that’s extremely socially and economically diverse, it’s a stretch, and a failing one at that.

      Having at least two more parties would do wonders for American political discourse.

    • 0 avatar
      86er

      Having at least two more parties would do wonders for American political discourse.

      Yeah, then it would be just like the Canadian Parliament.  Oh wait…

    • 0 avatar
      jacob_coulter

      As a libertarian, I’m having no problem figuring out the lesser of two evils right now.  I can easily see which party is pulling us towards socialism.

    • 0 avatar
      Educator(of teachers)Dan

      You see Amigo, the personal freedom thing is more important to me in the long term than the economic thing.  (Lights a cigar and pours a glass of whiskey.  No not really I’m at work right now.)

    • 0 avatar
      jacob_coulter

      Personal freedom?
      You mean the cigar the Democrats are trying to raise your taxes on, or the ones they forbid to have advertising in certain venues?  The war on tobacco is not coming from the Republicans.
      Or what about the proposed taxes on junk food and fast food the nanny state liberals are always pushing?
      I’m a social liberal on a lot of issues, but I certainly don’t see either party being pure on this issue, they both want to get involved in our lives more than I’m comfortable with.  On the important issues that effect my day to day life, I see my taxes being raised and our national debt exploding.
       

    • 0 avatar
      kjs

      The only people opposed were actual socialists (who hate the idea of wealth redistribution in the “wrong” way) and actual libertarians (who don’t like government doing anything).

      Well, that puts me in an awkward position, seeing as I’m neither a(n) (actual) socialist nor a(n) (actual) libertarian.

      I opposed the bailouts on constitutional grounds. I guess that puts me closer to the libertarians, though.

    • 0 avatar
      Educator(of teachers)Dan

      Yes Sir, that does put you closer to being an actual libertarian.  Our Consitution is a fairly “small government” document.

  • avatar
    LALoser

    There is a very good article about this in this week’s “Economist”. It is explained very well…and beyond the sound bites.
     

    • 0 avatar
      Daanii2

      Forbes has a good article on TARP as well — “Was TARP Worth It?” by William Isaac, a former head of the FDIC:
      http://blogs.forbes.com/billisaac/2010/10/01/was-tarp-worth-it/

    • 0 avatar
      Daanii2

      There is a very good article about this in this week’s “Economist”. It is explained very well…and beyond the sound bites.

      I got this week’s issue and read it. No article on TARP that I could see. Are you sure it was this week’s issue?

  • avatar
    segfault

    Oh, coulda, woulda, should. I mean what do you think about the money? 

    Twenty-nine. 

    Oh, let’s just toss it off like ‘twenty-nine’! Let’s say it with the respect it deserves.

    Twenty-nine-billion-dollars. 

    Well, that’s better, but not much. Will it work? 

    It’ll work. Won’t be pretty. 

    What ever is?

  • avatar
    Daanii2

    While some have questioned why TARP was used to support the automotive industry, both the Bush and Obama Administrations determined that Treasury’s investments in the auto companies were consistent with the purpose and specific requirements of EESA. Among other things, Treasury determined that the auto companies were and are interrelated with entities extending credit to consumers and dealers because of their financing subsidiaries and other operations, and that a disruption in the industry or an uncontrolled liquidation would have had serious effects on financial market stability, employment and the economy as a whole.

    Ha, ha, ha, ha, ha, ha, ha. That’s funny.

  • avatar
    Robert Schwartz

    B$ and spin. Bush fronted money to the car companies because he wanted to punt any final decisions to BO. He had taken enough $#;+ from the media and wanted no more. BO bailed them out because the unions said so. As for the rest of it, it will be 30 years before we can figure out how much it really cost, but if the Government said that it wasn’t much, just assume they are lying.

    • 0 avatar
      picard234

      Robert,
      I agree with your sentiment.  And the political (libertarian) part of me agrees.  But being an employee of a supplier that would have been hurt by a GM/Chrysler Chapter 7, I personally benefitted from the bailout.
      How do I reconcile this conflict of interest?!

    • 0 avatar
      George B

      Picard, just like water flowing down hill the automotive manufacturing overcapacity wants to be resolved with some deal where GM and Chrysler light trucks get manufactured by non-union workers in plants owned by successful Asian car manufacturers.  The government is delaying the inevitable, but eventually the industry will consolidate.  I hope your employer is well positioned to survive the consolidation.
       
      In my opinion, the government involvement/bailout of GM and Chrysler should have focused on moving the cost of older retirees off their books and onto the taxpayers.  Remove a big chunk of the retiree cost and then attempt to reorganize under normal chapter 11 bankruptcy law.  That would have kept the government out of the car manufacturing business and given the reorganized GM and Chrysler a chance to sink or swim on a more equal footing with their competitors.

    • 0 avatar
      darkwing

      You mean a lame-duck President rightly allowed the incoming administration to make a major political decision, rather than hastily forcing something through on his way out? Why, the nerve! To the Hague with him!

  • avatar
    RogerB34

    Reality and not preliminary Treasury estimates of all of TARP PDF page 2 TARP Summary Table:

    http://www.financialstability.gov/docs/TARP%20Two%20Year%20Retrospective_10%2005%2010_transmittal%20letter.pdf

  • avatar
    Jeff Waingrow

    picard234: When self-interest comes up against ideology, do you really need to be reminded of the usual winner?

  • avatar
    jaje

    I’m still on the fence about the Fed bailout of any industry.  I believe in the free market to right the wrongs – punish those who lied, cheated and stole (and most importantly those who knew it and looked the other way) in the system.  Unfortunately we threw money at them in droves to save them.  Consumers irresponsibly in the chase “material possessions” spent way more money than they made and borrowed against their homes and other property.  We built up this system and we bailed it out meaning it will then gain steam again and go this route.
     
    However, if we did not bail them out – our recession likely would have be so much worse it would have become a true depression.  No other Presidents (Bush and Obama) have had to deal with a market like this since the late 20′s.  I’m still on the fence about whether we should have gone this route.  It seems that we are slightly better off in the short run with the bailouts to help stable the system – but we need to weed out the corruption in the financial system (let alone our Congress).

    • 0 avatar
      Educator(of teachers)Dan

      I’m with you on the conflict.  I’m a classical liberal when it comes to economics (government should stay the hell out) but also know that the collapse of those companies could have thrown the economy into chaos.
       
      I still personally believe that long-term (30 to 50 years down the road) the American economy would have been better served by a either Chapter 11 or Chapter 7 bankrupcies for GM and Chrysler.  GM at least is still an “engine of wealth destruction” – money is being poured into it and pissed away.  I hate that!  I hate mortgaging even more of our future to prop up a company that still hasn’t learned a damn thing from its near death experience.

    • 0 avatar

      I’m not a fan of government intervention in business. Having said that, to pretend that the government hasn’t been intermixed in virtually every business for the last sixty years is ridiculous. Almost the entire tax code is set up to incentivize one business or another. Reagan’s ACRS was a government subsidy of the auto business, allowing individuals to write off auto purchases in just three years. The long exemptions of trucks and SUV’s, along with one-year expensing of GVW>6000 lb vehicles as surely put the auto business into jeopardy as the lethal combination of (mis)management and  mismanaged unions.
      The redolence of this subject arises when suddenly someone “decides” it is philosophically bad for the government to be involved. The change is what creates problems, no matter which direction the change moves; and the more radical the change, the less predictable the outcome.
      In the case of the auto-industry bail out, I suspect that both Bush and Obama feared that Chinese manufacturers, flush with cash, would buy GM and Chrysler at pennies on the dollar. For this reason alone, I supported this bailout.
      I wouldn’t mind seeing good dialogue on getting the government out of every business, but it cannot be done overnight. The airline business is a perfect case in point; never a great business to start with, airline “service” has gotten worse in each succeeding year since it was deregulated by Carter. The “benefit” to we citizens is that we are now herded like cattle to sit in chairs that would shame Greyhound for the privilege of “cheap” travel. Regulated airline travel was far superior.

    • 0 avatar
      geeber

      Regulated air travel was also far more expensive, relative to the average person’s income, than it is today. Of course it was nicer – fewer people flew, and those that did tended to be in the higher income brackets. They demanded better services and more amenities.

      (It was also more dangerous – we’ve set safety records for air service in this country over the last few years.)

      The flight was as much part of the vacation as the destination itself. Now people just want to get where they are going.

      It isn’t just in the U.S. While in Europe in 2006, I took two flights on Ryanair. We were packed like cattle into the planes, and the attendants sold lottery tickets halfway through the flight! But we got where we were going for not much money and not too much time, which is what really matters.

  • avatar
    86er

    The only people opposed were actual socialists (who hate the idea of wealth redistribution in the “wrong” way) and actual libertarians (who don’t like government doing anything).

    Psar, I would’ve expected the “libertarian-as-pseudo-anarchist” meme from anybody but you.

  • avatar
    geozinger

    “We now have recovered most of the investments we made in the banks. Taxpayers will likely earn a profit on the investments the government made in banks and AIG, with TARP losses limited to investments in the automobile industry and housing programs.”
     
    How did the banks pay it back? They have your money. On the consumer level: You overdraw your checking account? Ding! Increased fees, sometimes as much as 200% of what they were previously. Look at your bank fees on your personal accounts. They have all gone up, sometimes dramatically. How’s your savings account doing? Wow 1% interest? Fantastic! I’ll be able to retire in 384 years with that!
     
    On the business level: The company my wife was employed by was forced into bankruptcy by one of the banks it had borrowed money from. They wanted payment immediately and the arrangements and negotiations prior to the deadline were declared null and void. The bank used the courts to force them into bankruptcy, but fortunately, the BK judge did not allow a liquidation of the company (it was fairly well run and making money). They were sold at auction to a venture capital company, who is now in the process of ‘right-sizing’ the company, we’ll see how much longer my wife will be employed. A similar thing happened to a large, well established furniture retailer in our area, but in this case, the bank prevailed and the company is now forced into Chapter 7 liquidation. Over 100 years of business flushed down the toilet, with a liquidation company treating the family name like toilet paper.
     
    So, how can the car companies get in on this action?

    • 0 avatar
      geozinger

      More thoughts…
       
      Whatever happened to all of the money these banks were supposed to lend to boost the economy? How can I get in on this gravy train, with my business? I really need my own legislator. And BK judge.
       
      It seems to me these financial institutions are getting the money to pay off the TARP loans by sucking it out of our wallets. How else are they able to come up with all of this money so rapidly?


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