The Auto Bailout Explained

Edward Niedermeyer
by Edward Niedermeyer
the auto bailout explained

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]

Join the conversation
9 of 35 comments
  • Jeff Waingrow Jeff Waingrow on Oct 06, 2010

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

    • PrincipalDan PrincipalDan on Oct 06, 2010

      "A man's principles mean nothing unless he has a full belly." - Mark Twain

  • Jaje Jaje on Oct 06, 2010

    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).

    • See 2 previous
    • Geeber Geeber on Oct 06, 2010

      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.

  • 86er 86er on Oct 06, 2010
    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.

  • Geozinger Geozinger on Oct 06, 2010
    "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?

    • Geozinger Geozinger on Oct 06, 2010

      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?