Uncle Sam’s $81B Investment in Automakers Unlikely to be Recovered

Do the ends justify the means? Is the American taxpayer better off not knowing how his money is being spent when rescuing private corporations? Is the Obama administration’s claim of transparency a mere facade? I believe a strong case could be made that all of these assertions are true in reviewing the likelihood of the American taxpayer recouping taxpayer funds injected into GM and Chrysler.

While government pundits and market analysts will crow about positive returns on TARP funds injected into banks that never truly wanted the money in the first place (Goldman Sachs and JP Morgan amongst others), they have little to say about the TARP money which will not likely be coming back from the automotive industry.

I highlighted this point on June 30th in writing “The TARP Has a $159 Billion Loss“:

Of the $699 billion in total capital, $142 billion has yet to be committed. Of the funds already allocated, Uncle Sam has incurred a total cost of $159 billion. What does that mean?

Recall the number of times that government officials told taxpayers that we would make money on investments in AIG and the like. Well, so far we’ve lost $159 billion dollars across all our TARP investments. The loss is calculated as the difference in funds committed and allocated to securities and the market value of those securities. That loss represents 36% of the funds committed and actually allocated.

Where do a large percentage of the funds unlikely to be recovered reside? Detroit, as in GM and Chrysler.

Bloomberg sheds further light on losses embedded in the TARP in writing U.S. Taxpayers Unlikely to Recover Auto Investment, Panel Says:

U.S. taxpayers are unlikely to recover their $81 billion investment in General Motors Co. and Chrysler Group LLC and were “left in the dark” on specifics of a decision to aid automakers, a congressional panel said.

The report didn’t estimate how much of taxpayers’ aid to the auto industry will be recovered. The panel said GM stock would need “highly optimistic” returns in order for the full investment to be repaid.

The report of the panel, which oversees the Troubled Asset Relief Program, raises questions about the Obama administration’s transparency in aiding automakers and challenges the Treasury Department to make more disclosures about company decisions and the government’s future role.

“Congress and ultimately the American taxpayer have been left in the dark concerning details of Treasury’s review process and its methodology and metrics at a time when Treasury committed additional TARP funds to these companies,” the panel said.

“The Treasury auto team failed to disclose to the public both the factors and criteria it used in its viability assessments, the scope of outside involvement in its evaluations, and its basis and reasoning for selecting particular benchmarks,” according to the report. “Simply, its disclosures did not go far enough.”

As these companies try to recover, taxpayers should not expect a return of any of these $81 billion. Taxpayers should also not expect transparency from Washington. Being truthful and transparent are not exactly consistent with the ‘Washington way.’

About Larry Doyle 522 Articles

Larry Doyle embarked on his Wall Street career in 1983 as a mortgage-backed securities trader for The First Boston Corporation. He was involved in the growth and development of the secondary mortgage market from its near infancy.

After close to 7 years at First Boston, Larry joined Bear Stearns in early 1990 as a mortgage trader. In 1993, Larry was named a Senior Managing Director at the firm. He left Bear to join Union Bank of Switzerland in late 1996 as Head of Mortgage Trading.

In 1998, after 15 years of trading and precipitated by Swiss Bank’s takeover of UBS, Larry moved from trading to sales as a senior salesperson at Bank of America. His move into sales led him to the role as National Sales Manager for Securitized Products at JP Morgan Chase in 2000. He was integrally involved in developing the department, hiring 40 salespeople, and generating $300 million in sales revenue. He left JP Morgan in 2006.

Throughout his career, Larry eagerly engaged clients and colleagues. He has mentored dozens of junior colleagues, recruited at a number of colleges and universities, and interviewed hundreds. He has also had extensive public speaking experience. Additionally, Larry served as Chair of the Mortgage Trading Committee for the Public Securities Association (PSA) in the mid-90s.

Larry graduated Cum Laude, Phi Beta Kappa in 1983 from the College of the Holy Cross.

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