Some news items just write themselves- months in advance. TARP was so necessary. We were “investing” in the automotive industry (Want the quote? Paragraph 6, here.)
Last I checked, when you invest in something, you can expect a return on investment. That’s kind of the point of “investing,” as opposed to “giving away free money.”
Barofsky says it’s “extremely unlikely” that taxpayers will recover the $77 billion committed to the ailing auto industry or the $60 billion in TARP assistance to American International Group as part of a pledge of up to $180 billion in aid. An additional $50 billion to modify unaffordable home mortgages “will yield no direct return.”
Comments 39
Might be worthwhile to dig up some quotes from various pols and politicos predicting that taxpayers would earn a profit on these “investments.” I recall hopeful references to the 1979 Chrysler bailout (popularly viewed as a success, though some analysts strongly disagree) and even one or two promises, certainly from pundit types (possibly Bob Beckel) if not from officials. The President at most hinted at the possibility in the remarks you link.
October 22nd, 2009 at 2:47 pm
I kinda think that the government was expecting that investing in the automobile companies was going to bring an immediate return in keeping a very large number of citizens from becoming unemployed. I heard somebody involved in the government program last night saying that 1,000,000 people would have lost their jobs within weeks without that investment.
October 22nd, 2009 at 2:56 pm
That’s changing the subject, cluck. You won’t have to look very far to find people saying that without TARP, the Earth itself would have stopped rotating, flinging people, buildings, trees into the air, with no one sure where they’d land.
October 22nd, 2009 at 2:59 pm
Well, sis, I don’t understand how I’m changing the subject if I inject the idea that the “investment” would both stave off the immediate possibility of 1,000,000 unemployment claims and allow for future taxable earnings and income.
Here’s the flat-Earther’s spin.
http://www.pbs.org/newshour/bb/business/july-dec09/gm_10-21.html
October 22nd, 2009 at 3:17 pm
“sis?”
October 22nd, 2009 at 3:29 pm
@ Barbara:
Ask JEM.
October 22nd, 2009 at 3:34 pm
fus,
If I “invest” in something, I have to be convinced that the good that ensues is truly good and minimally detrimental. Supposedly the Government is in the business to ensure that that is so: it has environmental regulations, anti-corruption regulations, and so on. But I’ve noticed that when the Government “invests” in something, there’s precious little accountability. Michigan still has the highest unemployment rate in the US because the fundamentals of its business environment are very poor, entirely because of union contracts and public policy. Our tax dollars are going to prop up crappy government and fat cat unions. That’s not an investment.
October 22nd, 2009 at 3:40 pm
Touche! Well played.
As to saving 1,000,000 jobs. Nah. Because there were better options than just giving the money away with no strings while still giving them a chance to survive. The government sponsored bankruptcy proceeding was one of them. As it stands now, Chrysler is how close to death after just inhaling the $$ they received.
The fun part about the autos, there is more gummnint money coming. So not only are we never going to get repaid on what we already spent, we will spend more, with no hope of recovery. This is the one issue I take with GWB before he left. He should have just let them fail, his decision was unpopular with wide swaths of the electorate, and in the end it has done no good. What a waste.
October 22nd, 2009 at 3:40 pm
JEM: can you explain “sis?”
October 22nd, 2009 at 3:44 pm
@ Barbara:I’m no fan of the UAW (thought they were forced into bunch of give-backs in the deals), but the auto bailout or not was pretty much pick one of two lousy choices.
October 22nd, 2009 at 3:47 pm
But there was always a third choice: release the US auto industry from its regulatory straightjacket.
Let GM and Chrysler employ non-union labor, as Toyota and Honda do. Eliminate the “US content” requirements for the parts that make up an auto, which apply to US manufacturers but not foreign ones, even if both assemble the final vehicles in the US. Between them, these two factors — union labor and “US content” — add $2000-2500 per car to what US automakers have to charge for their product. (“US content” was, you guessed it, a union-demanded regulation.)
The federal government could have NOT imposed more stringent CAFE standards on the industry. But since it did, the industry can expect increased development and production costs and a lower volume of auto sales.
We always have more choices than we think we do, it just depends on what our priorities are. Our highest priority is obviously not a financially-viable US auto industry.
October 22nd, 2009 at 4:35 pm
@ J.E. Dyer:
Dyer, what would be the possibility that what you call a third way might have been accomplished before bankruptcy?
October 22nd, 2009 at 4:51 pm
Before JED supplies her answer, are you asking, fuster, what would have been politically possible or what would have been materially possible if JED had been appointed Auto Czarina or maybe Auto Admiral?
What was politically possible is what was done, so the question on that level answers itself. What would be materially possible given the political will or a Dyer Dictatorship is another question entirely: It would be easy. JED herself could probably comb through the relevant regulations with a red pen. Give her a week maybe, so she could take her time and not lose her blogging job at Contentions. Come back in a year if she needed to cross out some other passages or possibly restore one or two.
As far as the bankruptcy worries – once it was announced that we were going to do whatever was necessary to restore profitability to the auto industry through de-regulation, the companies would have had a much easier time finding private investors.
Unfortunately, though she’s right that “we always have more choices than we think we do,” we don’t for now have the choice of doing what she suggests.
October 22nd, 2009 at 5:08 pm
@ J.E. Dyer: And politcal debate tends to frame things into simple choice sets, but objectively, Obama is extreme in this type of argument. It’s a rhetorical crutch (his straw man arguments always pose the “conservative” side at some ludicrous extreme ) that he uses make his rather radical “solutions” look middle of the roadish. The healthcare debate is a case in point, “On the one side we have people who think that no one should have company health insurance…” But: that was a complete straw man.
Again, the Democrats and the unions have complete ownership of the economy in Michigan and are responsible for at least 80 percent of the problems for the American auto industry. The Federal regs, in my opinion, are just the cherry on the top, and for sure, the new management couldn’t find a profit with both hands and a flash light.
October 22nd, 2009 at 5:08 pm
@ CK MacLeod:Sis, if Dyer wants to suggest a choice that was non-existent, I just wanted its frivolity to be clear.
Eveing Auto Tsarina wouldn’t be enough to sweep away regulations that are both federal and state applied.
October 22nd, 2009 at 5:20 pm
It would have changed the calculation about bankruptcy. GM and Chrysler had to go bankrupt because nothing else was going to change. They had no prospect of private “bail-out” money — the actual “investment” Barbara is talking about — because they were boxed in by their regulatory environment.
Even a bankruptcy would have gone differently, if it still came to that. Reorganization for profitable operation, and servicing of company obligations, would have been been possible under changed regulatory conditions. Bankrupt companies the size of the auto giants don’t just shutter their doors and fire everyone; they go through reorganizations, and a basis for continued operation is agreed on at each step. Various airlines have been through that a number of times. Chrysler went through it in the 1980s.
A bunch of auto workers have been furloughed and let go even with the government takeover. Chapter 11 for GM and Chrysler would not have been any worse, might even have been better, and with an improvement of the regulatory environment, would be putting the companies on the road to investment profitability.
October 22nd, 2009 at 5:24 pm
This is a good point: why didn’t Obama allow the bankruptcy courts handle this? My opinion is that the decision was completely political, a power grab that saved much union bacon and shifted the responsibility from the judiciary and an orderly and well-established process to the control of the union-beholden executive.
October 22nd, 2009 at 5:28 pm
And yes, I know the political power of the unions. It’s political power they have, not the power to forestall the operation of economic laws.
The reason it’s not an option to lighten regulation of the auto industry isn’t that that’s literally impossible, like trying to catch a cruise missile with a fielder’s glove. It’s because we accept assumptions we aren’t willing to try and change.
October 22nd, 2009 at 5:30 pm
What’s frivolous is asking whether her solution, or type of solution, could have been implemented at a time when none of the key participants would even have conceived of it. Of course not. I’d say she’s arguing for a radical re-appraisal of the underlying issues and an attempt to make the public aware of alternatives we’ve been conditioned not even to acknowledge.
October 22nd, 2009 at 5:32 pm
@ Barbara:
Yep, it was an entirely political decision. A number of commentators pointed out at the time that bankruptcy proceedings were an option that would produce a better result. The Obama administration relied on people’s thoughtless horror at the prospect of “bankruptcy,” and our short memories about other big companies that have gone through it and come out viable on the other end.
October 22nd, 2009 at 5:33 pm
@ J.E. Dyer:
Didn’t help that the execs took the “no one will buy a car from a bankrupt company” line.
Note – this is a separate line of investigation from sister fuster’s. Bankruptcy would have been the most efficient way to deal with the unions, but the regulatory piece would have had to come from government: It’s the kind of solution – a triple whammy against the state, the unions, and leading liberal interest groups – that would be conceivable only in a diametrically opposite political environment to the one that existed.
October 22nd, 2009 at 5:39 pm
@ CK MacLeod: Well explicated, grassvaulter. Not that I want a Dyer Dictatorship. What a lot of work.
As you’ll see from the comments above, made without having seen yours, we’re on the same freq.
October 22nd, 2009 at 5:39 pm
The alternative of completely de-regulating the auto industry is not one that’s unexamined
It’s one that’s been dismissed.
Modifying regulations maybe….
October 22nd, 2009 at 5:40 pm
@ CK MacLeod: Agreed, deregulation and bankruptcy are two different things. I’m not sure that needed explaining to anyone but Sister Smidge.
October 22nd, 2009 at 5:41 pm
@ fuster:
Not gonna bite on this red herring. No one here said “complete deregulation.”
But if you’re going to have a red herring-strawman battle, do get video.
October 22nd, 2009 at 5:43 pm
@ J.E. Dyer:
release from regulatory straightjacket?
that the same as loosening it a bit?
October 22nd, 2009 at 5:45 pm
@ fuster:
In the current environment (on which, one may hope, the clock is ticking), it seems that the only regulatory modifications anyone is considering are ones that will make things more, not less difficult for the auto industry.
I don’t see where anyone has been discussing a thoroughgoing re-consideration of auto-related regulation. Or did I miss the 10-part Frontline series? I stopped watching that show a long time ago, so forgive me – maybe there’s a DVD version.
October 22nd, 2009 at 5:49 pm
@ CK MacLeod:
Of course, I forgive you, though it seems a funny thing to ask.
Don’t the people beg forgiveness of the Tsar?
I had the idea that every time in the last couple of decades that a new auto factory was being considered for construction in the country, there was a consideration of regulatory costs of both the vehicles to be built as well as the additional costs for the factory.
I’m more than usually fuzzy, but think that I can recall that stuff from the time that the Japanese started manufacture in the country in California(?) in the 80′s.
October 22nd, 2009 at 6:23 pm
Clearly, you must have faith in this report, since you quote it. And if that is the case, then you’ve already lost the return on investment argument, because the report also concludes: ” … TARP played a significant role in bringing the financial system back from the “brink of collapse. …”
See, problem solved. TARP saved the world economy from collapse.
In fact, the report says that one of the problems in achieving real reform is that TARP worked so well that banks look healthy again.
When you’re doing book reviews, consider this one: http://www.amazon.com/Too-Big-Fail-Washington-System/dp/0670021253/ref=sr_1_1?ie=UTF8&s=books&qid=1256258757&sr=8-1
It reaches the same conclusion: The abyss was real, and the efforts of two administrations, though messy and imperfect, pulled us back from the brink. Since Bush brought us there in the first place, we’ll give the win to Obama.
October 22nd, 2009 at 8:53 pm
Quill, since we’ve been talking specifically about the auto industry, I believe my comments about ROI are completely valid. Furthermore, unless and until I see the debt incurred paid down by the amount that was lent, I won’t consider this an “investment” made by the taxpayers. Our president and our legislators have plans for every cent, real and imagined, from here to eternity, that they expect to raise by taxing lil’ ol’ us. We the taxpayers can expect that our return will be: more debt, more government, less freedom.
Furthermore, since you have read the report, you’ll note that it is highly critical of the program because of lack of transparency and lack of oversight. I don’t invest in entities that have no oversight and whose operations are not open to me. But we have our money confiscated and we don’t get to find out how it’s being used. There should be a law against that. Oh, wait…
Also, since you read the report, you have already noted that TARP didn’t do what it was supposed to do- so it’s entirely possible that its main effect was as a “placebo”: it calmed the markets which recovered mostly on their own and did nothing much in itself. In which case, where’s my refund?
October 22nd, 2009 at 9:14 pm
While you express concern about “sweeping away” regulations, Fes, what about the SWEPT AWAY GM bondholders, who would have fared much better if the normal and perfectly legal bankruptcy process had been allowed to go forward? Instead, the unions were granted a 40% interest in GM (and I think Chrysler too).
This is unprecedented in the USA, and probably illegal too. Those screwed bondholders had every reason to expect a better share of whatever may end up being left of GM/Chrysler, but Mister Peanut, instead, chose to demonize them, charging them with being unethical, unpatriotic and greedy on national TV (of course). This has turned our system of lawful capitalism and our cherished notions of property rights upside down. Those greedy bond holders include police and firemen’s pensions, retirees, college savings plans, etc.
As others have pointed out, this was 0bama’s way of paying back the unions and securing their future allegiance. Caterpiller and Deere, many years ago, said NO to the very same union, and, today, they remain two of our most competitive and outstanding global corporations.
Lastly, this brazen and cynical act will backfire, as consumers will probably feel they have even more reasons to continue to shun the products of GM/Chrysler, and, instead continue to favor Ford, Honda, Toyota, Subaru, Hyundai, Mazda, Volkeswagen, BMW and Nissan.
October 22nd, 2009 at 9:40 pm
@ Zoltan Newberry: Zolt, the auto regulations can’t be all lumped together.
I don’t know much about bonds. What would the holders have expected to realize from bankruptcy?
October 22nd, 2009 at 10:52 pm
If the big three had been permitted to sink or swim their efficient factories would still be building cars whether they sank or floated, although perhaps under new ownership and with different work forces. And factories primarily here in the U.S. owned by other auto companies would be building enough additional cars to make up for any big three factories that were not efficient enough to keep.
The 1,000,000 people put out of work argument was a pink herring. Yes, a lot of then current UAW auto workers’ jobs were at risk, but any of those who didn’t move on to a non-union shop to build cars would have had to be replaced by other workers building cars.
October 22nd, 2009 at 11:10 pm
To my Mum’s eternal regret, I am not a lawyer, so I cannot give you an accurate answer, Fus. The bond holders were expected to knuckle under by the 0bami, and, when they protested that they would ordinarily be granted far more by most bankruptcy courts, that’s when the Peanut Man tried to shame them on TV.
No bankruptcy court or judge has ever granted anything to any unions. They were given 40% of the company, while bondholders were instructed to ghe avek and shut up. I do not understand why we havn’t heard more about this. It raises serious questions about BO’s attitude toward the rule of law (does our anointed one consider himself above the law? can he get away with ruling by edict? can he just go ahead and do whatever he wants and dare congress and/or the courts to try to stop or reverse him?).
Maybe some bondholders are trying to receive redress through the courts. That takes a long time and could go all the way to the Supremes.
October 22nd, 2009 at 11:12 pm
I’m not a lawyer, either, but the salient feature of lending and ownership is that bondholders and other creditors are at the head of the line when obligations are paid. Stockholders are in back, common behind preferred, and unions, because they actually don’t have an equity or credit stake in most cases (unions as such: presumably a union can be a creditor through its pension plan or something) are entitled to not a thing.
The very radical thing that happened here was that unions would have had to make concessions to bring costs down in a normal reorganization but in this one, with the Guardian Angel of The Waterfront presiding, the unions ended up in the driver’s seat with ownership to boot. If they made any concessions, they were amply (in theory) compensated, at the expense of bondholders who were contractually entitled to proceeds or ownership stakes, or whatever was on offer as a result of the reorg.
Contract law was the first thing to go under Obama. And without contracts, all bets are off civilization-wise.
October 23rd, 2009 at 9:06 am
Yes, Obama and Co did trample the bankruptcy laws, but what can you do about it. When the government decides to do something like that it normally gets what it wants. When we see how they are treating FOX News and the Chamber why is anyone surprised. I said from the beginning in the time of BZC (before Zombie Contentions) before we were cast out of Eden, that Obama was a thug Chicago politician. So his behavior is surprising only in that while I never thought him all that smart I didn’t think he was this dumb. I over-estimated him. But I digress.
Fus, with regard to regulations, the biggies are CAFE and State Dealer Laws. There are others of course. CAFE laws require the autos to build cars nobody wants (in fact even in these days of poor car sales hybrids are shrinking faster than overall sales). That is bad, but what makes it worse is that the domestics must build these cars in UAW factories, not overseas or in Mexico where they could minimize their losses or even maybe make a buck. WIth all their other problems, the last thing you need is a perpetual program that sucks capital out of your business, while not doing the same to your comeptitor. Detroit has always also had legacy costs on shrinking the dealer networks which are protected by state franchise laws, which are being invoked by the dealers GM and Chrysler are trying to close. Which in Detroit are being closed based upon which political party you supported. Because Obami refused to actually use the true bankruptcy process, ripping up contracts of dealerships will fall to the state courts which don’t care about Detroit’s little three.
Of course because they were such a large employer in the past, all the normal government agencies treat them like no consideration is ever too expensive or unwieldly, particularly in civil rights matters.
October 23rd, 2009 at 10:08 am
Barbara – at one point in our spirited banter I referenced Fus as CK’s long lost evil twin sister, or something like that.
October 23rd, 2009 at 10:12 am
Maybe not so much “lost…”
October 23rd, 2009 at 10:31 am
Nice clip. You do choose good’uns.
Though I got to say that describing the lump as having a spinal column and teeth sorta makes it unlikely to be describing MacLeod or me. Frogs don’t really have teeth.
October 23rd, 2009 at 11:52 am