Obama's General Motors [GM] Tarp Bailout - The Untold Details

Obama GM bailout press conference *White House press photo
Obama GM bailout press conference *White House press photo

General Motors [GM] TARP Bailout - The Beginning

Reported for the Daily Constitutional - reassigned to the Curmudgeon's desk: GA Anderson

Regardless of the GM bailout headlines proclaiming the staggering numbers, the real story of the government's bailout of GM, using TARP funds, is much more than just the billions of dollars involved. It is more importantly a story of governmental hubris that started with President Bush and the Republican Congress panicking and pandering to public fears, followed by President Obama and his administration - the Treasury Department in particular, skirting, or ignoring the rule of law to pursue a plan that was formulated based on political considerations rather than established contract law and sound economic procedures.

As a nation of laws, our problems with the GM bailout shouldn't be just the billions of taxpayer dollars used, they should also include the governmental bailout actions that broke whatever rules got in the way of their agenda, and, their intended efforts to deceive the public though misinformation and factual omission.

Editor's note: 7/16/12 General Motors Bailout Update linked below

General Motor's Tarp Bailout Results - and the Main Government Players
General Motor's Tarp Bailout Results - and the Main Government Players | Source

2013 GM Stock price Update

After spiking to its highest price, $39.48, on Jan. 7, 2011, GM's stock price began a steady decline, and did not rebound to even its opening offer until May of 2013.


Note: Financial and economic analysts determined that the U.S, government must sell its remaining GM shares at a minimum, of $80 per share to recoup the governments investment. (source: Report; Congressional Research Service)

Screen shot of GM stock chart query for post TARP bailout history
Screen shot of GM stock chart query for post TARP bailout history | Source

December 2014 GM Stock Update

The U.S. Government sold its remaining 31.1 million shares of GM stock in December of 2013 for prices ranging between $33 and $35.

"The Treasury Department said late today that it recouped $39 billion from the sale of the government's 60.8% equity stake in the company - for a loss of $10 billion."

"The Center for Automotive Research (CAR) determines that the federal government bailout of General Motors Co. (NYSE: GM) saved 1.2 million U.S. jobs and preserved $34.9 billion in personal income and social insurance (Social Security, Medicare) payments."

Source: USA Today 12/9/2013

It is important to note that the CARS report is based on a complete liquidation scenario - no more GM. As noted in the background story below, many industry and bankruptcy experts are convinced there would have been other avenues available for GM to emerge from a Chapter 13 filing that would have resulted in the same job and tax income savings in the report - without the government's intervention.

Bailing Out General Motors - The Background

First, it should be noted that the General Motors bailout efforts also included Chrysler Corp. Although each have their own story details, the government actions to save the auto industry addressed many of the problems as being intertwined, and applied many solutions as common to both entities.

In late 2007, GM's financial situation was so precarious that economists were ringing the alarm bells - warning of a possible collapse of the company. In 2008 those alarms became emergency sirens. General Motors could no longer avoid filing for bankruptcy, and it was doubtful that it could be a Chapter 11, or even a chapter 13 filing that would allow General Motors to reorganize and re-emerge as a new company - it would be a Chapter 7 filing - complete company liquidation; GM would perish as just one more failed company.

Author's note: Several knowledgeable market economists, and financial insiders still contend private money would have been available to allow GM to file Chapter 13 - had the government not taken over prior to actual filing.

Americans, (and the world), were bombarded with Doomsday headlines: GM BANKRUPTCY TO COST 100,000's OF AMERICAN JOBS, GM COLLAPSE MEANS DEATH OF U.S. AUTO INDUSTRY, GOVERNMENT MUST SAVE GM TO SAVE U.S. ECONOMY

Bush was a lame-duck president when TARP, (Troubled Assets Relief Program), was created, (Bush's Treasury Secretary Henry Paulson's plan), to fight the crisis in the U.S. financial market. But he supported it, as did Congress, and incoming President Obama. It would be Obama's administration that would take over and administer the government's TARP efforts for the General Motors bailout.

Using TARP was seen as the only option to save GM. But there was a problem...

*this was the start of government's shenanigans in the GM bailout saga

- TARP was legislatively created specifically for the financial market's crisis, and its use of funds was mandated for the purpose of buying troubled assets from financial institutions that would fail if they could not get rid of those toxic assets. Hence TARP. There were no provisions or authorities that would allow TARP to be used for a GM bailout. It would take more legislation from Congress to authorize such use.

But... there is always a but, the public was already screaming foul at Congress and the President over the daily headlines of how billions of dollars of TARP funds were going to favored financial institutions, overseas banks and investors, and worse - executive bonuses.

Both administrations knew Congress would not approve the needed legislation in the face of such a public outcry. So essentially, they agreed to just do it anyway. Of course they pointed to this paragraph or that, in the TARP mandate, and stretched the meanings to, perhaps, technically authorize their use of TARP for a GM bailout. Several legal challenges were raised, and many legal experts opine that a court test would go against the administration's use of the funds.

Under the direction and control of Treasury Secretary Timothy Geithner, the Obama administration proceeded with the governmental bail-out plan for GM, (and Chrysler).

$51/$71/$81 Billion Taxpayer dollars go to save GM

Experts are still quibbling over the exact amount of taxpayer money that went into the GM bailout - but what's a few 10's of billions of dollars here and there.

Now we were bombarded with headlines touting the numbers: TARP TO SPEND $8 BILLION TO SAVE GM - GOVERNMENT GIVES GM $51 BILLION... and on and on.

Everyday was a new "billions" number - with a different explanation for its need or use: $11 billion to keep small parts supply-chain companies in business, $21 billion to see GM through bankruptcy proceedings, $10 billion for this, $20 billion for that... pretty soon we were inured to the numbers. A billion dollars used to be a bunch of money, period! But with these kind of numbers in the headlines weekly - they seemed to become just more scoreboard entries than actual dollar amounts.

Some generally excepted Tarp Fund Bailout numbers...

  • $49.5 Billion - Conservative agreement of total TARP funds loaned or given to GM
  • $30.1 Billion - Government purchase of GM stock - GM did not have enough financing to support a re-organization plan a bankruptcy court could accept, (or so it was stated), so to get the money, the U.S. Government gave GM $30.1 billion dollars in exchange for 60% ownership of the New GM company
  • *note: many sources add this to the TARP GM loans amounts to arrive at a total of taxpayer-funded loans to the GM bailout - to come up with the big $77 or $81 billion dollar numbers, but this is not correct, the $30.1 billion is not a loan that can be repaid - it can only be recovered through the sale of the government's interest in GM ownership.

This explanation isn't intended to detail the timeline or trail of TARP funds to GM, there are other sources for those details. The only purpose here was to paint a general image that it is BIG Money - regardless of the exact amount. As mentioned, the $49.5 billion is the conservative number that GM and the government acknowledge.

The General Motors Bankruptcy Plan

Details of the government's involvement in, and approval of, GM's bankruptcy plan, (formulated by Treasury Secretary Geithner, the Auto Worker's Unions, (UAW), and technically, GM's management), that were submitted to the Bankruptcy Court for approval, were the determining factors deciding whether GM would be forced to liquidate, or allowed to file under Chapter 11 terms and emerge from the filings as a new company - to continue business.

But in fact, it was a completely new process that the bankruptcy courts had never dealt with before - a government-subsidized reorganization plan that the court could only tinker with, and then rubber-stamp its approval.

The winners and losers of the Government's plan for GM bankruptcy hearing

This is where the administration's involvement is most clear.

  1. U.S. Government buys 60% share of the New GM company for $30.1 billion - giving GM the necessary "debtor in possession" funds reserve that the court required in order to consider a Chapter 11 filing
  2. The AWU's, (Auto Worker's Unions - UAW and others), received a 17% ownership stake in GM, (65% in Chrysler), in lieu of the money GM owed for union health and pension commitments. At the time this equated to about 40 cents on the dollar, but in reality stock shares could be sold at levels that would not only make the health and pension funds whole - but possibly generate a profit. *Note: Unions made an initial stock sale, (a portion of their shares), right after the IPO, at a rate that generated a $4 billion profit to the funds
  3. Private secured investors were given a settlement agreement at the rate of 29 cents on the dollar. *Note: these "private investors" also included investment funds composed of other union pension funds, like the Federated Teachers Association - which naturally screamed foul and went to court - where they failed to find relief.
  4. **It should be noted that established contract law required secured creditors be paid first, but President Obama's administration simply ignored this legal requirement and gave the unsecured union creditors first position - leaving whatever might be left for the secured investors.
  5. Common-share stock holders were completely wiped out. When GM emerged from bankruptcy, all shares in the "old" GM were worthless since the "old" GM didn't exist anymore
  6. GM was allowed to retain a $45 billion business-loss tax credit, carried forth from the "old" GM to the "New" GM - a practice unheard of in bankruptcy proceedings, essentially adding a $45 billion "gift" to off-set tax liabilities of the new company.
  7. Delphi, a parts supplier network and GM spinoff, had all GM debt to it cancelled. Treasury Secretary Timothy Geithner also decided to cut pensions liabilities for salaried non-union employees to expedite GM’s emergence from bankruptcy.

There are many more GM bankruptcy plan details of course, but these are the biggies, and as with the TARP bailout amounts, more information is readily available from other sources.

The deception and misinformation begins

It all started with a statement by President Obama, to paraphrase:

"We do not want to be involved in the day to day operations and decisions of the New GM, and we have no intention of micro-managing their new executive team."

But....

The administration forced out the CEO of General Motors, Rick Wagoner

FOIA, (Freedom of Information Act), filings found that GM’s TV ad campaign in 2011 that misleadingly* claimed that the company had paid back its government loan in full was approved by the administration. They also uncovered e-mails between GM CEO Ed Whitacre and various Treasury and other federal officials a month in advance of GM’s announcement of TARP loan repayments. These emails included draft schedules, draft remarks to be given by Mr. Whitacre, and draft press releases from both GM and the Treasury Department.

*GM did not payback the TARP loans as their announcement appeared to say. They only paid back one particular loan package of $6.7 billion - not the $49.5 billion the announcement implied. Even worse was that GM also did not repay the loan with monies and profits from the newly invigorated company - they paid it with more TARP funds from another TARP escrow account. None of the repayment funds came from GM monies.

Obama's administration knew this, and as shown above, actually helped compose and orchestrate the public announcements that deceived the public.

The Obama administration also took to the airwaves, proclaiming GM's announcement of 2011 1st quarter profits of $3.7 billion dollars, as proof of the success of their bailout efforts in saving the auto industry. President Obama even held a press conference to applaud this as a sign of of the success of his administrations bailout efforts.

But, it wasn't true. $1.5 billion of that $3.7 billion came directly from the spin-off sale of GM's Delphi group, and a couple other smaller business units, and had nothing to do with sales and operational profits. Leaving a real operational profit of only $1.2 billion, which was less than Ford's "non-government" assisted profits for the same quarter. The $1.2 billion number was even more misleading because it did not include any tax costs, (but Ford's numbers did), due to the $45 billion tax-loss "gift" the bankruptcy court allowed GM to carry forward onto the new company's books.

Finally - was the bailout really needed....

There has been much said for and against the need for the General Motors bailout.

Public officials from many auto industry-related organizations, the Obama administration - from the top down, and with very few exceptions - most members of Congress, all proclaimed that GM was too big to be allowed to fail. Too many jobs, (100,000's, and hundreds of small support businesses), would be lost, and too much of our economy depended on the survival of GM. Failure would be so catastrophic that not only would it undo all that had been done to save our financial markets, it would topple other segments of our economy - like dominoes, right down to the mom and pop diners that depended on auto industry worker's lunch money.

This may be true, had GM been forced to liquidate, and completely cease operations.

There is an important "maybe" here. There are other very knowledgeable business and bankruptcy experts that have different opinions. Many believe GM would have been granted Chapter 11 status without government intervention. They believe this would have been much more beneficial to both the company and our economy.

They believe bankruptcy would have allowed GM to:

  • Start with a clean slate in union negotiations - relieving them of the legacy burdens of unaffordable union health and benefits costs that were one of the major contributors to their need for bankruptcy protection
  • Negotiate new union wage contracts that were more realistic and in-line with other auto maker's cost - thus allowing them to be better positioned to be competitive. Industry average union wages are $56-$58 per hour, (including benefits costs), GM's union wage costs were $70 per hour
  • Follow other typical Chapter 11 re-emergence efforts, like; shedding unprofitable parts of the company, (lie. streamlining it's bloated dealerships program), re-negotiate cost-prohibitive contractual obligations, and more...

The point being, the same options afforded any other business that seeks Chapter 11 protection in order to reorganize into a profitable company - would have been available to GM.

Todd Zywicki, a bankruptcy expert at George Mason University, highly doubts that GM would have faced liquidation. Because the company was financially distressed—after years of poor management—but not economically nonviable. In short - just the type of situation the bankruptcy laws were designed for. If GM had put together a credible restructuring plan, it would have been able to obtain debtor-in-possession financing under which, as the name suggests, the debtors would have essentially possessed the company. This would have allowed it to emerge as a more streamlined entity. Without needing $49.5 billion +/- of the taxpayer's dollars.

If Todd, and other similar bankruptcy law experts are correct, then why was the Obama administration so focused on a bailout-only solution?

Could it be because the unions would have stood in line just like the rest of the creditors? Or because the bankruptcy court would have voided all labor union contracts, allowing GM to start fresh negotiations with the unions - without the legacy burdens already in the contracts, ($70 per hour, $12-$24 per hour more than GM's competitors)? Or because it would have allowed GM to streamline and re-negotiate its dealership program contracts, (almost ALL auto industry experts agree GM's dealership program was over-saturated - supporting too many dealerships was another major cost driving the company's profits down), which realistically GM could not accomplish due to local political influence that in turn became Congressional political influence?

We may never know for sure. Or as the bankruptcy experts indicated, when more behind-the-scenes details are discovered, we may find out this was a case of political manipulation and deception on the grandest scale ever seen in our country's economic history.

But of course, you may have a different perspective, especially if you are a member of one of the AWU's, (like the UAW).

Footnote: As of the 2011 4th quarter, the New GM has made no further TARP loan repayments.

See more GA Anderson Political articles

GA Anderson aka the Curmudgeon
GA Anderson aka the Curmudgeon | Source

About the Author

Writing for the Daily Constitutional, and commentary from the Curmudgeon's desk - GA Anderson

*Composite image component source citations: Creative Commons images from:commons.wikimedia.org, flickr.com/creativecommons, search.creativecommons.org, http://googlesystem.blogspot.com/2009/06/find-creative-commons-images-in-google.html. *photo and image source credits: divider and separation images - http://gaanderson.hubpages.com

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Obama's General Motors [GM] Tarp Bailout - The Untold Details Comments 64 comments

Ralph Deeds profile image

Ralph Deeds 5 years ago

I live in Detroit and am a GM retiree. Most people I know believe that the GM bailout is working out pretty well for all concerned. Nearly all parties ended up making significant concessions as a result to the process--retirees, active employees, stockholders. UAW-represented factory workers hired after the bailout are receive hourly pay approximately half the amount paid existing UAW-represented workers. GM and Chrysler say that their labor costs are now competitive with Toyota, Honda, Mercedes and other non-union "transplants." I've heard estimates that a million jobs were saved by the bailout including GM and Chrysler employees, supplier employees, dealer employees and other jobs in auto plant communities. Ford was not bailed out, but its operations would have been disrupted if GM and Chrysler had gone under. Although Wagoner was a very nice man and capable manager, he was replaced because he was apparently unwilling or unable to take the steps deemed necessary to make GM viable going forward.


GA Anderson profile image

GA Anderson 5 years ago from USA Author

@Ralph - thanks for the good "fist-hand" comment. I appreciate the input.

Other than seeing enough data to at least make me question whether the bail-out was THE ONLY option...

I have two main "make-me-mad" issues, (trying to clean up my language, normally I use a better descriptor), with the bailout:

The government choosing to just ignore established contract law (bet that will slow down investments - no security for the money)

and....

they're manipulating us! That GM TARP repayment thingie was just nasty stuff - that's how our government perceives us!.

GA


Ralph Deeds profile image

Ralph Deeds 5 years ago

GA, how do you feel about the "secret" $160 billion Federal Reserve bailout of the six biggest banks which used the money to grow even bigger and reap big profits on the the Fed's below-market interest rates all the while lobbying ($29.4 million spent on lobbying in 2010) against regulatory proposals designed to prevent future collapses?

Here are the two biggest of the Fed loans reported by Bloomberg News to big 6 banksters totaling $460 billion on top of TARP loans of $160 billion

Morgan Stanley---$106 billion

Bank of America--$91.4

Here's a link to Bloomberg's report this morning:

http://www.bloomberg.com/news/2011-11-28/secret-fe...


GA Anderson profile image

GA Anderson 5 years ago from USA Author

@Ralph - in short pissed off

but to explain - corruption, cronyism, and influence-peddling aren't defined by party or philosophy - neither is dishonesty

admittedly, I view myself as a traditionalist that does not see freedom in any socialist mechanisms. That's generally my disagreement with "liberals/lefties" (labels I am always hesitant to use, but in this case they suit as a generally accepted illustration of concepts), their specific vision of the ideal society, not their desire to improve society.

I think I side-stepped the snare, but maybe I'm not the animal it was set for.

GA


Credence2 profile image

Credence2 5 years ago from Florida (Space Coast)

GA, a sterling article to be sure, written in laymans language so that we all might get a better grip as to what occurred. At least under Obama's plan the pensioneers were not left without a dime. The sheer size of GM and the implications to the entire industry and the political ramifications, people could not understand the fine print, forced action by both administrations. Yes, there was skullduggery, to be sure. Your point as to why not the standard Chapter 11 is a valid one. Despite the opinion of many economists, many were afraid that GM without aid would fail entirely and belly up under a chapter 7, the possibility of that may have well been to great to ignore.


GA Anderson profile image

GA Anderson 5 years ago from USA Author

@Credence2 - yes, there is that uncertainty, but...

So much of the GM bailout effort was done behind political doors that it really wasn't clear what was what - until after the fact. As more details became public, and more contract and bankruptcy lawyers and experts weighed in it became less certain that the "Doomsday" scenario was accurate.

1. GM's position did not meet the criteria of a nonviable business - which would only merit a Chapter 7 filing

2. previous bankruptcy rulings indicate pension obligations would have received priority consideration, but behind secured creditors (as required by contract law - not just tossed out the door

3. A viable reorganization plan would have merited government-backed loan guarantee support, just not the massive hand-outs the bailout provided

4. Many experts point to the numerous successful major airlines bankruptcy reorganizations as examples of how the proceedings could have worked - almost an apples to apples comparison.

but alas, now it just stands as one more example of inept government meddling

GA


Ralph Deeds profile image

Ralph Deeds 5 years ago

The government's reorganization plan may not have been perfect, but the results so far are looking good--

GM, Chrysler and Ford to add 33,000 jobs by 2015 (Headline in Detroit Free Press this morning.)

"Ending a decades-long slide, General Motors, Ford and Chrysler are poised to add about 33,000 jobs in Michigan over the next four years. Auto suppliers will add even more.

"Rebounding car and truck sales and years of job cuts, as well as job promises included in the latest round of contract talks, will drive the need for more employees, Kristin Dziczek, director of the labor group for the Center for Automotive Research, said Tuesday.

Dziczek estimates that GM, Ford and Chrysler will boost U.S. employment from 171,742 in 2010 to 201,000 by 2015.

The job gains in Michigan include an estimated 12,000 salaried workers.

"By 2015, about two-thirds of Detroit Three employees will be in Michigan, partly a result of planned plant closings in other states.

"The hiring will reverse jobs losses that began more than 30 years ago, said Art Schwartz, president of Labor and Economics Associates and a former GM labor negotiator. Back in 1978, the Detroit Three employed about 1 million workers in the U.S.

"'That's staggering when you think about it,' Schwartz said."

More here:

http://www.freep.com/article/20111130/BUSINESS01/1...


GA Anderson profile image

GA Anderson 5 years ago from USA Author

@Ralph - thanks for the research

I agree it is good news. And I am "rooting" for GM to succeed. I just didn't like the government's involvement, and still am not convinced it was the only choice available.

but... reading further down your article, and it looks like the unions are at it again. A $5000 new worker signing bonus? With people pleading for jobs, GM needs to pay a $5000 signing bonus?

And comments indicating the new lower "entry" union wages (that now help GM be more competitive), just won't work in the long run. Not fair that senior (pre-bankruptcy), workers get paid more than new post-bankruptcy hires.

Oh well, no worries, there's always good 'ol Uncle Sam at the teller window

GA


Ralph Deeds profile image

Ralph Deeds 5 years ago

I agree the bailout wasn't the "only choice." But I think it probably was a good choice. Most people in Michigan agree, except for former Michigander, Mitt Romney, of course.


GA Anderson profile image

GA Anderson 5 years ago from USA Author

@Ralph - True, it did achieve a goal, as for it being a good choice - well that's an opinion issue you have yours and I have mine. Obviously I think it would have been better handled in normal bankruptcy proceedings but maybe I don't know something that others did, so...

As for Michigan's response - I love repeating this, but as they say: When you rob Peter to pay Paul, Paul ain't gonna complain.

GA


Michael 4 years ago

Every time someone says "worked for all parties" they fail to realize those of us that owned GM stock ended with nothing. The only people the bailout benefited was over-paid union workers, GM execs, and the politicians. If GM had gone Chapter 7, Ford (and other car companies) would have sold many more cars and hired many more people. GM need(ed/s) to go out of business and let the market determine which car companies should be in business, not congress.


wba108@yahoo.com profile image

wba108@yahoo.com 4 years ago from upstate, NY

Great Hub, very well written! You've inspired me to take a closer look at this issue. If what your saying is factually correct, this is frightening and The Constitution is a joke to

our leaders! I wonder if any of these greivances has reached the Supreme Court, if not why?


GA Anderson profile image

GA Anderson 4 years ago from USA Author

@wba108 - thanks for the visit, and reading Obama's General Motors [GM] Tarp Bailout - The Untold Details

Yes, it is amazing how easily folks are distracted by smoke and mirror rhetoric. Now, on top of still owing ten of billions in TARP money, GM is proclaiming profitability and paying $7000 bonus'to each union worker.

thanks for taking the time to comment

GA


American Romance profile image

American Romance 4 years ago from America

Typical response from Ralph! Where was the government when oil dropped to $32 dollars a barrell and thousands were laid off and thousands more (including me) lost 20% of our salaries? Ralph, Unions destroyed GM because of pensions that could not be sustained! And who said the investors compromised??? Their money was STOLEN by Obama! Those investors NEVER agreed in good faith to have their stock taken from them! GM is now giving bonuses to all employees! They should have to repurchases stock back from the American taxpayer before doing this! We should have allowed the free market to dictate GMs success or failure! Government cannot step in and use taxpayer money to save every business in this country! Most of the time it ends in FAILURE! .......see all the green jobs if you need more proof!...........And NO I don't think we should have bailed out banks BUT because of the pervert Barny Frank that promise was made when the DEMOCRATS thought up the fair housing act!...........same act Barny Frank sponsored and pushed..........another liberal failed policy!


GA Anderson profile image

GA Anderson 4 years ago from USA Author

@ American Romance - welcome back, as always your passion makes for good dialog.

But... don't get me started on Barny Frank! :) - and even as culpable as he is, so are Clinton and "W"

GA


Robert Parker, Jr 4 years ago

I enjoyed your article on the TARP Bailout for GM...I am part of a group that has been trying to acquire the assets of the Saturn Corporation in order to reorganize that company and bring those badly needed manufacturing jobs back to Michigan. One would think that GM would be amenable to dispensing with those assets particularly since they are now non-revenue producing and GM has no plans to reactivate that particular brand.

However, in my recent conversations with a GM official, they are now taking the position that selling Saturn's assets would not be in "GM or GM shareholders" best interest...This is a very curious position for them to take given that they were very anxious to sell Saturn to Roger Penske's group before the deal fell through, but now they don't want to part with the assets for Saturn at all...This flies in the face of their requirement to dispense with Saturn, much the way the did with SAAB and HUMMER in order to comply with the restructuring plans and the bankruptcy obligations when this entire sordid bailout was initiated....Please advise on your thoughts of how to address this inconsistency....thanks, bp


GA Anderson profile image

GA Anderson 4 years ago from USA Author

@Robert Parker

Thanks for your kind comment regarding my article. I wish you luck in your endeavors to resurrect the Saturn brand, and the jobs that go with it.

However, it is my opinion that the politicization of GM's management mindset - through the TARP bailout, and the government's involvement in the restructuring details, have enured them to any sense of normal business strategies, or obligations to their current shareholders. Especially considering who their major shareholders are now.

Unfortunately, my only vision of a successful path for your goals would be to make your efforts politically impossible to ignore.

Good luck

GA


Terry 4 years ago

In the article where you state that if bankruptcy laws had been followed you failed to mention 2 important items. First the UAW VEBA would have been a creditor and how it would have been resolved. This was $20B debt own to retirees. Second suppliers would have gotten nothing being an unsecured creditor. This would have been disastrous for the supplier community as most of their loans would have been called and the viability of the industry would have been compromised. One cannot look at GM alone but also must measure the impact to everyone involved.


GA Anderson profile image

GA Anderson 4 years ago from USA Author

@Terry - thanks for reading "Obama's General Motors [GM] Tarp Bailout, and leaving a comment.

but...

The Union's would have been treated as the other creditors would have - what's wrong with that? Do you not think some of the stockholders that lost all were pensioner funds investments? Which retiree is more important?

Have you checked what did happen to the unsecured supplier creditors? Their debts with the "old" GM were also cancelled - they lost out just as the "old" GM stockholders did.

The jury is still out on whether the bailout accomplished something a normal bankruptcy reorganization could not have done - but there is no doubt that the Unions received preferential treatment - and that the standings of contract laws were subjugated to the wishes of the government. To the detriment of legal secured debt holders.

The governments actions, whether judged successful or not, have proved that to this administration - legally binding contracts are not worth the paper they are written on.

As for looking at the whole picture - I think this article did, right down to where the money came from, where it went, and who benefited.

Note that I am not of the opinion that GM should have been allowed to collapse and die - but I am of the opinion that a traditional bankruptcy proceeding would also have allowed the company to re-emerge as a viable economic entity, without as much slop from the public trough, and without trampling the rights of legal contract holders.

GA


JON EWALL profile image

JON EWALL 4 years ago from usa

GA Anderson

We are a nation of the rule of law, how many times have we heard our elected officials in Washington proclaim that statement. Our President and this Congress ignores their oath of office simply because they are CORRUPT.

The Senator Coburn report '' WASTE IN GOVERNMENT'' http://coburn.senate.gov/public/index.cfm/rightnow...


GA Anderson profile image

GA Anderson 4 years ago from USA Author

@Jon - Thanks for stopping by, and the comment.

Corrupt is a little stronger word than I would use. I think arrogant and self-serving, and perhaps even imperial would be good descriptors.

GA


Ralph Deeds profile image

Ralph Deeds 4 years ago

The most persuasive argument from supporters of the bailout is that an unassisted bankruptcy and reorganization would not have worked because financing from Wall Street or other private, non-governmental sources was not available. If GM and Chrysler survive, all or most of the taxpayers' money will be recovered. Maybe Romney will help by replacing his wife's two Cadillacs sooner rather than later!


GA Anderson profile image

GA Anderson 4 years ago from USA Author

@Ralph - Thanks for the read, and taking the time to comment.

You make a valid point. There was concern that the GM could not get the credit line it would need to convince a bankruptcy judge they could re-emerge as a viable company.

But... several credible bankruptcy experts have commented that perhaps they might have - if the government plan had not been pushed as the only option. You are correct that was an up-front hurdle, and part of the admin's justification for their plan. But the analysis was not unanimous about the final availability of a refinancing/credit line that would have satisfied a judge.

Yes it is a good thing that it appears most of the bailout money may be recovered - but that's not a sure thing yet either - all depends on GM's stock performance.

Still, the arbitrary trampling of contract law has set a dangerous precedent - and weakened our belief in the "rule of law" It now appears that is the case only as long as it is convenient.

GA


JON EWALL profile image

JON EWALL 4 years ago from usa

GA Anderson

The trap was set and President Bush took it hook line and sinker .The government could have and should have helped the auto industry by guaranteeing any loans as like they did in the Iocola/ Chrysler deal. NO TAXPAYER was involved. Chrysler had to re construct the company, union contracts, bond holders and others agreed to the terms set up by the government and the lending institutes.

The Obama administration don't follow the law. as one Congressman said'' we don't have to, we won and we will do want we want''.


GA Anderson profile image

GA Anderson 4 years ago from USA Author

Greetings Jon,

I too believe there were other choices.

Many administrations have played loose with the rules in the past - always claiming it was for the good of the country, but this is the first one to do it so openly in contradiction of the laws.

GA

GA


Michael Furdek 4 years ago from California

Great hub. I now know more about the entire situation, and my opinion only strengthens that they should never of been bailed out in the first place. The government can't pick winners and losers, only the people can. Honestly, this proves how destructive the unions are to businesses. Keep up the good work!

Michael


GA Anderson profile image

GA Anderson 4 years ago from USA Author

@Michael - Thanks for the read, and he comment. As you can see from the comments - there are pro's and con's for each solution, but my issue is that I don't subscribe to the theory that "the ends justify the means..." which I think is the government's perspective on the GM bailout.

Thanks for the follow too

GA


Andy F A Hayek 4 years ago

GA

Thanks for details. I have a great-aunt that was nearly ruined by the bailout agreement. She was a secured bond holder.


GA Anderson profile image

GA Anderson 4 years ago from USA Author

@Andy - and thank you for the anecdotal affirmation of the author's point.

GA


JON EWALL profile image

JON EWALL 4 years ago from usa

hubbers

Obamacare, The Untold Details

A simular situation hokus pokus

Billions of Dollars Are in Play Over Health Care Law

much of the money went to unions and state retirement plans as a way of rewarding “politically connected constituencies.”

http://www.nytimes.com/2012/06/22/health/billions-...


GA Anderson profile image

GA Anderson 4 years ago from USA Author

@Jon - thanks for reading "GM TARP Bailout", and taking the time to comment.

GA


Terry 4 years ago

GA,

You mentioned legal secured debt holders. I really doubt that GM had much in secured debt. They used other financial instruments including bonds which are unsecured, preferred stock, financial paper rather secured debt. Maybe you can enlightened us on who had secured debt and how much that was.

also I do not understand this statement.

The Union's would have been treated as the other creditors would have - what's wrong with that? Do you not think some of the stockholders that lost all were pensioner funds investments? Which retiree is more important?

Stockholders are the last in line no matter who owned them retirees, pension funds, or whoever. To put union VEBA creditors in the same class as retirees who own stock does not make sense and would never happen in any bankruptcy.

The VEBA was probably the largest creditor GM had and they only got 40 cents on the dollar. The suppliers got 100% of their unsecured debt.

As far as supplier credits, I seriously doubt that was very much at all. Most of the time GM owed suppliers 60-90 days worth of inventory.

You think that the union through the VEBA got a good deal. In reality, GM promised this money over the last 30 years, took the expense and never funded it. The VEBA will probably never be able to meet its commitment to its retirees without GM stock going into the 40's. At this time that is unlikely. It is my understanding that pensions and the like have to be resolved in order for any bankruptcy take place.

In reality, VEBA did not cost GM anything and did not cost the taxpayers anything. The Union bet the VEBA on GM's IPO and future stock. Time will tell if that was a smart move or not.


Ralph Deeds profile image

Ralph Deeds 4 years ago

Valid points.


GA Anderson profile image

GA Anderson 4 years ago from USA Author

Yes they are, and they warrant a more thorough reply than I can quickly supply now, but right or wrong - I will respond to this excellent comment - Thanks Terry

GA


Wade Fletcher profile image

Wade Fletcher 4 years ago from Eugene, Oregon

GA,

I love the fact that you respond so often!

I have tried to explain to my nonpolitical brother that it would have been better to let GM go through bankruptcy like all other companies. Letting the market "fix" it to me means letting Penske purchase Saturn. Being a car lover, I saw an amazing opportunity to watch a successful business owner compete and restart and existing company like Saturn and probably kick some serious automotive butt with new and exciting cars. It could have shown the country on center stage how a car company should be run; profitably! In the end the consumers and citizens win! Of course the Administration doesn't want to sell Saturn. GM wouldn't be able to complete. And we wouldn't want to see success without government. And this just scratches the surface. A Teachable moment for freedom has been missed.


JON EWALL profile image

JON EWALL 4 years ago from usa

GA Anderson

The story will break on how the non-union employees ( Delphi) were striped of their pensions when the unions got theirs in the GM bankruptcy. Treasury Secretary Geithner and the whitehouse behind closed doors worked out the deal and had a federal judge approve it. Congress will be looking further into the auto bailout..


JON EWALL profile image

JON EWALL 4 years ago from usa

GA Anderson

The story will break on how the non-union employees ( Delphi) were striped of their pensions when the unions got theirs in the GM bankruptcy. Treasury Secretary Geithner and the whitehouse behind closed doors worked out the deal and had a federal judge approve it. Congress will be looking further into the auto bailout..


GA Anderson profile image

GA Anderson 4 years ago from USA Author

@Jon - thanks for the visit, and taking the time to comment.

Yes, you are right, whether it was what spurred your comment, or not, that very issue is currently in the news - on conservative channels of course. Haven not seen it mentioned on the mainstreams yet.

But that is also a point I covered in the article, and previous comments.

Thanks for your input.

GA


JON EWALL profile image

JON EWALL 4 years ago from usa

GA Anderson

It was recently reported that the government ( taxpayers ) loses could be as high as $25 billion.Obama's investment in a private company wasn't a good investment.


GA Anderson profile image

GA Anderson 4 years ago from USA Author

@Jon - thanks for the visit, and the comment

Yes, I saw that stat on CNN too. But note - that number is still a conservative estimate based on the U.S. stock position in the company (approx. 31%)

Still not being mentioned is that there is a remaining unpaid balance of TARP funds in the range of almost $9 billion.

GA


JON EWALL profile image

JON EWALL 4 years ago from usa

GA Anderson

A requirement of the Tarp bill was that any money being returned was to return to the Treasury with the purpose to pay down the debt. When Bush left in 2008, he had a deficit of $ 600 billion plus tarp $ 700 billion. Republicans fought Obama to return the money to the treasury, they lost, Obama and the Democrats spent it as far as his way to a recovery

CHECK THIS LINK ( pay-go)

2/13/10

President Barack Obama is hailing PAYGO legislation

http://chicagoconsultant.com/page2.php?category=2&

Obama and company don't follow PAY-GO law


Ralph Deeds profile image

Ralph Deeds 4 years ago

"Obama's investment in a private company wasn't a good investment."

Tell that to the one million auto workers of Michigan, Ohio, Indiana, Wisconsin and supplier and dealer employees all over the country. Ford would have been affected adversely if GM had been allowed to go under because of parts supply issues.


GA Anderson profile image

GA Anderson 4 years ago from USA Author

Greetings Ralph - your comments are always welcome, but I think your figures are not quite as stated.

The "one million" jobs loss estimate (actually the politicians are using 1.1 million) was for total jobs - that "might" have been lost. Not just autoworker jobs.

It included the suppliers, dealers, and auto worker-dependent businesses, like restaurants and any other business that benefited from an auto worker's paycheck. And it assumes the worst case scenario - as in auxiliary businesses would close - not just layoff employees.

Most estimates of direct and semi-immediate auto worker jobs lost due to a GM shutdown was around 100,000. Now that's still a lot. Hell 1 is a lot if it's your job - but it's a long way from the "1 million" figure being touted.

The debate over bailout vs. bankruptcy reorganization is still raging, and probably always will - but right or wrong, at least those jobs were saved. I just don't like the method, and, from what I have researched - bankruptcy reorganization was a viable option.

But that's a debate for another day.

You are right about Ford being affected -but only if there was no possibility of GM emerging from bankruptcy, because all those businesses in the parts supply chain would have been impacted.

From my perspective, the unfortunate part of the bailout was the favored treatment the unions received (ie. the Delphi employee's pensions) and the trampling of established contract law.

I do not believe the credo that "the ends justifies the means" is always valid - especially not in this case.

GA


JON EWALL profile image

JON EWALL 4 years ago from usa

Ralph Deeds

Have you forgotten how Chrysler survived and came back to be a profitable company without the use of taxpayer money? Private Sector companies, when they fail , file for bankruptcy. The bankruptcy courts decide who gets what and where the assets eventually go.

The government in order to help Chrysler ( Congress voted ) survive and not close, granted Chrysler ( no taxpayer upfront money )loan guarantees to receive the necessary funding from the banks ( private sector banks ). Lee Iocola negotiated with the unions, investors and suppliers without a government intrusion in the companies management.

About $ 80 billion came out of tarp ( to finance banking industry) that the OBAMA administration had control of. The distribution and dismemberment of the auto industry was a disgrace.

Profit is what investors strive for, that's the capitalistic way, something like Bain capitol..

False Attacks on GST steel

http://www.mittromney.com/blogs/mitts-view/2012/06...


TAAJA 4 years ago

Ralph

Where did you get your info of Chrysler survival without government intervention?


JON EWALL profile image

JON EWALL 4 years ago from usa

GA Anderson

Just another story

Another Obama government investment gone bad, Solynda. The bankruptcy of Solynda will possibly cost the taxpayers $528 million after the court finalizes the bankruptcy.


GA Anderson profile image

GA Anderson 4 years ago from USA Author

@TAAJA - thanks for the visit and comment - But... I did not say there was no government intervention in Chrysler's bailout - just that it was government manipulation of another sort

GA


GA Anderson profile image

GA Anderson 4 years ago from USA Author

@Jon - yes, the Solyndra deal is a black-eye (oops) for Obama's administration. It looks bad, (and is bad), but... The Repubs have "solyndra-type" skeletons in their closet too.

GA


JON EWALL profile image

JON EWALL 4 years ago from usa

GA Anderson

That's a true statement but today it is a different group of scumbags.


GA Anderson profile image

GA Anderson 4 years ago from USA Author

You are right about that Jon.

Although it may sound crazy - somehow the Solyndra example feels different - worse than just the typical motivation of greed.

I would venture that most Repub-type "Solyndras" are driven by greed - on both sides. But Solyndra feels like the "government" side of the deal's motives were more for control than enrichment.

I know that's a vague explanation - but Solyndra just "feels" more sinister.

GA


JON EWALL profile image

JON EWALL 4 years ago from usa

GA Anderson

I posted a reply to another hub in which touched on the auto bailouts. May be of interest regarding sequestration.

If the President and Congress do not act before Jan 02,2013, sequestration will cost the government a loss of 1 million jobs. One must wonder why the President and the Senate were quick to save the auto industry but completely ignores the damages that will be placed on the government agencies and the loss of workers and industries supporting government needs.

A budget has been passed by the House, the Senate refuses to debate, amend and vote on the House budget. The President leadership is so visually un- transparent, he can only be found campaigning somewhere in the USA.


GA Anderson profile image

GA Anderson 4 years ago from USA Author

@Jon

Although it is off-topic here - I think the "sequestration" issue is nothing more than a political game of chicken. Regardless of who wins in November - sequestration will be revisited, and averted, before the deadline. It will just be a public display of politics at its worst as each side points fingers at the other.

GA


Ralph Deeds profile image

Ralph Deeds 4 years ago

How do you feel about the AIG bailout in which most of the government funds went straight into the pockets of counterparty firms such as Goldman Sachs and into bonuses paid to AIG executives. Why are you so negative on the auto bailout which saved the American automobile companies and jobs for their workers and workers in related employers. Most people in Michigan applaud the success of this action by the Bush and Obama administrations.


GA Anderson profile image

GA Anderson 4 years ago from USA Author

Greetings Ralph,

I thought AIG was a ill-considered payoff. I am not even mollified by the recent news we are about to come out of that deal with a profit. It still stinks.

I am negative about the bailout more because of the way it was done, than the fact that it was done.

Yes, it did apparently "save" the auto industry - but it has not been proven that there were no other more conventional solutions that would have "saved" it too.

Of course Michigan applauds the action, Paul never complains when Peter is robbed.

... and Bush's involvement would be difficult to define as a success - in essence, he merely handed them a check. True - it was tied to restructuring demands that were never met, but still... it was an ill-conceived effort. On the other hand... Obama's bailout efforts were essentially a government take-over that flouted the rule of law. Not just common sense. ie. Bush

Also, unlike AIG - it is unlikely American taxes payers will ever recoup the "loans" involved in GM's bailout.

GA


JON EWALL profile image

JON EWALL 4 years ago from usa

GA Anderson

Recently the Obama Justice Department announced that the investigation of Goldman Sachs was being dropped, relieving G S of any wrong doing in the financial disasters of 2008. Also the Justice Department has also found that John Corzine ( former Congressional member)of M F Global did nothing wrong to further the investigation of the $ billon loses in the company.

Friends of Obama have a way to getting off prosecution for their dastardly deeds.

IN 2008,Goldman Sachs( campaign funding to Barak Obama and some Dem's was $33 MILLION


GA Anderson profile image

GA Anderson 4 years ago from USA Author

Jon - hang on. the "other shoe" may be about to drop. Apparently there are new statements being reported from an inside source that may prove that Corzine knew "everything" about the "lost" money he claims to know "nothing" about.

GA


David 4 years ago

GA

What long term effect do you think ignoring the secured creditors rights has had with respect to large invests?

it seems to me that it probably has changed to game but in not in that industry.

Thanks

David


GA Anderson profile image

GA Anderson 4 years ago from USA Author

Greetings David - It is only speculation on my part - but it seems to make sense to me.

If an investor can longer have confidence in the legal protection to debtors of secured vs. non-secured - then there is no difference in the risk factor.

I would suspect that that lack of protection would/will lessen their willingness to take the risk of investing on GM-type scales.

GA


JON EWALL profile image

JON EWALL 3 years ago from usa

Hubbers

An update on AIG: AIG Stock Sale Pays Back U.S. Government in Full

http://www.investingdaily.com/15645/aig-stock-sale...

government has now made a $12.4 billion profit on its $182 billion bailout of insurance company

TARP PAYBACK FUNDS

McCarthy Joins Colleagues Asking Administration to Clarify Contradictory TARP Repayment Plans

http://kevinmccarthy.house.gov/index.php?option=co...

Troubled Asset Relief Program

http://en.wikipedia.org/wiki/Troubled_Asset_Relief...

The incredibly shrinking bill for TARP

http://www.washingtonpost.com/blogs/wonkblog/post/...

taxpayers are still owed $133 billion from the $475 billion bailout.

TARP was supposed to cost $700 billion

Congress appoved $700 billion, any returned funds were to be used to paydown the deficits.Congress needs to have Obama tell the public where the returned funds went if spent..


GA Anderson profile image

GA Anderson 3 years ago from USA Author

@Walt - thanks for the visit and comment. Sometimes the timeliness of the details are are less important than the point.

GA


JON EWALL profile image

JON EWALL 3 years ago from usa

GA Anderson

Another note of interest on the tarp bill.The TARP program originally authorized expenditures of $700 billion. The Dodd–Frank Wall Street Reform and Consumer Protection Act reduced the amount authorized to $475 billion. By October 11, 2012, the Congressional Budget Office (CBO) stated that total disbursements would be $431 billion and estimated the total cost, including grants for mortgage programs that have not yet been made, would be $24 billion

1/26/12

http://finance.yahoo.com/blogs/daniel-gross/10-ban...

SIGTARP points out that only 6.6 percent of the $45.6 billion in TARP funds set aside for the program has been spent so far. Originally, the Obama administration projected that housing program would help some 3 million to 4 million borrowers with their mortgage payments, but only about 762,839 homeowners have received permanent modifications to their mortgages as a result.

7/21/11

Audit of the Federal Reserve Reveals $16 Trillion in Secret Bailouts

http://www.sanders.senate.gov/newsroom/news/?id=9e... law passed one year ago this week directed the G A O to conduct the study. GEITHNER KNOWS

The Obama administration is very good with moving the money around


GA Anderson profile image

GA Anderson 3 years ago from USA Author

@Jon, thanks for the visit and such a detailed comment. I agree that this one can be laid at Obama's feet - but Bush is not completely absolved just because of Obama's actions.

GA


JON EWALL profile image

JON EWALL 3 years ago from usa

GA Anderson

I can't recall Bush blaming the Democrats for the problems, He was a class act and took the blame. When the Democrats controled Congress in 2007 and 2008, taking control of all the committies, the economy started to go downhill.


GA Anderson profile image

GA Anderson 3 years ago from USA Author

@Jon, thanks again for the visit - You may be right, but that's a different conversation.

GA

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