Posts Tagged ‘auto industry’

TARP: Money Well Spent

Wednesday, March 23rd, 2011

A top Treasury official defended the federal government’s $700 billion bank bailout financial crisis-response program at a hearing where the effort was criticized by members of a watchdog panel insisting that it did more for Wall Street than Main Street. “The cost of TARP is likely to be no greater than the amount spent on the program’s housing initiatives,” said Timothy Massad, acting assistant secretary of the Treasury for the Office of Financial Stability, to the Congressional Oversight Panel that oversees the Troubled Asset Relief Program (TARP).  “The remainder of the programs under TARP — the investments in banks, credit markets and the auto industry — likely will result in very little or no cost,” he said.

Panel member J. Mark McWatters, a Dallas-based CPA ad tax attorney, argued that it is difficult to call TARP a success when the unemployment rate is still approximately nine percent and millions of Americans are fighting foreclosure.  Panel Chairman Ted Kaufman – who was Vice President Joe Biden’s chief of staff of 19 years and temporarily replaced him in the Senate – said that Wall Street bankers ended up in better shape than Main Street.  “It’s not a tough economy on Wall Street, it’s a tough economy everywhere else,” Kaufman said.

According to Massad, TARP will end up spending no more than $475 billion; 86 percent of which has been disbursed.  To date, Treasury has received $277 billion back, including $241 billion in repayments and $36 billion in additional income. The Treasury expects to receive an additional $9 billion, which will leave $150 billion outstanding through various investments.  The department hopes to recover those funds over the next several years.  “TARP helped bring our financial system back from the brink and paved the way for an economic recovery,” Massad said.  “Banks are better capitalized, and the weakest parts of the financial system no longer exist.  The credit markets on which small businesses and consumers depend — for auto loans, for credit cards and other financing — have reopened.  Businesses can raise capital, and mortgage rates are at historic lows.  We have helped bring stability to the financial system and the economy at a fraction of the expected costs.”

William Nelson, deputy director of the Federal Reserve’s division of monetary affairs, agrees with Massad. In testimony about the Fed’s program to restart the asset-backed securities markets with backing from the Treasury’s TARP program, Nelson said even that program is unlikely to experience any losses.  “The Term Asset-Backed Securities Loan Facility (TALF) program helped restart the ABS markets at a crucial time, supporting the availability of credit to millions of American households and businesses,” Nelson said, adding that of the more than 2,000 loans worth $70 billion that were extended through the Fed’s facility, 1,400 totaling $49 billion were repaid early.  Remaining loans are current, and the collateral backing the loans is retaining its value, “significantly reducing the likelihood of borrower default.”

“As a result, we see it as highly likely that the accumulated interest will be sufficient to cover any loan losses that may occur without recourse to the dedicated TARP funds,” Nelson said.  Europe, by contrast, did not act as aggressively to apply stimulus with the result that financial crises occurred in countries like Ireland and Greece.

TARP’s Price Tag: $109 Billion

Monday, March 29th, 2010

CBO predicts that TARP’s ultimate price tag will not be as high as expected.  The Congressional Budget Office has determined that the Troubled Asset Relief Program (TARP) will cost the government $109 billion – just 16 percent of the $700 billion set aside to rescue the nation from the great recession.  Insurance giant AIG and the auto industry are TARP’s largest beneficiaries.

The federal government bought $40 billion in AIG preferred stock and created a $30 billion line of credit for the firm.  Earlier CBO estimates that AIG would cost the government $9 billion; since AIG hasn’t paid the Treasury Department the quarterly dividend it owes, the CBO increased its projected loss to $36 billion or more than half of the bailout cost.  The CBO estimates that TARP will lose $34 billion from its bailout of Chrysler and General Motors.

TARP’s mortgage modification program is estimated to use less than $20 billion, less than half of the $50 billion set aside to help people stay in their homes.  The CBO says that fewer people will participate in the program than anticipated.  When President Barack Obama announced the program in February of 2009, he said that as many as four million homeowners could reduce their monthly payments to no more than 31 percent of their pre-tax incomes.  At the end of February, only 170,000 distressed homeowners had taken advantage of the mortgage modification program.

RIP Hummer: 1992 – 2010

Monday, March 15th, 2010

 GM pulls the plug on the Hummer after deal with Chinese firm sours.  General Motors took its Hummer brand off life supports and will let the iconic SUV die a peaceful death.  GM’s brief statement said that its planned sale of Hummer to the Sichuan Tengzhong Heavy Industrial Machines Company “cannot be completed,” without giving a reason. The $150 million deal had been stalled as the companies awaited approval from the Chinese government.  GM had been trying to sell Hummer for a year, and had made a preliminary deal with Tengzhong last June.

The off-road leviathans (17 mpg/highway and 10 mpg/city) started life as the Hum-Vee, a military vehicle whose special options included troop carriers, gun turrets and radar.  The original manufacturer was AMC Jeep’s General Products division, which started selling a civilian version of the M998 High Mobility Multipurpose Wheeled Vehicle (HMMWV or Hum-Vee) to the public with the brand name “Hummer”, also known as the H1.  In 1998, AMC General sold the brand name to General Motors, but continued to manufacture the vehicles at its Mishawaka, IN, plant.  GM assumed responsibility for marketing and distributing the niche vehicles.

In time, GM introduced two homegrown models – the H2 and H3 – which it built at the same Shreveport, LA, plant where the Chevrolet Canyon and GMC Canyon pickups are produced.

Controversy dogged the Hummer throughout its life.  Criticisms focused on its size; ecological perceptions; poor fuel economy; safety data and concerns; and stability control.  Still, many Hummer devotees (including this author) put their vehicles’ heavy-duty capabilities to good use by partnering with The Hummer Club, Inc., and the American Red Cross to receive CPR and first aid training so they could assist victims during disaster situations.

The science of global warming is still in dispute, with credible people on both sides.  A recent poll showed that just 36 percent of Americans believe the evidence of human-induced climate change, a slide from the 47 percent reported in early 2008. According to author Jeffrey D. Sachs, “The rise of unemployment has perhaps made people more reluctant to accept adverse news on living standards.  There is also considerable public confusion about climate science and possible remedies.”

Rest in peace, Hummer.