General Motors and Chrysler probably won't be able to pay back all those loans we've extended them! From the just-released September report of the Congressional Oversight Panel assigned with keeping an eye on the Troubled Asset Relief Program:
Although taxpayers may recover some portion of their investment in Chrysler and GM, it is unlikely they will recover the entire amount. The estimates of loss vary. Treasury estimates that approximately $23 billion of the initial loans made will be subject to much lower recoveries. Approximately $5.4 billion of the loans extended to the old Chrysler company are highly unlikely to be recovered. The Congressional Budget Office earlier calculated a subsidy rate of 73 percent for all automotive industry support under TARP and recently raised its estimate of the cost of that assistance by approximately $40 billion over the previous estimate.
This comes as we've been getting mostly good news about the money Treasury extended to banks last fall. Even Fannie Mae and Freddie Mac might, if we gave them long enough, be able to pay us back eventually.
Why the difference between financial firms and automakers? Part of it is just that GM and Chrysler were struggling companies that had been losing market share for years before the financial crisis hit, while U.S.-based financial firms were doing quite well. The banks simply aren't in the same competitive bind GM and Chrysler are. But another really important part of the equation is that it's pretty easy for the Federal Reserve to create conditions that allow banks to make lots of money—mainly by keeping short-term interest rates really low—whereas doing that for the automakers is much harder. Cash for Clunkers was definitely a gift to the auto industry, but compared with all the Fed's lending programs it wasn't very big, and it benefited other companies more than it did GM and Chrysler. The only way to guarantee GM and Chrysler's profits would probably be to impose a big surcharge on cars made by other manufacturers. Which ain't going to happen. Basically, it's politically easier in the U.S. to extend corporate welfare to banks than to carmakers. Strange, no?
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