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  • COP January Report: 'An Update on TARP Support for Domestic Automotive Industry'

    If the purchasing of Super Bowl ads is any indication, then the market for cars is much brighter than years past. And two US automakers--GM and Chrysler--that were on the verge of collapse two years ago are among the big spenders this year, according to the Detroit Free Press . So does this mean the Treasury's so-called bailouts of GM and Chrysler were clear successes? Maybe, maybe not, seems to be the answer from the Congressional Oversight Panel (tasked with evaluating the Treasury's handling of TARP funds). From the January COP report: Treasury is currently unwinding its stakes in GM, Chrysler, and GMAC/Ally Financial. Of those companies, GM is furthest along in the process of repaying taxpayers. It conducted an initial public offering (IPO) on November 18, 2010, and Treasury used the occasion to sell a portion of its GM holdings for $13.5 billion. This sale represents a major recovery of taxpayer funds, but it is important to note that Treasury received a price of $33.00 per share - well below the $44.59 needed to be on track to recover fully taxpayers‟ money. By selling stock for less than this break-even price, Treasury essentially "locked in" a loss of billions of dollars and thus greatly reduced the likelihood that taxpayers will ever be repaid in full. Treasury has explained its decision to sell at a loss by saying that it wished to unwind government ownership of the automobile industry as quickly as possible. This justification may very well be reasonable, but it is difficult to evaluate. Because Treasury has cited different, conflicting goals for its automotive interventions at different times - saying, for example, that it wished to save American jobs, to produce the best possible return to taxpayers, or to return the company to private ownership as rapidly as possible - it is difficult for the Panel or any outside observer to judge whether Treasury‟s results in fact qualify as successful. Read the full report here . And watch COP Chair Ted Kaufman introduce the report:

  • COP March Oversight Report Finds Flaws with GMAC Bailout

    In its March report, the Congressional Oversight Panel takes the Treasury Department to task for a "missed opportunities to to increase accountability and better protect taxpayers money," as it "rescued" GMAC. Treasury did not, for example, condition access to TARP money on the same sweeping changes that it required from GM and Chrysler: it did not wipe out GMAC’s equity holders; nor did it require GMAC to create a viable plan for returning to profitability; nor did it require a detailed, public explanation of how the company would use taxpayer funds to increase consumer lending. Moreover, the Panel remains unconvinced that bankruptcy was not a viable option in 2008. In connection with the Chrysler and GM bankruptcies, Treasury might have been able to orchestrate a strategic bankruptcy for GMAC. This bankruptcy could have preserved GMAC’s automotive lending functions while winding down its other, less significant operations, dealing with the ongoing liabilities of the mortgage lending operations, and putting the company on sounder economic footing. The Panel is also concerned that Treasury has not given due consideration to the possibility of merging GMAC back into GM, a step which would restore GM’s financing operations to the model generally shared by other automotive manufacturers, thus strengthening GM and eliminating other money-losing operations. COP Chair Elizabeth Warren dsicusses the report's findings: You can read the full report here .

  • COP September Report: US Automakers, Government Ownership, and Potential Conflicts

    In its September report, the Congressional Oversight Panel (COP) looks into the impact of the use of TARP funds to keep US automakers Chrysler and GM from going under. The panel looked first at whether Treasury broke any rules in bailing out the companies, and found that the government's behavior was "largely in line with the practices of other large bankruptcies," and that no bankruptcy laws were broken. But there are now added concerns about how the intersection of politics and business puts the government in a tricky situation as part owner of the automakers. And COP, predictably, is calling for more transparency: American taxpayers now own 10 percent and 61 percent of the new Chrysler and GM companies respectively. Treasury's support for the automotive industry differed significantly from its assistance to the banking industry. The bulk of the funds were available only after the companies had filed for bankruptcy, wiping out their old shareholders, cutting their labor costs, reducing their debt obligations and replacing some top management. The government's role raises serious oversight issues, particularly Treasury's conflict between competing objectives. The Panel recommends that, to mitigate the potential conflicts and political issues inherent in owning Chrysler and GM shares, Treasury should take exceptional care to explain its decision making and provide a full, transparent picture of its actions. The Panel also recommends that Treasury consider placing its GM and Chrysler shares in an independent trust that would be insulated from political pressure and government interference. You can read the full report here . Also, COP chair Elizabeth Warren speaks about the September report in this video: