Treasury: U.S. to lose $25 billion on auto bailout

[X Factor 1,110]

Treasury: U.S. to lose $25 billion on auto bailout

Washington -The Treasury Department says in a new report the government expects to lose more than $25 billion on the $85 billion auto bailout. That's 15 percent higher than its previous forecast.

In a monthly report sent to Congress on Friday, the Obama administration boosted its forecast of expected losses by more than $3.3 billion to almost $25.1 billion, up from $21.7 billion in the last quarterly update.

The report may still underestimate the losses. The report covers predicted losses through May 31, when GM's stock price was $22.20 a share.

On Monday, GM stock fell $0.07, or 0.3 percent, to $20.47. At that price, the government would lose another $850 million on its GM bailout.

The government still holds 500 million shares of GM stock and needs to sell them for about $53 each to recover its entire $49.5 billion bailout. At the current price, the Treasury would lose more than $16 billion on its GM bailout.

The steep decline in GM's stock price has indefinitely delayed the Treasury's sale of its remaining 26 percent stake in GM. No sale will take place before the November election.

Treasury spokesman Matt Anderson said the costs were still far less than some predicted.

"The auto industry rescue helped save more than one million jobs throughout our nation's industrial heartland and is expected to cost far less than many had feared during the height of the crisis," Anderson said.

The Obama administration initially estimated it would lose $44 billion on the bailout but reduced the forecast to $30 billion in December 2009.

But the recent estimates are not as optimistic as last year.

The Treasury Department said in a May 2011 report that its estimate of auto bailout losses was $13.9 billion. The Congressional Budget Office also estimates a $14 billion loss. The CBO has written off $8 billion of the government's auto bailout as an unrecoverable loss.

Republican presidential candidate Mitt Romney has decried the losses on the auto bailout and insisted that forcing GM and Chrysler Group LLC to go through bankruptcy first would have saved taxpayers money.

But President George W. Bush — who gave the automakers and their finance arms about $25 billion in his final weeks in office in bailout funds — said there wasn't time.

Taxpayers incurred a $1.3 billion loss on the $12.5 billion bailout of Chrysler.

The Treasury also has put on hold an initial public offering initially planned for last year in Ally Financial Inc. because of market weakness. The government holds a 74 percent majority stake in the Detroit auto finance company as part of its $17.2 billion bailout and has recovered $5.7 billion.

GM CEO Dan Akerson told employees at a town hall meeting Thursday that the company was working to take actions to boost the automaker's sagging price.

http://www.detroitnews.com/article/20120813/AUTO01/208130392

[X Factor 1,110]

Bond holders of GM before it went bankrupt pretty much lost everything.

[Mr. Big Dog 10,747]

What would the cost be of an additional million and a half or so people not working and drawing benefits instead of paying income taxes?

[X Factor 1,110]

What would the cost be of an additional million and a half or so people not working and drawing benefits instead of paying income taxes?

Very true. However the shareholders/bondholders ended up really paying for it all.

[Mr. Big Dog 10,747]

Very true. However the shareholders/bondholders ended up really paying for it all.

There's a risk when making an investment. Sometimes you win, sometimes you don't.

[X Factor 1,110]

There's a risk when making an investment. Sometimes you win, sometimes you don't.

But bondholders are lenders and their money is secured by the assets of the companies. The auto industry was allowed to go bankrupt and sell their assets to pay off the bondholders. I understand that investors holding the stocks are more at risk. But the bondholders were definitely kicked in the rear.

[Mr. Big Dog 10,747]

But bondholders are lenders and their money is secured by the assets of the companies. The auto industry was allowed to go bankrupt and sell their assets to pay off the bondholders. I understand that investors holding the stocks are more at risk. But the bondholders were definitely kicked in the rear.

There is always a risk even for bondholders. That's why bonds issuers are rated on their risk profiles and why bonds with higher risk yield higher rates of interest - to compensate the lenders for that extra risk they're taking.

Edited August 16, 2012 by Mr. Big Dog