Ford Credit took government money $16B

[wildosvt]

http://jalopnik.com/5704575/ford-bmw-toyota-took-secret-government-money

 

This was brought to my attention from a good GM buddy of mine. I do not feel this is as bad of a black eye, As GM's bankruptcy. Thoughts? Does anyone know any more about it?

Edited December 3, 2010 by wildosvt

[fordmantpw]

Loads vs. bailout money. Big difference!

 

Plus:

 

According to the Fed, the commercial paper loans have been paid in full, while some $2 billion remains outstanding on loans for bond investors.

 

Looks like it is almost all paid back.

[jpd80]

For the greater good of the community the government had to step in and prop up the commercial lenders and the auto industry. Almost everyone now agrees that this had to be done and luckily almost all of the money has been repaid and

we should also accept that rescuing GM has a cost but that cost is not as great as originally thought....

Edited December 3, 2010 by jpd80

[RichardJensen]

Fact 1:

 

If The Fed bought $1B of 30 day CP from Ford 3 months in a row, it counts as $3B in loans under this accounting method

 

Fact 2:

 

The Fed did not spend a dime of tax money on a bank (none of your tax dollars were spent on this).

 

Fact 3:

 

The Fed did not use debt issued by the treasury to fund these efforts (these programs did not increase the national debt).

 

The Fed has an incredible amount of assets at its disposal (ask any LaRouche democrat, goldbug, or tinfoil hat wearing short wave radio ranter)

 

-------

 

And damn near every loan syndicator in the country sold CP to and drew overnight loans from the Fed during that crisis.

 

Folks, you couldn't sell a dime of paper during that crisis. Nobody was buying anything. The Fed acted as a market maker in this highly unusual instance, replacing the role traditionally played by firms like Cantor Fitzgerald.

Edited December 3, 2010 by RichardJensen

[jpd80]

And damn near every loan syndicator in the country sold CP to and drew overnight loans from the Fed during that crisis.

 

Folks, you couldn't sell a dime of paper during that crisis. Nobody was buying anything. The Fed acted as a market maker in this highly unusual instance, replacing the role traditionally played by firms like Cantor Fitzgerald.

^^^^^^^^^

So Commercial Paper is day to day lending as part of consumer loans to people buying products like cars,

and the credit crunch meant financial lenders would not deal so the Fed had to keep business going.

 

Now GM ran out of cash for one reason or another and found itself in a position where there was no finance,

That situation is completely different to short term Commercial Paper and GM fans trying to equate the two

is living in self denial and downright wrong.

 

Rich, could the Fed have given GM a $45 billion loan instead of taking ownership of the company?

would that have been illegal and violated set lending conditions - seen as too risky?

Would lending any money to GM have set the government up to lose the lot ahead of a Chapter 11 reorganization?

Edited December 3, 2010 by jpd80

[RichardJensen]

Also, emphatically, this was NOT government money.

[jpd80]

Also, emphatically, this was NOT government money.

That's right because unlike some other countries, the government does not own the Federal Reserve and that makes a huge difference.

[RichardJensen]

^^^^^^^^^

So Commercial Paper is day to day lending as part of consumer loans to people buying products like cars,

and the credit crunch meant financial lenders would not deal so the Fed had to keep business going.

 

Now GM ran out of cash for one reason or another and found itself in a position where there was no finance,

That situation is completely different to short term Commercial Paper and GM fans trying to equate the two

is living in self denial and downright wrong.

 

Rich, could the Fed have given GM a $45 billion loan instead of taking ownership of the company?

would that have been illegal and violated set lending conditions - seen as too risky?

Would lending any money to GM have set the government up to lose the lot ahead of a Chapter 11 reorganization?

 

Commercial Paper consists of extremely short term generally unsecured low interest loans.

 

This is a typical situation where a lender needs CP:

 

$100M in loans are underwritten in a week. $100M in cash has been transferred to the borrowers' accounts.

 

The $100M in loans are being sold to a syndicate the following week for $103M, but the syndicate has not transferred the cash to the lender.

 

The lender is temporarily short on cash.

 

They sell $100M worth of CP to a CP dealer, payable in one week.

 

When the $103M payment comes through from the syndicate, they pay back the $100M along with the agreed upon interest and still turn a profit.

 

Or, if they did another $100M worth of business during that week, they may elect to roll over the CP for another week. In this case they pay back only the interest due.

 

-----

 

Because CP is not generally collateralized, in 2008 during the crisis the market for it absolutely dried up. CP dealers were unwilling to advance money to anyone because, as unsecured debt, it was virtually worthless in the event of a collapse. In the event that a lender is unable to obtain sufficient liquidity to pay back the CP, the CP dealer is left holding essentially worthless IOUs.

 

There is a similar arrangement called "RePo" financing, wherein a bank sells a certain amount of its assets to a RePo dealer for a fixed amount with an agreement to repurchase (hence 'RePo') the assets from the dealer for a fixed amount on a fixed date. These assets are typically the safest of safe securities, because the dealer assumes the risk in the security at the time of the purchase.

 

The short term lending market all but disappeared for a few weeks in 2008. Nobody bought, nobody sold. It was unlike anything that anyone had seen, probably since the 1929 stock market crash. The liquidity that RePos and CP provide to the financial industry disappeared, and the Fed----which has trillions of dollars in assets---stepped in to provide that liquidity by acting as a counterparty in these transactions.

Edited December 3, 2010 by RichardJensen

[RichardJensen]

That's right because unlike some other countries, the government does not own the Federal Reserve and that makes a huge difference.

However, it *was* taxpayer money, in that the Federal Reserve's deposits ultimately come from US citizens and corporations.

[jpd80]

However, it *was* taxpayer money, in that the Federal Reserve's deposits ultimately come from US citizens and corporations.

While deposits are from US tax payers and corporations, the Fed actually creates money by lending more than it has.

There are limitations to that but done judiciously in the middle of a financial crisis, it save the US from falling deeper.

Edited December 3, 2010 by jpd80

[Anthony]

I don't see this as a big deal....though I'm surprised that Ford did not let this be known sooner rather then have it told elsewhere now. It just makes it look like they were hiding it (regardless of the real reasons...which is simply they did not have to tell anyone).

[jpd80]

GM, Chrysler and lots of lending institutions were saved through timely intervention of the Fed.and the Government,

I shudder tho think what may have happened if we followed the simpleton logic of letting the market correct itself,

it was that far out of whack that no amount of correction would have given a positive outcome.

Edited December 4, 2010 by jpd80

[bondo007]

By far the best thing is that the UAW owns zero percent of Ford Motor Company unlike the 65% of Chrysler and the 17.5% of GM the UAW now owns. I will now buy Ford products only.

[Pioneer]

By far the best thing is that the UAW owns zero percent of Ford Motor Company

 

IIRC, Ford gave the UAW some common stock to pay for some of it's VEBA commitment. Not to mention that most Ford UAW employees buy stock through our 401k plan.

 

Still going to by Ford products?

[jpd80]

IIRC, Ford gave the UAW some common stock to pay for some of it's VEBA commitment.

They were going to but then decided to pay the UAW in cash or were immediately converted to cash...

 

BTW, I don't agree with bondo007 and his anti UAW stance, I think that Ford and the UAW

have shown how the cooperation of two committed parties can solve a lot of problems.

 

For me the difference between Ford and the other two:

Ford not allowing themselves to go bankrupt and paying the UAW VEBA in cash.

Edited December 12, 2010 by jpd80

[ausrutherford]

It amazes me how many out there dont understand the difference between the Fed loan and a treasury loan

[jpd80]

It amazes me how many out there dont understand the difference between the Fed loan and a treasury loan

 

That's right, the lending to Ford credit was to keep the money cycle going

and maintain consumer credit lending, not to prop up a failed business model

[SVT_MAN]

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

 

Pretty much reviews anything you missed in macroeconomics.

 

Richard nailed it.

Edited December 14, 2010 by SVT_MAN

[Harley Lover]

And: a LOAN is not the same think as EQUITY OWNERSHIP (which is what GM gave the government in return for $$$).

[Harley Lover]

It amazes me how many out there dont understand the difference between the Fed loan and a treasury loan

It doesn't surprise me at all. The GM cheerleaders are desperate to demonstrate a parallel between this action and GM/Chrysler's action. As in so often the case these days, they are willing to suspend belief, reality, and facts in order to attempt to make their point.

Edited December 14, 2010 by Harley Lover

[Extreme4x4]

I don't see this as a big deal....though I'm surprised that Ford did not let this be known sooner rather then have it told elsewhere now. It just makes it look like they were hiding it (regardless of the real reasons...which is simply they did not have to tell anyone).

 

The reason it was not disclosed, until recently, is that the government did not want to further undermine consumer confidence. In other words, had the public known how disfunctional the banking industry had become, it could have caused widespread panic, and a run on the banks.

 

Ford could not disclose, without outing everyone else who had used this outlet.

 

It makes perfect sense to me.