Feds Told GM To Drop Pontiac Or No Bailout, Lutz Says

[jpd80]

I won't argue the fine points of bankruptcy proceedings - I'm no expert. But here is what I don't like about the entire situation:

 

GM is still essentially the same company building the same products they were before and after the bailout with the exception of getting rid of a few brands and vehicles. Ditto for Ford. Ford was able to secure loans before the crash. GM was unable to secure a private loan after the crash. GM had the same equity available that Ford did to secure the loan. The government could have given them the same type of secured loan that Ford got. Ford shareholders kept their stock and now they have equity. GM shareholders were told to go pound sand. Ford pre-2008 vehicles are still fully covered for defects, recalls, etc. GM was given relief from pre-bankruptcy vehicles in certain cases - specifically an Impala suspension update that was made by GM to all police vehicles but which GM refused to apply to non police versions citing that they were "old GM" vehicles not "new GM" vehicles so it wasn't legally obligated. That's lawyerese bullshit.

 

The old shareholders should have been allowed to keep their stake and GM should have repaid every frickin' dime it borrowed or was given by the taxpayers. Period. The fact that they're making billions while the taxpayers and shareholders got shafted is ridiculous.

Before bankruptcy, Old GM had been given three loans under TARP - $13.4 Billion, $2 Billion and $4 billion to help GM transform ($19.4 Billion)

but ultimately another $30 billion was added after June 2009 to change GM, around $16.4 billion was not used and went into an Escrow fund.

 

To look at the history of borrowings and you quickly see that the government wanted more assurance that it would eventually see the money returned,

just lending the money to GM was ultimately seen as too risky compared to direct involvement - I don't blame them one bit for wanting some say in reformation.

 

Good read here -

The Role of TARP Assistance in the Restructuring of General Motors

Edited November 14, 2013 by jpd80

[akirby]

I can buy that.

[jpd80]

That also adds weight to Steve Rattner's comments that Treasury lost about $20 billion on old GM

but has now actually made around $10 billion on the investment made in in New GM.

 

I think he's right because the original $19.4 Billion would have been locked up in Old GM liabilities but in order

to guarantee New GM's success, Treasury then allowed the carry forward losses to be transferred to New GM....

 

In that light, the government's actions on rescuing GM begin to make sense.

Edited November 14, 2013 by jpd80

[92merc]

That also adds weight to Steve Rattner's comments that Treasury lost about $20 billion on old GM

but has now actually made around $10 billion on the investment made in in New GM.

 

I think he's right because the original $19.4 Billion would have been locked up in Old GM liabilities but in order

to guarantee New GM's success, Treasury then allowed the carry forward losses to be transferred to New GM....

 

In that light, the government's actions on rescuing GM begin to make sense.

So, as a taxpayer, I should be happy the US government only lost $10 billion on the deal, give or take? ...

[grbeck]

 

1) The concessions made by the UAW resulted in cost-competitive labor. Review of the dozens of airline bankruptcies show that bankruptcy courts will not tear up union contracts to give one player in a market a significant advantage over all others.

 

2) The DIP financier was given precedence over all other creditors. And that is indeed the 'way it has always been done. Similarly, the bankruptcy court said nothing about how the DIP financier chose to dispose of its equity. This too is 'the way it has always been done.'

Compensation costs are still higher at GM than they are at the U.S.-based operations of Toyota, Honda and Nissan, which are supposed to be the yardstick.

 

The question isn't whether the DIP financier deserved to be given precedence. The question is whether the DIP financier favored certain parties over others, and, in some cases, broke precedent to do so. The answer to that one is yes. It's indisputable that the UAW received favorable treatment. We shouldn't therefore wonder why other parties - shareholders, Delphi management retirees - expected to receive similar favorable treatment.

[RangerM]

How does the $18.9 Billion worth of carry forward (future tax credits) factor into this $10 Billion loss?

 

Did we make $8.9 Billion somewhere?

[fordmantpw]

How does the $18.9 Billion worth of carry forward (future tax credits) factor into this $10 Billion loss?

 

Did we make $8.9 Billion somewhere?

 

It's not tax "credits" is it? Isn't it just the fact that they can carry the $18.9B in losses forward, reducing their income by $18.9B. Tax deductions, not tax credits.

 

At least, that's how I understand it. I don't agree with it, just getting the facts straight.

[jpd80]

So, as a taxpayer, I should be happy the US government only lost $10 billion on the deal, give or take? ...

When you look at TARP over all, I think it broke even or made a slight profit.

 

would you be happier knowing that TARP cost virtually nothing in the end but saved a lot of businesses?

[RichardJensen]

the original $19.4 Billion would have been locked up in Old GM liabilities--Treasury then allowed the carry forward losses to be transferred to New GM....

 

Actually, those are unrelated items. The $19.4B would not have been locked up in 'old GM liabilities', as those liabilities and assets were generally reserved for discontinued business (e.g. closed factories, discontinued product lines, etc.)

 

Further, the arbitrary treatment of tax losses was, basically, rent-seeking. GM (and other TARP beneficiaries) lobbied for this favorable treatment on the grounds that they were otherwise handicapped by the taint of receiving TARP funds. Having already been the recipient of extremely generous funding, these outfits decided to get one more bite of the apple.

 

While TARP was probably necessary to prevent economic chaos, it was a terrible, terrible program that rewarded incompetence throughout the US. The disgusting character of TARP is a strong argument against the kind of businesses that made it necessary, but if reason alone were sufficient to implement policy, the world would be a very different place.

[RangerM]

 

It's not tax "credits" is it? Isn't it just the fact that they can carry the $18.9B in losses forward, reducing their income by $18.9B. Tax deductions, not tax credits.

 

At least, that's how I understand it. I don't agree with it, just getting the facts straight.

Maybe I'm wrong, but that's not how I interpret this. (I may be low in my number, based on the article) But maybe they got it wrong, too.

 

And it's definitely not how CNN portrayed it, either.

Edited November 14, 2013 by RangerM

[jpd80]

 

It's not tax "credits" is it? Isn't it just the fact that they can carry the $18.9B in losses forward, reducing their income by $18.9B. Tax deductions, not tax credits.

 

At least, that's how I understand it. I don't agree with it, just getting the facts straight.

Exactly

 

 

Actually, those are unrelated items. The $19.4B would not have been locked up in 'old GM liabilities', as those liabilities and assets were generally reserved for discontinued business (e.g. closed factories, discontinued product lines, etc.)

 

Further, the arbitrary treatment of tax losses was, basically, rent-seeking. GM (and other TARP beneficiaries) lobbied for this favorable treatment on the grounds that they were otherwise handicapped by the taint of receiving TARP funds. Having already been the recipient of extremely generous funding, these outfits decided to get one more bite of the apple.

 

While TARP was probably necessary to prevent economic chaos, it was a terrible, terrible program that rewarded incompetence throughout the US. The disgusting character of TARP is a strong argument against the kind of businesses that made it necessary, but if reason alone were sufficient to implement policy, the world would be a very different place.

In the wash up, If TARP didn't cost the tax payer that much but saved a lot of miscreants and prevented collateral damage then it served it purpose.

The biggest problem is being inside the storm and making good decision to come out the other side without massive debt, in that respect TARP worked.

 

Saving businesses who shouldn't have needed saving in the first place due to utter incompetence is another matter......

[akirby]

When you look at TARP over all, I think it broke even or made a slight profit.

 

would you be happier knowing that TARP cost virtually nothing in the end but saved a lot of businesses?

 

That's not the point. I'd be happier to see GM repay the $10B out of their profits over the next 3-5 years. They're making enough money now that they can afford it. That's the rub - they can afford to pay it back but they're not required to.

[fordmantpw]

Maybe I'm wrong, but that's not how I interpret this. (I may be low in my number, based on the article) But maybe they got it wrong, too.

 

Hmmm, based on this, you could be right:

 

 

The $45.4 billion in future tax savings consist of $18.9 billion in carry-forwards based on past losses, according to GM's pre-IPO public disclosure. The other tax savings are related to costs such as pensions and other post-retirement benefits, and property, plants and equipment.

 

I'm not sure if the 18.9B is losses or the tax bennies from the losses.

[akirby]

Maybe I'm wrong, but that's not how I interpret this. (I may be low in my number, based on the article) But maybe they got it wrong, too.

 

And it's definitely not how CNN portrayed it, either.

 

The $18.9B were losses from previous years. They can use that $18.9B to reduce their taxable profit. So if GM made $2B they can claim $2B in previous losses and they owe no income tax and they now have $16.9B left. They can do this for 20 years or until they use up the $18.9B. The rest of the supposed $45B tax benefit came from other things.

 

It's a reduction of income, not a credit against taxes owed.

[RangerM]

 

The $18.9B were losses from previous years. They can use that $18.9B to reduce their taxable profit. So if GM made $2B they can claim $2B in previous losses and they owe no income tax and they now have $16.9B left. They can do this for 20 years or until they use up the $18.9B. The rest of the supposed $45B tax benefit came from other things.

 

It's a reduction of income, not a credit against taxes owed.

 

(from the CNN article)

 

 

The U.S. Treasury is giving up $14 billion in tax revenue because of a sweetheart deal it's giving General Motors.

 

Did we make $4B somewhere?

[akirby]

 

(from the CNN article)

 

 

 

Did we make $4B somewhere?

 

The tax savings are separate and in addition to the $10B shortfall.

[RangerM]

 

That's not the point. I'd be happier to see GM repay the $10B out of their profits over the next 3-5 years.

 

 

The tax savings are separate and in addition to the $10B shortfall.

Guess that's not the direction you had in mind.

[akirby]

The loss on the balance sheet is $9.7B. That loss does not include any losses in future income tax revenue by allowing GM to carry forward the $18.9B in losses that occured prior to 2009 or any other tax breaks. I can't make it any clearer.

Edited November 14, 2013 by akirby

[RangerM]

I think we got it

[RichardJensen]

Exactly

 

In the wash up, If TARP didn't cost the tax payer that much but saved a lot of miscreants and prevented collateral damage then it served it purpose.

The biggest problem is being inside the storm and making good decision to come out the other side without massive debt, in that respect TARP worked.

 

Saving businesses who shouldn't have needed saving in the first place due to utter incompetence is another matter......

 

TARP *should* have been accompanied by a massive teardown of the businesses that needed to be bailed out. That would have at least eliminated the moral hazard of bailing them out.

 

For instance, we'll cover AIG's commitments, but there will no longer be an AIG when TARP's involvement is finished. The company will be broken up into tiny bits that will need almost a hundred years to reassemble themselves into a dangerously powerful entity or entities (a la the Standard Oil Trust).

 

Of course, that assumes that the dismantling of these various corrupt and corrupting enterprises would've been handled appropriately. Which, of course, is also wishful thinking.

Edited November 15, 2013 by RichardJensen

[jpd80]

The loss on the balance sheet is $9.7B. That loss does not include any losses in future income tax revenue by allowing GM to carry forward the $18.9B in losses that occured prior to 2009 or any other tax breaks. I can't make it any clearer.

Do those carry forward losses have an expiry date?

I remember Ford having to do that a few years ago with older losses on the books..

[jpd80]

 

TARP *should* have been accompanied by a massive teardown of the businesses that needed to be bailed out. That would have at least eliminated the moral hazard of bailing them out.

 

For instance, we'll cover AIG's commitments, but there will no longer be an AIG when TARP's involvement is finished. The company will be broken up into tiny bits that will need almost a hundred years to reassemble themselves into a dangerously powerful entity or entities (a la the Standard Oil Trust).

 

Of course, that assumes that the dismantling of these various corrupt and corrupting enterprises would've been handled appropriately. Which, of course, is also wishful thinking.

You could imagine the skeletons the government would have found with unlimited access to those institutions....

 

I know what you're saying but at the time, the government was taking a lot flack from those very institutions for meddling

in affairs where the government shouldn't be a player, some institutions were forced to take TARP even though they didn't want it

and instead made every effort to repay the money ASAP to get the government away from their operations and financial status.

 

Part of the problem was everything else that was happening around the government at the time, especially from a critical conservative

opposition that second guessed every move - I wonder if bloody minded executive decision making took over as a knee jerk response.

 

Throwing out a "money bridge" to keep institutions going was the lessons learned from history,

so hopefully the government learns from this experience to better manage a future money shock.

Edited November 15, 2013 by jpd80

[BrewfanGRB]

If you see other parties in a bankruptcy proceeding receiving special treatment, it's not unreasonable to expect special treatment for yourself.

 

Parties already get "special" treatment in a bankruptcy. Creditors are already ranked in order to how their debt is paid. Some creditors are more senior to others and some could (and do) end up with nothing in a "normal" bankruptcy. That's true for shareholders in any event--they get virtually no protection in a "normal" bankruptcy. If you're thinking the UAW got something special--they didn't---they took on the massive responsibilities through the VEBA GM would've otherwise had--thus, they received equity in exchange for that. Holders of common stock held equity in a company that had essentially no assets and only debt.

 

It's EXACTLY the position they would've been in without goverment assistance. The government got huge amounts of stock/equity in the new GM because they're the ones that put up all the cash. UAW got most of the rest because they took on massive liabilities. I simply don't see the problem. The government would've gotten basically ALL the stock had they put up $75B to give GM the cash and to take on the retiree healthcare liabilities. The shareholders didn't do a damn thing to save GM from bankruptcy.

[BrewfanGRB]

 

TARP *should* have been accompanied by a massive teardown of the businesses that needed to be bailed out. That would have at least eliminated the moral hazard of bailing them out.

 

For instance, we'll cover AIG's commitments, but there will no longer be an AIG when TARP's involvement is finished. The company will be broken up into tiny bits that will need almost a hundred years to reassemble themselves into a dangerously powerful entity or entities (a la the Standard Oil Trust).

 

Of course, that assumes that the dismantling of these various corrupt and corrupting enterprises would've been handled appropriately. Which, of course, is also wishful thinking.

 

It's weird how the feds brought the hammer down on AIG and essentially forced it to break up but in other cases, it not only didn't force a breakup, but instead, forced consolidation. Take a look at what's happening with JPMorgan--the feds really should have just backstopped the liabilities and wound down Bear Stearns and WaMu. Instead, the Fed strong-armed Daimon into buying them and foisted $25B in TARP funds on Morgan at a preposterous interest rate. Morgan paid all that interest and paid back TARP the minute the Fed would let them. And now, the Fed is pulling in money hand over fist for every single thing BS or WaMu did.

 

That doesn't absolve the stuff JPM did themselves (and there was plenty of bad stuff, don't get me wrong). But I can tell you that if Morgan had had more than a day to decide on BS and WaMu and tried to say no, the Fed had plenty of ways to make JPM's life very difficult from that point (instead of doing it now).

 

I'm no "Big Bank defender" but you're right that the better way to have gone would have been to just save the system and punish the wrongdoers on the backend. (Basically--backstop everything, which is what TARP did, and put BS, WaMu, Countrywide, all of them out of business outright. But that would've been a massive problem for customers of those entities who weren't really to blame).

[akirby]

Do those carry forward losses have an expiry date?

I remember Ford having to do that a few years ago with older losses on the books..

20 years starting in 2009