Congressional Oversight Panel Criticizes GM Bailout, Sort Of
Not surprisingly, a congressional panel found in a report that when it comes to the auto industry bailout, the Obama Administration is damned if it does and damned if it doesn't. At least, that's the main conclusion. But the report's conclusions are so varied, it gives new meaning to the phrase "a horse designed by a committee."
One of the main criticisms in a report from the watchdog Congressional Oversight Panel is that the U.S. Treasury was too quick to sell a bloc of GM shares in GM's recent IPO. The government should have held onto its shares to wait for a better price, the report said.
Yes, this is the same U.S. Congress that disliked the idea of GM as "Government Motors" and criticized the administration for taking control of a private corporation. Presumably, that same Congress would have wanted Obama to sell as quickly as possible.
The moral hazard of crying, "moral hazard!"
The panel also suggests that the government shouldn't have bailed out Chrysler, GM and GMAC (now Ally Financial) in the first place. Doing so created no less than a "moral hazard," and a bad precedent for other industries that it's possible to be "too big to fail."
Pretty harsh, right? Yet through some rhetorical gymnastics unique to Washington, the same panel in the same report managed to praise Treasury for recovering more taxpayer money than previous forecasts had thought possible.
"Since the Panel's last comprehensive review of TARP support for the domestic automotive industry in September 2009, Treasury's automotive investments have, in financial terms, starkly improved," the report says. For good measure, the panel concludes it's "too early to tell" if the bailouts were a good idea.
Too early to tell if the oversight panel was a good idea
To me, it's surprising that the report was prepared under the chairman of the Congressional Oversight Panel, Sen. Ted Kaufman (D-Del.), an ally of Vice President Joe Biden. In fact, Kaufman temporarily succeeded Biden in his Senate seat, until he was replaced by another Democrat earlier this month. I'm no expert on Washington, but maybe the political climate dictated that the "glass half-empty" report was the best Democrats thought they could achieve.
The Congressional Oversight Panel report lands just as GM, Chrysler and Ford (F) are enjoying a lot of positive press coverage from the Detroit auto show about the big turnaround in Detroit. UAW workers will also reportedly get substantial profit-sharing checks from GM, which got a bailout, and from Ford, which didn't. (See my item on the profit-sharing payday here.)
According to the panel, in order for taxpayers to get all their money back from the GM bailout, Treasury needs to sell its GM shares for an average price of $44.59. Instead, Treasury reduced its stake in GM as soon as GM floated its IPO, selling $13.5 billion worth of GM shares at $33. That "locked in" a loss on those shares, and "greatly reduced the likelihood that taxpayers will ever be repaid in full," the congressional panel said.
Clear as mud, right?
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