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TARP Oversight Report: Detroit Bailout Money Is Unlikely to Be Repaid

Anthony Randazzo
September 9, 2009, 5:06pm

Remember this story back in July with Barney Frank talking about all the profit that the bailout was making? Well, a report released today suggests that the government is going to lose a lot of the bailout money it "invested" in the auto companies. From The USA Today:

Taxpayers face losses on a significant portion of the $81 billion in government aid provided to the auto industry, an oversight panel said in a report to be released Wednesday. The Congressional Oversight Panel did not provide an estimate of the projected loss in its latest monthly report on the $700 billion Troubled Asset Relief Program. But it said most of the $23 billion initially provided to General Motors . and Chrysler late last year is unlikely to be repaid. [...]

The prospect of recovering the government's assistance to GM and Chrysler is heavily dependent on shares of the two companies rising to unprecedented levels, the report said. The government owns 10% of Chrysler and 61% of GM. The two companies are currently private but are expected to issue stock, in GM's case by next year.

The shares "will have to appreciate sharply" for taxpayers to get their money back, the report said. For example, GM's market value would have to reach $67.6 billion, the report said, a "highly optimistic" estimate and more than the $57.2 billion GM was worth at the height of its share value in April 2008. And in the case of Chrysler, about $5.4 billion of the $14.3 billion provided to the company is "highly unlikely" to ever be repaid, the panel said.

In theory, we could make bank on the money given to, well, banks, and turn a profit. In theory. But if we did this would only be the case once the Treasury has at least $700,000,000,000.01 back in the national coffers. And profit means more that just dividends but the whole total of dividends, interest on the loans, and entire original loan repaid. Still, even with a technical profit, we'll never know what kind of unseen losses the economy—particularly the Michigan economy—has suffered from artificially inflated wages and the perpetuation of bad business models in Detroit.

In other Detroit news, my colleague Shikha Dalmia (Detroit native) wrote earlier today about the city budget crisis.


Anthony Randazzo is Director of Economic Research


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