» This Story:Read +|Watch +| Comments

Panel: Bailouts put automakers on right path, but place taxpayer money at risk

Images from the enactment of the $700 billion bank bailout and the financial chaos that preceded it.

Network News

X Profile
View More Activity
Discussion Policy
Comments that include profanity or personal attacks or other inappropriate comments or material will be removed from the site. Additionally, entries that are unsigned or contain "signatures" by someone other than the actual author will be removed. Finally, we will take steps to block users who violate any of our posting standards, terms of use or privacy policies or any other policies governing this site. Please review the full rules governing commentaries and discussions. You are fully responsible for the content that you post.
Washington Post Staff Writer
Thursday, January 13, 2011; 12:04 AM

The Treasury Department's bailouts of General Motors, Chrysler and their major financing arms will cost taxpayers far less than initial estimates and have placed the firms on what appears to be "the path to financial stability," a watchdog group says in a report due out Thursday.

This Story
View All Items in This Story
View Only Top Items in This Story

But the bipartisan Congressional Oversight Panel warns that even as the government's "ambitious actions" have put the companies on "a promising course," the bailouts of the nation's automotive sector continue to place taxpayer money at risk and create moral hazard that will outlive the recent crisis.

The oversight panel, which was created to monitor the government's $700 billion Troubled Assets Relief Program, criticized the Treasury for citing "conflicting goals for its automotive interventions at different times" - for example, that it wanted to save American jobs, produce the best return possible for taxpayers, and return the companies to private ownership as quickly as possible.

Those goals often have been at odds, the report states, such as when Treasury received $33 per share during a recent sale of a portion of its GM holdings - "well below the $44.59 need to be on track to recover fully taxpayers' money." That move was in line with the agency's desire to quickly exit its investment, but didn't necessarily result in the best return for taxpayers.

In addition, the very act of bailing out the nation's automakers raised the risk that any large U.S. corporation- whether a bank or not - might be considered "too big to fail," creating a "risk that moral hazard will infect areas of the economy" well beyond the financial system, the report states. Moral hazard refers to the notion that companies might be more prone to reckless behavior if they believe the government will act as a backstop.

"It just is a very serious concern," said panel chairman Ted Kaufman, a former Democratic senator from Delaware.

A Treasury official, who spoke on condition of anonymity ahead of the report's release, said the administration agrees that government should avoid owning private businesses, but that the automakers' rescue was followed by the sector's "strongest period of job growth in a decade."

The report is less critical than some the panel has previously issued, on topics ranging from insurance giant American International Group to the lackluster performance of Treasury's foreclosure-prevention efforts.

"Treasury is now on course to recover the majority of its automotive investments within the next few years," the report states, adding that absent the government's intervention in the auto industry, "the failure of these companies could have had significant near-term consequences in terms of job losses and the performance of the broader U.S. economy."

» This Story:Read +|Watch +| Comments
© 2011 The Washington Post Company

Network News

X My Profile