Friday, July 22, 2011


More great news from our government!

Chrysler bailout hands the US $1.4 Billion in losses.

We are now getting details about the cost of the bailouts from the last several years that were made to various industries.  As I think through this, I am still torn regarding the use of taxpayer money to attempt to save private industry.  It doesn't escape me that these businesses are huge employers and these firms are in the manufacturing area of the economy.  Yes, this is the exact area that I continually say we need, however I would feel better about the entire mess if the recipients of the government help were truly made clean and whole.  In addition, I'd feel better if these firms were non-union firms because the existence of these unions simply means that these companies will be broke again in a few years.  Interestingly, most of the firms that did receive most of the bailouts (outside of banks of course) were all unionized firms.  Further, my feeling is that we essentially stepped in to help extend the life of failing businesses that were uncompetitive, not creative, and not managed to remain in business. 

The story I've highlighted draws out that the Chrysler bailout will end up costing Americans $1.34 billion.  At the end of the day, Chrysler was sold to Fiat and now control of the firm in not in US hands any more.  Below are a few quotes from the story above;  
"As part of the loan agreement, Chrysler was given until 2017 to return the bailout funds. If it had taken the full term, the interest accrued on the loans could have significantly reduced the government's losses.  (BUT IT DIDN'T DID IT?!)

Overall, $1.3 billion will not be recovered from the bankrupt Old Chrysler, but Massad still called it a "major accomplishment."
That's because the government originally expected it would lose much more on the auto bailout. Initial estimates from the Congressional Budget Office in 2009, predicted the government would lose $40 billion on the overall auto bailout.
Now it estimates, by the time the $80 billion program is completely wrapped up, taxpayers will have lost $14 billion."
I don't know about you, but I don't recall any Treasury official or any politician telling me we would lose money on any bailout.  I certainly don't recall hearing President Obama telling us that we were going to lose $40 Billion!  Only a government worker can be happy about losing $1.3 billion and consider it a success.

While we didn't lose $40 Billion we are probably going to lose $14 billion.  In government circles, that is nothing, but isn't that the problem with Washington?  Part of the Patient Protection Act of 2009 implemented a requirement to force business owners to produce 1099's for any purchases they made that were over the amount of $600.  The purpose of this legislation was to try to catch small business owners that did not recognize cash income.  Thankfully, this facet of the legislation was removed as lawmakers heard from businesses about the trouble and hardship it would place on them.  Guess how much that was going to raise in IRS revenue?  $17 billion!  So think about it, we are happy about losing $14 billion while in a blink of an eye the government was going to create a nightmare for small business, essentially creating piles of paperwork, and putting a strain on EVERY business in the USA for almost the same amount as we are happy to lose on the auto bailouts. 
Of course we are not done with the losses.  Remember GM?  We were planning on unloading the stock we received from that IPO as a result of their bailout, but since going public, GM stock has traded under it's IPO price.
"Treasury Department is now likely to wait until mid-August or September to hold a secondary offering for the company’s stock, people with knowledge of the matter said previously. At the initial public offering price of $33, Treasury must now sell the remainder of its shares at an average of $53 to break even."

Hmmm.  I'm not sure if we're going to see $53 any time soon.  What about you?


Goatmug is an investor that cares about you and your family. Goatmug's Blog - Financial Perspectives From The Mountain Top is a collection of thoughts on our economy and how it impacts the lives of investors and average people. While several specific investments are named in many of his posts, these articles are simply invitations for you to do your own research and reference to these securities does not constitute financial advice. Your situation is complex and unique and you should seek professional assistance with your trading and investing. Please visit Goatmug and share your comments at