Bailout update: Will taxpayers recoup their investments?
As the economy recovers, the US government is getting back some of the rescue money that it doled out to prevent a depression. But tens of billions of taxpayer dollars may be lost for good.
That outlook came into focus Wednesday, as an oversight panel predicted that automakers General Motors and Chrysler are unlikely to pay back much of a $23 billion loan package.
The report comes as other events have hinted at the costs and benefits of the government's economic bailout programs that ramped into high gear a year ago.
Here's a tour that includes both signs of recovery and the recession's financial wreckage:
• Detroit automakers. On the brink of bankruptcy late last year, GM and Chrysler got a lifeline. An all-out collapse of these two giants was averted, saving as many as 1.1 million jobs when the potential ripple effects are considered. But the companies, now in the hands of taxpayers and other private stakeholders, would have to float new public stock and see it rise to "highly optimistic" levels, the Congressional Oversight Panel says, for taxpayers to recover roughly $23 billion in emergency funding.
• AIG. Again, a catastrophe was averted by saving this large insurer that collapsed under the weight of risky investment contracts last fall. And again, getting money back could be a long shot. The new CEO has said he hopes to repay the investments and loans from the Treasury and Federal Reserve. But the firm has roughly $119 billion in obligations (including $88 billion in direct government support), versus businesses worth perhaps $70 billion to $100 billion, say researchers at Credit Suisse in an analysis of the firm's stock-market value. "We see little current common equity value," despite the recent rise in AIG's share price, the analysts say.
• Banks. You know the story by now ... meltdown averted. But this time, the government stands a better chance of recouping its money. So far, the Treasury has gotten $70 billion in repayments from 34 institutions. Since this represented a capital investment on which the banks paid dividends, these can be called profitable investments. More broadly, the perception of industrywide instability has receded. But banks are still in hunker-down mode, writing off bad mortgages and credit-card defaults. Also, the Federal Deposit Insurance Corp. is running through its available fund that protects depositors in failed banks, and it could end up having to borrow money from the Treasury. The Treasury would be paid back with the fees that the FDIC charges to banks.
• Homeowners and mortgages. A wave of foreclosures remains a burden on America's housing market. This means the government may lose billions on its rescue of Fannie Mae and Freddie Mac, which act as guarantors for most US mortgage loans. Separately, Obama administration programs that offer incentives to prevent foreclosures have been ramping up. "Our progress in implementing these programs to date has been substantial, but we recognize that much more has to be done to help homeowners," Michael Barr, assistant Treasury secretary for Financial Institutions, told a hearing of the House Financial Services Committee on Wednesday. Some 360,000 trial modifications of home loans are under way, he said.
• Federal Reserve. The nominal dollars of the bailouts may only hint at the total costs or benefits. Many economists saw real risk of a global depression, and they now see a nascent global recovery happening instead. America's central bank put trillions of dollars on the line to prop up the financial system, and it may end up with few official losses to show for it. But some economists see danger in rising US government debts, as well as a Fed policy that has sought to heal a debt-laden economy through inflationary policies. One big financial story of this week, for example, is the sagging value of the US dollar on foreign exchange markets. And gold, often a haven for inflation-wary investors, reached $1,000 an ounce.
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