Taxpayers Lose on Bailouts

Sep 11, 2009
Much of the money used to save General Motors and Chrysler from collapsing will never be made back, according to a report issued by the Congressional Oversight Panel this Wednesday.

“Although taxpayers may recover some portion of their investment in Chrysler and GM, it is unlikely they will recover the entire amount,” the report says, citing estimates from the Treasury Department and Congressional Budget Office.

Congress created the panel, which is headed by Harvard University professor Elizabeth Warren, last year to oversee government bailouts of failing businesses.  When GM and Chrysler found themselves on the brink of collapse this past spring, the government effectively forced both companies into bankruptcy and gave them large loans to stay afloat.  Now the automakers have lost billions of dollars in debt and are rebuilding.  The government has given GM and Chrysler more than $60 billion in aid to date.

The Treasury estimates
that about $23 billion of the initial loans to the companies “will be subjected to much lower recoveries”.  Reports continued on to say that $5.4 billion in loans to Chrysler are “highly unlikely to be recovered.”

“The initial loans made last fall as the industry was imploding and when no restructuring plan was in place are not likely to be repaid in full,” Warren said during a conference call with reporters.

Since the loans have mostly been converted to stock, it is difficult to tell how much will really be recouped. “The American taxpayer is now an equity investor in Chrysler and GM,” Warren said. “And the return on its investment depends on what those companies are worth in a year or two.”

The US Government currently owns 10% of Chrysler and 61% of GM.

Photo courtesy of La Citta Vita under the Creative Commons License.