Taxpayers set to lose $15 Billion on auto bailout

The U.S. Treasury is accelerating its sell-off of stock in General Motors Co., which likely will be free of the moniker “Government Motors” by spring.

The pace of the sell-off has picked up: The government sold an average of 19 million shares in the early part of the year, but since May has sold more than 25 million a month — plus a one-time special sale of 30 million in June, worth more than $1 billion, to coincide with GM’s return to the S&P 500.

U.S. taxpayers acquired 912 million shares of GM in exchange for a $49.5 billion bailout that began in 2008, under President George W. Bush, and mushroomed the following year under his successor, President Barack Obama.

“We remain on track to complete our exit from GM by early next year,” Tim Massad, the Treasury’s assistant secretary for financial stability, said Tuesday.

GM’s stock closed Tuesday at $36.71. At current trading prices, the government’s remaining stake is worth about $3.7 billion. From previous stock sales, the Treasury has recovered $35.4 billion of its GM bailout, and at current stock prices, taxpayers would have lost about $10 billion on the bailout.

The Treasury estimates taxpayers will have lost $15 billion on their $85 billion auto industry bailout, which also included aid to bankrupt Chrysler. Auburn Hills-based Chrysler has repaid its debt. Read more >>

GM bailout: Taxpayers still $18.1 billion in the hole

General Motors stock would have to sell for $95.51 per share for taxpayers to break even on bailing out the company, according to a government watchdog's report released Wednesday. That price is about three times what GM shares are selling for now, even after a 25 percent increase in the price so far this year.

"There's no question that Treasury, the taxpayers, are going to lose money on the GM investment," Special Inspector General Christy Romero, author of the July quarterly report to Congress, said in an interview.

GM needed the $49.5 billion bailout to survive its trip through bankruptcy restructuring in 2009. Since emerging from bankruptcy, the restructured company has piled up $17.2 billion in profits. In exchange for the bailout, the government got 61 percent of GM's stock. It cut that to 33 percent in GM's November 2010 initial public offering.

The government has gradually been selling off the rest of the stock, with the goal of exiting the investment by April of next year. As of June 6, it still owned 189 million shares, or about 14 percent of the company, according to the report. Taxpayers are still $18.1 billion in the hole on the $49.5 billion bailout, including interest and dividends, according to the report.

If the government sells its remaining shares of GM for the current stock price of $36.61, it would get just over $6.9 billion, meaning taxpayers would lose about $11.2 billion on the bailout. Read more >>

Spain's recession exposed - unemployment at 26 percent

Spain’s scars from the slump that overshadowed Prime Minister Mariano Rajoy’s first year in office will emerge this week as data show the toll on economic output that may have kept as many as 6 million people out of work.

Spanish exports fell 0.6 percent in November from the same month the previous year, when they had risen 7.4 percent, the Economy Ministry said today. House-price data tomorrow will show if the property market endured a fourth year of declines. The Bank of Spain may also release its estimate for fourth-quarter gross domestic product, and the data will culminate in jobs figures on Jan. 24, forecast by economists to show a record 26 percent of Spaniards unemployed.

Officials predict the euro-area’s fourth-biggest economy faces a further slump this year at a time when the government will struggle to meet its budget goals. Such a backdrop hasn’t deterred investors, with the prospect of a European Central Bank backstop in the event of a bailout enabling the Treasury to fast-track higher 2013 funding needs, selling 16 billion euros ($21 billion) at its first three auctions at lower costs.
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Post office nears historic default on $5B payment

The U.S. Postal Service is bracing for a first-ever default on billions in payments due to the Treasury, adding to widening uncertainty about the mail agency's solvency as first-class letters plummet and Congress deadlocks on ways to stem the red ink.

With cash running perilously low, two legally required payments for future postal retirees' health benefits - $5.5 billion due Wednesday, and another $5.6 billion due in September - will be left unpaid, the mail agency said Monday. Postal officials said they also are studying whether they may need to delay other obligations. In the coming months, a $1.5 billion payment is due to the Labor Department for workers compensation, which for now it expects to make, as well as millions in interest payments to the Treasury.

The defaults won't stir any kind of catastrophe in day-to-day mail service. Post offices will stay open, mail trucks will run, employees will get paid, current retirees will get health benefits.

But a growing chorus of analysts, labor unions and business customers are troubled by continuing losses that point to deeper, longer-term financial damage, as the mail agency finds it increasingly preoccupied with staving off immediate bankruptcy while Congress delays on a postal overhaul bill. Read more >>

Dealers See Fed Buying $545B Mortgage Bonds

Image via WikipediaAfter cutting its target interest rate for overnight loans between banks to a range of zero to 0.25 percent, the Fed bought about $1.7 trillion of government and mortgage debt during QE1 between December 2008 and March 2010, and purchased $600 billion of Treasuries between November 2010 and June through QE2.

Now the biggest bond dealers in the U.S. say the Federal Reserve is poised to start a new round of stimulus, injecting more money into the economy by purchasing mortgage securities instead of Treasuries.

Fed Chairman Ben S. Bernanke and his fellow policy makers, who bought $2.3 trillion of Treasury and mortgage-related bonds between 2008 and June, will start another program next quarter, 16 of the 21 primary dealers of U.S. government securities that trade with the central bank said in a Bloomberg News survey last week. The Fed may buy about $545 billion in home-loan debt, based on the median of the 10 firms that provided estimates. More...

It May Be 2008 All Over Again, But There Is One Key Difference

Image via WikipediaThere were two financial assets which boomed in late 2008. One was Treasury debt, the other was the US Dollar. While Gold and everything else was falling out of bed, the trade-weighted US Dollar index - the USDX - soared 21 percent from 73 to 88.2 between early August and late November 2008.

Compare that to what is happening now. Treasuries are soaring but the US Dollar is, at best, flat. And Gold in terms of EVERY major paper currency has gone ballistic. This time, things do look different. More...

Gold Screaming On The 1-3-6 Rule

John Galt says,

Years ago a trader explained to me that if the 1 month, 3 month and 6 month Treasury yields dove towards zero and out of their “normal” range during a bull or bear market that there was a fear of a huge risk to the markets or other financial event occurring and that meant the big money as it is called, wanted to be in the safest of short term instruments that could be cashed out at maturity or sold on short notice to raise cash or return to the markets should it prove to be a non-event. Well, let us look at the history of this over the last three years and since the crisis began in February of 2007 when the first of the mid-sized mortgage finance companies started to collapse and a lot of us went “oh crap” and knew what was coming with this credit market implosion and eventual financial system collapse. Here is a 3 year chart of the 1 month Treasury continuous yield with notations.