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 >>

Rush to ATMs in Cyprus

A planned tax on Cyprus bank depositors as part of a European Union bailout is sending people rushing to ATMs to withdraw cash.

The EU has required a one-time tax of 9.9% tax on deposits of more than €100,000 starting Tuesday, as part of a bailout of the tiny nation. On Saturday, the EU unveiled a €10 billion plan to rescue Cyprus' outsized banking sector and avoid a default.

It was the first time that the EU has insisted on such terms for bank depositors as part of a bailout. The EU's bailouts other nations in the last three years, such as Greece and Portugal, have usually been accompanied with strict budget restrictions and led to big losses for bond holders.

The Cyprus Parliament is expected to vote on the plan Monday. If it goes through, people with less than €100,000 in deposits will have to pay a tax of 6.75%.
As Cypriots heard the news of the tax, they started lining up outside of ATMs to withdraw money. Banks have placed withdrawal limits of €400 and many ATMs were running out of cash over the weekend. Read more >>

Irish Banks May Need More Than Planned 6,000 Job Cuts, IMF Says

Ireland’s three surviving domestic banks may need to cut more than 6,000 jobs already planned as they struggle to return to profit, the International Monetary Fund said.

Allied Irish Banks Plc, Bank of Ireland Plc and Permanent TSB Group Holdings (IPM) Plc, based in Dublin, are lowering staff numbers after a real estate bubble burst in 2008. The lenders are aiming to reduce the 2011 combined job workforce of 30,000 by a fifth, the Washington-based fund said in a report on the nation’s bailout program yesterday.

Current plans “may still be insufficient,” the IMF said, adding costs for the banks are challenging. Ireland was forced to seek an international rescue in 2010, as its financial system came close to collapse. As the government seeks to exit the bailout program at the end of 2013, it’s pushing European leaders to deliver on pledges to improve the sustainability of its program.

“Given Ireland’s high public and private debt levels and uncertain growth prospects, inadequate or delayed delivery on these commitments pose a significant risk that recently started market access could be curtailed,” the IMF said. That could hinder “an exit from official financing at the end of 2013.” Read more >>

How The GM Bailout Turned Into Foreign Aid

Before the bailout of General Motors, it was well understood that the world’s largest automaker was losing huge amounts of money in the US and was staying afloat thanks to stronger performance in overseas markets. Since the bailout, however, that dynamic has been turned on its head.

Thanks to a leaner manufacturing footprint, debt eliminations and steadily recovering sales, GM’s US operations have generated the lion’s share of the company’s profit since the bailout. And now, as the rest of the world economy slows, GM is spending more and more of its taxpayer-enhanced cash pile to shore up its faltering foreign divisions.

Cuisinart 3-Cup Mini-Prep Plus Food Processor, Plum (Google Affiliate Ad)

In fact, according to an analysis of GM’s SEC filings, the company is likely to incur over $6.5 billion in losses and expenditures overseas in the 2011-2014 period, not counting over $1.6b in foreign potential legal liabilities or several other incalculable expenses that could add up to billions more.

Not only are these expenses a challenge to GM’s overall financial health at a time when it also faces billion-dollar expenditures on pensions in the US, it shows the basic problem with national bailouts of global companies. Read more >>

General Motors Is Headed For Bankruptcy -- Again

President Obama is proud of his bailout of General Motors.  That’s good, because, if he wins a second term, he is probably going to have to bail GM out again.  The company is once again losing market share, and it seems unable to develop products that are truly competitive in the U.S. market.

Right now, the federal government owns 500,000,000 shares of GM, or about 26% of the company.  It would need to get about $53.00/share for these to break even on the bailout, but the stock closed at only $20.21/share on Tuesday.  This left the government holding $10.1 billion worth of stock, and sitting on an unrealized loss of $16.4 billion.

Right now, the government’s GM stock is worth about 39% less than it was on November 17, 2010, when the company went public at $33.00/share.  However, during the intervening time, the Dow Jones Industrial Average has risen by almost 20%, so GM shares have lost 49% of their value relative to the Dow. Read more >>

Chevy Volt Makes NO Money, Costs Taxpayers Hundreds of Thousands of Dollars Per Car

Seton Motley
http://newsbusters.org

he Jurassic Press is missing much in their reporting on the $50 billion bailout of General Motors (GM).  The Press is open channeling for President Barack Obama - allowing him to frame the bailout exactly as he wishes in the 2012 Presidential election.

Spanish Woes Continue To Deepen; Turmoil Spreads To Italy

Countries using the Euro de jure Countries and territories using the Euro de facto Countries in the EU not using the Euro (Photo credit: Wikipedia)

The euro-zone debt crisis deepened Tuesday as a sharp rise in Spanish government bond yields to their highest levels since the inception of the euro fanned speculation that the country might need a bailout of its own, just days after Spain sought a support package for its beleaguered banking system.
The market turmoil also spread to Italy, the euro-zone's third largest economy, where bond yields leapt higher ahead of a crucial bond sale later this week and weekend elections in Greece that could decide the country's fate in the common-currency region.

The deepening gloom surrounding Spain's credit-worthiness could have grave implications. A sovereign bailout for Spain will severely test the firepower of the euro area's rescue funds, hardly leaving any money in the pot if Italy were to be shut out of bond markets.

"It is quite likely that Spain needs a full bailout in the near future although policymakers will try all possible options to avoid this outcome, including a revival of bond purchases by the ECB as well as another three-year liquidity operation," said Pavan Wadhwa, global head of interest rate strategy at JPMorgan. "The concern is that the more peripheral debt the official sector holds, worries over subordination mean that the private sector will be less willing to lend to these countries," he said. Read more >>

Europe's Next Bailout: Italy

Business Insider
While analysts have been making a big deal about the bank bailout in Spain this morning, it is important not to forget about Europe's next-biggest problem: Italy.

Yields on Italian government bonds are shooting through the roof today, as investors wonder how much stronger Italy's banks are than Spain's.  In neither case, it would appear, to they believe that the bailout has divorced financial sector stress from that on the government.

The Italian FTSE MIB has also lost all its earlier gains, now down 0.6 percent today.

Check out Italian 10-year yields, up 23 bps so far today:

Read more >>

Bank regulators ignored recommendations for banks to accept losses on A.I.G. deals

Image by Eifachfilm Vacirca via Flickr

Unknown outside of a few Wall Street legal departments, the A.I.G. waiver was released last month by the House Committee on Oversight and Government Reform amid 250,000 pages of largely undisclosed documents. The documents, reviewed by The New York Times, provide the most comprehensive public record of how the Federal Reserve Bank of New York and the Treasury Department orchestrated one of the biggest corporate bailouts in history.

The documents also indicate that regulators ignored recommendations from their own advisers to force the banks to accept losses on their A.I.G. deals and instead paid the banks in full for the contracts. That decision, say critics of the A.I.G. bailout, has cost taxpayers billions of extra dollars in payments to the banks. It also contrasts with the hard line the White House took in 2008 when it forced Chrysler’s lenders to take losses when the government bailed out the auto giant.

This month, the Congressional Oversight Panel, a body charged with reviewing the state of financial markets and the regulators that monitor them, published a 337-page report on the A.I.G. bailout. It concluded that the Federal Reserve Bank of New York did not give enough consideration to alternatives before sinking more and more taxpayer money into A.I.G. “It is hard to escape the conclusion that F.R.B.N.Y. was just ‘going through the motions,’ ” the report said.

About $46 billion of the taxpayer money in the A.I.G. bailout was used to pay to mortgage trading partners like Goldman and Société Générale, a French bank, to make good on their claims. The banks are not expected to return any of that money, leading the Congressional Research Service to say in March that much of the taxpayer money ultimately bailed out the banks, not A.I.G. More...

Someone Got To Roubini

I stopped paying attention to Roubini sometime back in the latter part of 2008 when he began advocating massive government intervention. As Twist at Housing Doom pointed out late last year, Roubini was asked the following question in a Bloomberg interview sometime back in November, 2008: If President-elect Barack Obama was to call you today and say, ‘Nouriel, how are we going to get ourselves out of this mess,’ what would you tell him? Among other things Roubini suggested a $700B stimulus package and recapitalization of banks.

Indeed, according to U.S. News and World Report, when Roubini testified at a congressional hearing in late October 2008, here’s part of what he told lawmakers in his written testimony:

Given the size of the expected contraction in private aggregate demand (likely to be about $450 billion in 2009 relative to 2008) a fiscal stimulus of the order of $300 billion minimum (and possibly as large as $400 billion) will be necessary to partially compensate for the sharp fall in private aggregate demand.

This fiscal stimulus should be voted on and spent as soon as possible as delay will make the economic contraction even more severe. A stimulus package legislated only February or March of next year when the new Congress comes back will be too late as the contraction of private aggregate demand will be extremely sharp in the next few months. Such policy action should be legislated right away—in a "lame duck" session right after the election—to ensure that the actual spending is undertaken rapidly in the next few months.

It wasn’t until after listening to Peter Schiff’s June 24, 2009, radio broadcast that I realized someone on the Obama team must have "made him an offer he can't refuse"; someone must have told Roubini to do a "Kudlow"-- to promote blithe optimism and government bailouts. On Schiff’s broadcast he began by explaining how Roubini had stolen his “Dr. Doom” title, then Schiff mentioned he’d actually met Nouriel Roubini at a dinner. Schiff expressed admiration for Roubini and commented that he felt Roubini was more well-known in the main stream media circles because he had "professor" credentials, but also because Roubini supported the stimulus packages and bailouts. But “Privately,” said Schiff, “[Roubini] doesn’t support them nearly as much as he supports them in public." Schiff had expected to argue with Roubini about the bailouts and stimulus packages but Roubini agreed with all of Schiff’s criticisms.