Chrylser Refinancing Debt; Paying Off Federal Loans

Chrysler, the once moribund and bankrupt third wheel of American automakers, is about to repay its federal loan obligations. It isn't paying them off with cash, but rather through refinancing its existing obligations.

Currently, the federal loan is pegged at 12% interest, and the refinancing/reorganization of its debt would end up giving the company a 6% interest rate. It's in the company's interest to reduce its interest rates, and shedding the government loan is a big part of that cost savings.

However, make no doubt about this - Chrysler/Fiat is still in trouble and it isn't paying off the debt completely; it's simply eliminating the federal loan in favor of cheaper loans in the private market. The move will apparently save $300 million annually in interest payments.

Marchionne has said that Chrysler is eager to pay back its loans in part because of the governments' high interest rates of around 12 percent, which cost the company $1.2 billion last year.

To pay back the loans, Chrysler is issuing $3.2 billion in bonds and taking out $4.3 billion in bank loans. It also will use a $1.3 billion investment from Italian automaker Fiat SpA. In exchange, Fiat will increase its ownership stake in Chrysler to 46 percent.

Under that refinancing deal, Chrysler's interest rates will fall to around 6 percent. That will boost the bottom line at the company. It reported a $116 million profit — its first quarterly profit since its 2009 bankruptcy — in the first quarter.

The company still owes the U.S. government $2 billion. The government could get some of that back by selling its 8.6 percent stake in Chrysler.

About That GM Ad and Payback To Taxpayers

This week General Motors reported that they paid back its TARP money loan of $4.7 billion five years ahead of schedule.

Whitacre added that he was "pleased to announce GM has repaid in full," and with interest, the loans made last July by the U.S. Treasury and Export Development in Canada to help launch the new GM.

Whitacre said the company is about five years ahead of its original loan schedule, given that the automaker is selling the "best" cars and trucks GM has ever produced. Whitacre cited examples such as the soon-to-come Chevy Volt electric car and award-winning 2010 Chevy Malibu.

He added that when GM accepted taxpayer loans, the company promised to restructure the company, reinvest in people and plants and bring "outstanding" vehicles to the market. "We are going to work to make GM a company that we can be proud of again and we are well on our way," Whitacre said.

That's good for what it is, but that isn't the entire story.

The US Government owns more than half of the company because of prior bailouts starting during the Bush Administration that continued into the Obama Administration that top nearly $50 billion. That money is still owed taxpayers, and repayment isn't going to come anytime soon because it would require investors to go and buy out the government share.

In fact, GM still can't exactly turn a profit, so they've paid back the loan with, get this, more loans. Part of the government's bailout package included billions in working capital, and that is apparently the money used by GM to pay off its TARP obligation so that it can obtain still more government loans to retool its factories to meet new tougher CAFE requirements.

The sad thing is that taxpayers remain on the hook but if you buy into Whitacre's spin, you'd think that taxpayers were being made whole. That's the furthest thing from the truth here because the company still can't turn a profit and it is no where near being able to repay its billions in obligations to taxpayers.

Bank Bailout Exposes Taxpayers To Massive Losses and Fraud

You don't say. The Treasury Department's Inspector General announced that the massive bank bailout is ripe for massive losses and fraud.

In a 250-page quarterly report to Congress, the rescue program's special inspector general concludes that a private-public partnership designed to rid financial institutions of their "toxic assets" is tilted in favor of private investors and creates "potential unfairness to the taxpayer."

The report, which examines the six-month old, $700 billion Troubled Asset Relief Program, is scheduled for release Tuesday.

Using blunt language, Inspector General Neil Barofksy offers a series of recommendations to protect the public and takes the Treasury to task for not implementing previous advice. The report also commends Treasury and the Federal Reserve for creating some safeguards.

The report's warnings about the public-private plan's potential for losses echoes alarms raised by some lawmakers and economists, but Barofksy has significant credibility in Congress and his views are likely to carry ample weight.

Overall, the report says the public-private partnership -- using Treasury, Federal Reserve and private investor money -- could total $2 trillion. The financial markets responded positively to the program when the Obama administration announced it last month, but the administration is still putting final touches on its implementation.

"The sheer size of the program ... is so large and the leverage being provided to the private equity participants so beneficial, that the taxpayer risk is many times that of the private parties, thereby potentially skewing the economic incentives," the report states.

In particular, the report cited the private-public partnership that would purchase troubled real estate-related securities from financial institutions. Under plans unveiled by Treasury, for every $1 of private investment, Treasury would invest $1 and could provide another dollar in a nonrecourse loan. That money could then leverage a loan from another government fund backed mostly by the Federal Reserve, a step that Barofsky says would dilute the incentive for private fund managers to exercise due diligence.

The stock market responded positively because they saw that the government was removing the risk of loss from the businesses and putting it on taxpayers. The fact that business and industry is beginning to realize the true nature of the government bailout as a back door to nationalization of those industries is a wake up call that this kind of intervention will only result in bad things for the economy in the long run.

It should come as no surprise that investigators are already finding fraud in the program:

In the first major disclosure of corruption in the $750-billion financial bailout program, federal investigators said Monday they have opened 20 criminal probes into possible securities fraud, tax violations, insider trading and other crimes.

The cases represent only the first wave of investigations, and the total fraud could ultimately reach into the tens of billions of dollars, according to Neil Barofsky, the special inspector general overseeing the bailout program.

The disclosures reinforce fears that the hastily designed and rapidly changing bailout program run by the Treasury Department and Federal Reserve is going to carry a heavy price of fraud against taxpayers -- even as questions grow about its ability to stabilize the nation's financial system.

Throw in the fact that the federal government keeps changing the rules on the banks and how they can withdraw from the TARP program and repay those obligations, and you've got a major mess on President Obama's hands.

There is no reason not to allow those banks to repay the TARP obligations and exit the program unless the government is intent upon sinking its teeth deeper into the financial sector and determining outcomes of business transactions. The government's record on valuing financial businesses isn't particularly good; they've consistently gotten it wrong.

The Back Door To Nationalization

I was reluctant to support a bank bailout because I considered it to be a back door to nationalizing the financial industry, and now it looks like those fears were well founded.

Banks that were forced to take TARP funds so as to destigmatize the program are finding that they can't repay the money because the federal government refuses to take the money back.

Now, reports are indicating that the federal government is looking to convert those loans into equity shares in the banks, meaning that the government will take an increasingly large ownership stock in these banks.

In a significant shift, White House and Treasury Department officials now say they can stretch what is left of the $700 billion financial bailout fund further than they had expected a few months ago, simply by converting the government’s existing loans to the nation’s 19 biggest banks into common stock.

Converting those loans to common shares would turn the federal aid into available capital for a bank — and give the government a large ownership stake in return.
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While the option appears to be a quick and easy way to avoid a confrontation with Congressional leaders wary of putting more money into the banks, some critics would consider it a back door to nationalization, since the government could become the largest shareholder in several banks.

The Treasury has already negotiated this kind of conversion with Citigroup and has said it would consider doing the same with other banks, as needed. But now the administration seems convinced that this maneuver can be used to make up for any shortfall in capital that the big banks confront in the near term.

Many banks are already looking to get out from under TARP restrictions, and note that they are on stable financial ground.

While the Obama Administration continues to push ahead with these plans because they claim that the credit markets aren't lending enough money, they do not differentiate between those who are good credit risks and those who aren't. People who have no business getting additional loans should not have additional credit extended because that's precisely how the credit mess got to the point it did. We'd simply be replaying the same mess, only with the government fully in the driver's seat with their foot on the gas pedal.

There's no reason to stop banks from repaying their TARP obligations unless the reason is to expand the government's role in the financial sector.

Obama Administration Refuses Bank TARP Repayments

Isn't this how the TARP system was supposed to work? We were told that as banks become more capable of lending on their own, the banks could repay TARP and end their involvement in the program.

However, the Administration is proving itself more adept at changing the rules to maintain control over the financial institutions than it is at filling slots at the Treasury Department. They are now telling banks that they can't escape the TARP program, even if they want to.

I must be naive. I really thought the administration would welcome the return of bank bailout money. Some $340 million in TARP cash flowed back this week from four small banks in Louisiana, New York, Indiana and California. This isn't much when we routinely talk in trillions, but clearly that money has not been wasted or otherwise sunk down Wall Street's black hole. So why no cheering as the cash comes back?

My answer: The government wants to control the banks, just as it now controls GM and Chrysler, and will surely control the health industry in the not-too-distant future. Keeping them TARP-stuffed is the key to control. And for this intensely political president, mere influence is not enough. The White House wants to tell 'em what to do. Control. Direct. Command.

It is not for nothing that rage has been turned on those wicked financiers. The banks are at the core of the administration's thrust: By managing the money, government can steer the whole economy even more firmly down the left fork in the road.

If the banks are forced to keep TARP cash -- which was often forced on them in the first place -- the Obama team can work its will on the financial system to unprecedented degree. That's what's happening right now.

It is all about control, and now that the door was opened by the Bush Administration as a temporary measure, President Obama pushing ahead with a series of corrosive and destructive policies that will undermine the US fiscal and monetary system all in the name of expanded government control.

Meanwhile, Treasury Secretary Geithner continues threatening to fire bank CEOs. Henry Blodget thinks that this is a natural outgrowth of the double standard between the way that the administration was treating Detroit and the automakers and Wall Street. There is no double standard; the auto industry, for all of its heft and size, is an emotional attachment to a bygone era. Wall Street is the lever on which all capital and investment passes. In the course of the toxic paper crisis, Wall Street's facility to provide new credit lines evaporated. That was the crux of the reason why the Bush Administration felt the need to act so precipitously and intrude into the marketplace with the TARP program. The automakers situation is not analogous.

Yet, President Obama essentially fired GM Chairman Jeff Wagoner because he couldn't turn the failed company around quickly enough. That act goes beyond the bounds of what a President can or should do in interfering in the private markets. So, instead of using that as a cautionary tale of how government interference in the marketplace has gone too far, Blodget is going in the exact opposite in calling for more government intrusion into the marketplace, despite repeated examples of government miscalculation of the value of companies and pressure to make deals.

The government opted to bailout AIG instead of letting it go the route of bankruptcy, and sent hundreds of billions of dollars into that morass. The government tried to arrange shotgun weddings for multiple banks, and each time seriously and egregiously miscalculated the value of the parties involved.

Obama Administration Targeting Bank Chiefs For Axe?

If you want to know the real reason why so many banks are suddenly so interested in getting out from TARP restrictions, look no further than Obama's advisers and their statements.

They want heads to roll.

Elizabeth Warren, a Harvard law professor and chair of the congressional oversight committee monitoring the government's Troubled Asset Relief Program, told The Post that letting banking leaders off the hook for the mess their companies are in will plunge the country into a deeper hole.

"The management of the institutions receiving subsidies from the government must be replaced," she said in an interview last week.

Warren picked out the head of Citigroup for special mention, but will recommend all bailout recipients -- which include Goldman Sachs and Bank of America -- get the same clean-out at the top.

She said failure to do so in past financial crises -- particularly in Japan in the 1990s when that country's government handed out cash but left banking leaders in their jobs -- slowed recovery drastically.

"It is crucial for these things to happen," she said.

"Japan tried to avoid them and just offered subsidy with little or no consequences for management or equity investors, and this is why Japan suffered a lost decade."

They want private companies to fire their chief executives on the government's say so.

Since when has the government ever had this power to so intrusively and boldly take such power into their hands? And, since we're talking about government demanding heads on platters, where are the heads of Franklin Raines and others at Freddie Mae and Fannie Mac who oversaw the house of cards that came tumbling down on all the banking institutions that were forced to lend to subprime borrowers?

Japan propped up the banks and spent hundreds of billions on government programs that resulted in a stagnant and moribund economy for a decade. Firing private sector business leaders isn't going to achieve a turnaround. It's just a way of passing blame on the situation to a group of business leaders rather than on government intrusion into markets with Congressional and Presidential dictates that pushed banks and lending institutions to lend to those people who had no business being homeowners. When the real estate market crumbled, the subprime borrowers did what they do best - default, and the combination of mark-to-market and government rules meant that banks suddenly found themselves with the capital needed to make further loans. That, in a nutshell, is the American experience.

What Japan did is a lesson in what not to do, and yet the Obama Administration is trying to outspend the Japanese, and they're blaming the financial crisis on the business leaders of banks, some of which didn't want TARP money in the first place but were pressured into doing so by the Administration.

Don't believe me? Just ask bankers:

Some New Jersey bankers are saying they may give back to the government millions of dollars in Troubled Asset Relief Program money.

They say they didn't really need it, and they believe the government went too far when it imposed new restrictions on executive pay and other spending by TARP recipients, changing the rules after deals were done. They also are worried about more rules under consideration by lawmakers in a politically charged anti-banker climate.

"They want to pass legislation where you can't even have a golf outing," said Gerald Lipkin, chief executive officer of Valley National Bancorp, which received $300 million, more than any other New Jersey-based bank.

And please, he insists, don't call it a bailout, noting that Valley and other banks are paying dividends to the U.S. Treasury of about 8 percent a year, pre-tax. Lipkin and other top executives at Valley took big pay cuts in 2008, forgoing year-end bonuses to satisfy federal authorities. "Two-thirds of our compensation is bonuses. Now we can't do that, and that came through retroactively," he said.

Valley is considering joining other banks around the country in buying back the preferred shares it sold to the government to get more money to lend.

Oak Ridge-based Lakeland Bancorp, which received $59 million in early February, also is having second thoughts. Lakeland CEO Thomas Shara said TARP recipients have been unfairly stigmatized by lawmakers and the public to the point where it may be hurting their business. For customers, prospective customers and shareholders, the bank's TARP participation turned out to be "more a negative than a positive," Shara said. Giving the money back "is something we are evaluating," he said.

As I said above, where are the criminal charges and actions against the staff at Freddie Mac and Fannie Mae for their failure to oversee mortgage lending standards, which they purposefully watered down to the point that anyone could receive a mortgage on little more than a person's say so.

Freddie and Fannie executives have gotten a free pass, including from having to give back bonuses. That's despite the fact that these two entities were at the heart of the credit mess and defaults.

Income verification was passe, as was the ability to document the ability to repay. It was free money, and it did wonders to artificially boost the real estate markets to unsustainable levels. When the lending dried up, so too did the real estate market boom, which came to a thudding crash. Without the new borrowers, sellers were left holding the bag and prices began to plummet in many parts of the country.

Now, after nearly two years, prices are starting to align with what they should have been all along, rather than grossly inflated prices that made many parts of the country unaffordable even under government affordable housing lending programs.

Instead of letting the markets sort this out, the Administration is pushing to impose its will on the private sector in ways that would make the Founding Fathers blush at the overt ignorance of Constitutional limits on federal authority.

The Wedge Strategy Revealed Through Executive Compensation Attacks

The outrage over the AIG executive compensation and bonuses was phony and ginned up as I've repeatedly noted over the past few days, since both the Administration and Congress knew of these provisions and chose to exempt them from being regulated as a condition of receiving TARP funds and bailout money.

Instead, it appears that it was meant to lay the groundwork for the Administration to start demanding increased control over executive compensation - all executive compensation.

The Obama administration will call for increased oversight of executive pay at all banks, Wall Street firms and possibly other companies as part of a sweeping plan to overhaul financial regulation, government officials said.

The outlines of the plan are expected to be unveiled this week in preparation for President Barack Obama's first foreign summit meeting in early April.

Increasing oversight of executive pay has been under consideration for some time, but the decision was made in recent days as public fury over bonuses has spilled into the regulatory effort.

The officials said that the administration was still debating the details of its plan, including how broadly it should be applied and how far it could range beyond simple reporting requirements. Depending on the outcome of the discussions, the administration could seek to put the changes into effect through regulations rather than through legislation.

One proposal could impose greater requirements on the boards of companies to tie executive compensation more closely to corporate performance and to take other steps to assure that outsize bonuses are not paid before meeting financial goals.

The new rules will cover all financial institutions, including those not now covered by any pay rules because they are not receiving U.S. government bailout money. Officials say the rules could also be applied more broadly to publicly traded companies, which already report about some executive pay practices to the Securities and Exchange Commission. Last month, as part of the stimulus package, Congress barred top executives at large banks getting rescue money from receiving bonuses exceeding one-third of their annual pay.

Beyond the pay rules, officials said the regulatory plan is expected to call for a broad new role for the Federal Reserve to oversee large companies, including major hedge funds, whose problems could pose risks to the entire

This goes beyond reckless disregard for the market system to imposing a socialist regime on businesses that the Democrats do not like. The government is stoking populist outrage to further its agenda, claiming that executive compensation should be tied to performance.

Businesses already face the risks of poor business performance and compensation for executives is tied to that - even with the golden parachutes. The overwhelming majority of businesses in this country have corporate boards that are responsible for their business actions and will find themselves out of jobs if they do a poor job.

It's hilarious that Democrats are pushing this at a time when their own performance in Congress is abysmal. They're pushing trillions of dollars of spending as far as the eye can see and massively expanding the deficit, both of which would be as fiscally irresponsible as it gets. Yet, the same Democrats are refusing to alter their mandated pay raises. Why should these Congressmembers get raises for poor performances under their own rationale for controlling the private sector compensation system?

What this shows is the Democrats absolute disdain for the market economy and free markets where businesses can contract with employees - in this case business leaders - for compensation packages to manage the affairs of large corporations. If these businesses give outlandish compensation packages and suffer business losses, the outrage belongs on the business leaders and the corporations for the outsized compensation, but it is not the government's place to direct the compensation packages. It is antithetical to the market system and is a socialist answer to a problem that simply doesn't exist.

UPDATE:
Keep in mind that the government has routinely failed to maintain proper oversight based on its existing regulations and attempts to tighten up the lending standards were rebuffed because Democrats feared it would adversely affect minorities. This includes the SEC, which failed to pick up on the Madoff Ponzi scheme and other wrongdoings until the entities involved melted down in full public view. The SEC and Federal Reserve can barely handle its existing responsibilities, and yet the Democrats are pushing for an even larger role. They can't handle their current role.

Case in point is the fact that the SEC failed to engage in proper oversight of companies leading up to the credit meltdown (which led to a Geithner appointee to withdraw her name from consideration). Further, the Treasury Department isn't fully staffed at this late date with Obama appointees to see through any of Obama's policies and that Secretary Geithner continues showing himself to be inept at proffering a credible policy to deal with the ongoing problems in the credit market.

Phony Outrage Alert

The Administration and Congress have been slamming AIG this past week for doling out executive compensation packages and bonuses to employees despite AIG receiving TARP money (and for the record, AIG is being used as a conduit to prop up banks around the world for the credit mess that started with the "affordable housing" mess and credit defaults and toxic paper outside the TARP regime). They're busy railing on the $165 million (or is it $218 million) that AIG is going to be sending out to its employees in the next few weeks.

Congress, led by Rep. Charles Rangel (D-Tax Cheat/NY), has pushed for a 90% confiscatory tax on all income earned by individuals receiving the bonuses from companies that have received $5 billion or more in TARP aid. That ignores the economic benefits that the bonuses have on the NYC metro area economy, let alone the ancillary benefit that such money has around the nation. It also ignores that the bonuses reflect a fraction of a percent of what the government has doled out to the banks and AIG thus far in their quest to prop up the banking system. The amount here is a rounding error under usual Government math practices, but the real crime isn't the AIG bonuses, but the bailouts in the first place.

It's hilarious to hear President Obama claim that he was blindsided by the bonus situation, especially since Obama was busy railing on the bonuses back in January. His Administration also knew that these bonuses would be paid out and his Treasury Secretary knew that the bonuses would be paid because he and Sen. Chris Dodd (D-AIG/CT) pushed to get language inserted into the porkfest stimulus package to authorize those payments. The situation with the bonuses has been known for months, and yet Congress declares its outrage and demands accountability from the new CEO of AIG, who had nothing to do with the bonus compensation packages in the first place and was brought in to clean up the mess left by the prior leadership group.

Keep in mind that Congress provided a bailout to Citigroup, and set conditions on its executive compensation and bonuses. It chose not to do so with AIG.

Why is that the case? Well, AIG has quite the record with its lobbyists. They got quite the return on their dollar; spreading the money among top Democrats, including Barack Obama (in his capacity as US Senator), Chris Dodd, and others. Speaking of Dodd, it seems that his actions require far more scrutiny from the media and his fellow Senators. He's skated along despite clear evidence of benefiting from cozy arrangements with Countrywide Home Finance (friends of Angelo plan) and inserted the AIG provisos that enabled the bonus money.

The real issue is that the government is engaging in outrage and attempting to cover its tracks for its miserable handling of a mess that it initiated all those years ago in the name of affordable housing. One bad policy was tacked on to the next, like a house of cards, and the current bailouts are exacerbating the mess by throwing trillions of dollars into the marketplace to unstick the credit markets because banks don't know how much they have on their books and don't want to lend to those who are a credit risk (despite Congress demanding that they continue providing subprime mortgages).

A Bowling Challenge To President Obama

Last night, President Barack Obama appeared on Jay Leno's Tonight Show and proceeded to open his mouth and insert his foot. He said:

Towards the end of his approximately 40-minute appearance, the president talked about how he’s gotten better at bowling and has been practicing in the White House bowling alley.

He bowled a 129, the president said.

“That’s very good, Mr. President,” Leno said sarcastically.

It’s “like the Special Olympics or something,” the president said.

That just oozes class, President Obama.

Today comes word that Kolan McConiughey has challenged Obama to a bowling tournament. Kolan has an average of 266. He has three perfect games to his credit.

Did I mention that he's also a Special Olympian.

I look forward to seeing how Obama plays this one, given that he's in a no-win situation. Kolan will likely get himself a trip to the White House, but this is all a sideshow when there's real work to be done by the White House.

And that wasn't even the dumbest thing Obama said in his appearance. He believed that Tim Geithner was doing a good job.

Keep in mind that Obama had plenty of time to appear on Jay Leno and fill out his NCAA tournament brackets, but apparently didn't find the time to make sure that his Administration complied with TARP oversight laws. It's all about the priorities.

Of course, today Obama is looking to top yesterday's stupidity with a video love note to the Iranian government, which continues its nuclear weapons program and which sponsored the Syrian nuclear program that Israel destroyed in an airstrike: