It seems I have been a bit too positive of late... as American taxpayers just took a $2.3 billion hit in their public investment portfolio. Yes, we were all told that the "bail out" could offer significant returns for the American taxpayer, and there was a good deal of hope flying around the country that the economy would get back to the good old days sooner rather than later.
CIT Group's failure and subsequent filing for protection under US Chapter 11 bankruptcy laws prove only that the economy, and the banking industry specifically, is far from stable. Their failure to pay dividends to the US government in the third quarter makes them the largest institution that accepted TARP (Troubled Asset Relief Program) funds to do so. And CIT was only one of eight banks behind on dividend payments.
What really is the American taxpayer getting for their investment? That's what the bail out in essence was sold as. According to the Huffington Post, three major issues have been left unresolved. Top executives at banks have not had their salaries cut, even after the government takeover, but have rather been given long term stock options and had their base salaries raised, so that they will not seek work elsewhere. The "too big to fail" financial institutions that are rather "too big to exist" need to be broken up to ensure that there is never again a need for another AIG-style bailout, but there has been no mention of trust busting. Also, when is the government getting out of the banking industry? Where's the exit strategy? The strategy of the federal government towards US banking institutions is beginning to look more and more like the war in Afghanistan!
So, what about the auto companies? Daimler Chrysler and GM both came under TARP. It is now looking as if:
Taxpayers are unlikely to recover their full investment in General Motors or Chrysler, U.S. government investigators said Monday in the latest review to cast doubts that the government will recoup the $80 billion it poured into the two automakers.GM used part of its bail out to buy Delphi, an auto parts maker. With 61% of the company now owned by the American taxpayer, it is unlikely to be nimble enough to show a profit any time soon. The federal government has become the majority shareholder in GM, and purchases of $100 million or more must now be decided by the Feds. That is not any way to run a profitable business.
Now there is further news that TARP is going on steroids, as the White House opposes a proposal that would limit TARP funds to $1 trillion. All this while some of the best and brightest minds that oversaw the collapse of the US financial system are now in positions of economic leadership in the Obama administration. Yes, the government needs an exit strategy, and fast. But with these insiders doling out money to their former associates, there is no sign of TARP ending.
On a more positive note, E*Trade withdrew its request for TARP funds and Bank of America (BOA) wants to pay back the TARP funds it borrowed to allow it to take over Merril Lynch, thus allowing it to pay its workers as it deems fit. Seems BOA may be one of the few big banking institutions that may get through this crisis.
