Tales from Green Nation

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Fisker: the Solyndra with wheels



Fisker had secured $192 million in tax-payer dollars to build hybrid sedans here in Delaware Finland at $50,000-$60,000 a copy. Unfortunately, no one wants hybrids that cheap, so Fisker went from manufacturing high-end sedans to truly luxury sedans at $110,000 per model.


Given this outstanding business model it should come as no surprise that in 2012 Fisker sold an estimated 900 cars as the Feds moved in to seize assets in this all but closed company.


But there is some good news. The feds have found a buyer. The bad news is that the tax-payer will once again take a bath on yet again another failed DOE green loan venture whose only apparent intent was to line the pockets of this administration’s politically connected.


(Previous posts on this epic boondoggle upon which we have blogged extensively can be found here)



From The Daily Caller:

The Energy Department has sold off its $192 million loan guarantee to Fisker Automotive to Chinese billionaire Richard Li for $25 million — the biggest taxpayer loss on a green loan since the failure of Solyndra.

The Energy Department will announce the “selling of the promissory note” to Hybrid Tech, which is owned by Chinese billionaire Richard Li, according to sources familiar with the sale. The DOE sold the loan to Li for $25 million after lending the financially troubled green automaker a total of $192 million since 2009.

A Chinese billionaire? We were previously unaware that Communists allowed such a species to exist. We’re sure there is nothing fishy going on there.


We’re not opposed to green energy. What we're opposed to is throwing away $167 million at a cronyisitc green scheme that never had a chance of surviving.


Mr. President, we know you will never get the clue that picking winners and losers is no way to run an economy so we’ll just have to wait for term limits to effectively achieve the same goal.





* Perhaps the quintessential image of the Fisker Karma: Being towed off the track after breaking down shortly into Consumer Reports test drive of the car. On the bed of that truck, the Karma achieves the greenie dream of a zero emissions vehicle lumbering down the highway on a flatbed at 50 mph.



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Tales from Bailout Nation (cont.)

50 years of progressive rule, a $60 billion bailout of of General Motors and Chrysler and the $800 billion 2009 American Recovery Act (aka Porkulus) have brought us to this point:


From Businessweek.com:

With $320 million of federal, state and private aid in hand, top White House officials came to Detroit and vowed to help the bankrupt city fight crime, improve mass transport and eradicate blight.

The money is mostly grants from federal or state programs for which the city is qualified, or for which it needed red tape cut to speed access. Some is expected from private businesses and philanthropy groups. President Barack Obama also has appointed Don Graves deputy assistant secretary of the U.S. Treasury Department, to oversee Detroit’s recovery, said Gene Sperling, director of the National Economic Council.

“We only have one goal, and that is to have all of Detroit working together for one Detroit, with the Obama administration as a key partner,” Sperling said today.


The city, once an auto-manufacturing powerhouse, declared the largest U.S. municipal bankruptcy in history on July 18 after years of decline in which its population fell by more than half, to 700,000 from 1.8 million. The city has more than $18 billion in long-term obligations and is plagued by unreliable buses, broken street lights and long waits for police and ambulances.

(italics, ours)


It would appear that Detroit will be "saved" by some other rationale than "too big to fail".


Make no mistake about it: Detroit being the model progressive city ruled for years by a collective of statists and public employee and private labor unions, this administration will throw their political capital and your tax dollars to whatever extent they can, not necessarily to save Detroit but to salvage a failed ideological model.



Did we say public employee unions? Why, yes we did...


Here's Megan McArdle writing for Bloomberg.com:

I’m rarely speechless, but I’m having trouble putting my emotions into words after reading the latest report on the Detroit pension situation. Now, I admit it: I’m kind of naïve. Usually when I see an underfunded pension, I think to myself “poor pensioners -- undone by a combination of stupid tax rules, volatile stock markets and mismanagement by trustees who tried to restore depleted fund assets with an investment approach you might call ‘desperate optimism’." Thus, I was not entirely prepared for the new revelations about the Detroit trustees’ custom of handing out annual holiday “bonuses” to workers, retirees and the City of Detroit. Between 1985 and 2008, they handed out roughly $1 billion this way. Had they been invested, one estimate says those funds would be worth almost $2 billion today -- or more than half the current shortfall in the funds.

These “bonuses” were used to lower the contribution the city was required to make, to give retirees a little something extra around Christmas time, and to fund individual savings accounts that workers are offered along with their pensions. In 2009, when the financial markets were completely frozen and the automakers were shotgunning through the bankruptcy courts, the pension trust paid 7.5 percent interest into those accounts -- which is about 7.5 percent more than they would have gotten at a bank. This while the pension funds were busy losing about a quarter of their value.

(italics, ours)


Color us naive, as well. That money that was used to cover the city of Detroit's contribution shortfalls had to come from somewhere, right?


Well, now it looks as if it's coming from yours and our pocketbook. Fancy that.


Remember, this isn't about saving Detroit rather saving face.

Tales from Bailout Nation to be remembered... and shared

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During the Democratic National Convention last week, Team O took great pains to avoid the American Recovery Act of 2009 (aka Porkulus) which cost the American tax-payer upwards of $800 billion and which had little noticeable effect on the private sector economy and the health-care reform act (aka ObamaCare), instead choosing to focus on the killing of Bin Laden and the auto bailout of General Motors and Chrysler.

As loyal subjects American citizens, we’d love to do our part in getting the word out (well, we have been already, if you are familiar with this blog) and in this case, it is with respect to the Chevy Volt.



From Reuters:

General Motors Co sold a record number of Chevrolet Volt sedans in August — but that probably isn't a good thing for the automaker's bottom line.
Nearly two years after the introduction of the path-breaking plug-in hybrid, GM is still losing as much as $49,000 on each Volt it builds, according to estimates provided to Reuters by industry analysts and manufacturing experts.

Cheap Volt lease offers meant to drive more customers to Chevy showrooms this summer may have pushed that loss even higher. There are some Americans paying just $5,050 to drive around for two years in a vehicle that cost as much as $89,000 to produce.
And while the loss per vehicle will shrink as more are built and sold, GM is still years away from making money on the Volt, which will soon face new competitors from Ford, Honda and others.

GM's basic problem is that "the Volt is over-engineered and over-priced," said Dennis Virag, president of the Michigan-based Automotive Consulting Group.

They are over-priced even with the $7,500 tax payer-provided subsidy.
And no wonder people are leasing instead of buying. Who wants to fork over another 10 grand in 5-7 years when that battery needs to be replaced?

GM's quandary is how to increase sales volume so that it can spread its estimated $1.2-billion investment in the Volt over more vehicles while reducing manufacturing and component costs - which will be difficult to bring down until sales increase.
But the Volt's steep $39,995 base price and its complex technology — the car uses expensive lithium-polymer batteries, sophisticated electronics and an electric motor combined with a gasoline engine — have kept many prospective buyers away from Chevy showrooms.

Some are put off by the technical challenges of ownership, mainly related to charging the battery. Plug-in hybrids such as the Volt still take hours to fully charge the batteries - a process that can been speeded up a bit with the installation of a $2,000 commercial-grade charger in the garage.

Another $2,000 you can sink into battery technology whose price won’t decline appreciably in the near or mid-term as long as China has an effective corner on the lithium-ion and rare earths market that are essential for these batteries.

Oh, and the greenies haven’t shared with us how it is we are to dispose of these batteries.




Back to the article:

"I don't see how General Motors will ever get its money back on that vehicle," countered Sandy Munro, president of Michigan-based Munro & Associates, which performs detailed tear-down analyses of vehicles and components for global manufacturers and the U.S. government.

It currently costs GM "at least" $75,000 to build the Volt, including development costs, Munro said. That's nearly twice the base price of the Volt before a $7,500 federal tax credit provided as part of President Barack Obama's green energy policy.

Other estimates range from $76,000 to $88,000, according to four industry consultants contacted by Reuters. The consultants' companies all have performed work for GM and are familiar with the Volt's development and production. They requested anonymity* because of the sensitive nature of their auto industry ties.

Basic math, even that taught in California’s public schools, will tell you that selling a product for half the amount it took to produce it will not reap your company its intended profits.

With apologies to the voters of Michigan and Ohio, don’t expect to hear anything but happy-speak out there on the campaign trail when one doesn’t have to scratch too far beneath the surface to get to the ugly truth of the auto bailouts.




* Allow us to translate: As long as the U.S. Government still owns a large share of General Motors, we don't want those thugs in this administration knowing it was us sharing the bad news.

Tales from Bailout Nation and a Friday evening dump

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We are little late to the party on this but last week, the President was in Pueblo, Colorado calling for what we can only assume a blanket nationalization of all U.S. industries:

President Obama, while villifying Mitt Romney for opposing the auto industry bailout, bragged about the success of his decision to provide government assistance and said he now wants to see every manufacturing industry come roaring back.

“I said, I believe in American workers, I believe in this American industry, and now the American auto industry has come roaring back,” he said. “Now I want to do the same thing with manufacturing jobs, not just in the auto industry, but in every industry.

“I don’t want those jobs taking root in places like China, I want those jobs taking root in places like Pueblo,” Obama told a crowd gathered for a campaign rally at the Palace of Agriculture at the Colorado State Fairgrounds here.

(He's letting his Peronism show and we don't think he cares because that's who he is. Apparently, green loan programs for not-yet-market-ready technology isn't nearly enough, these days.)




We think we get it: The President wants to sink tens of billions of tax-payer dollars into the manufacturing sector with scant hope of ever seeing it returned dollar-for-dollar while giving the shaft to non-union pensioners as he did to the Delphi retirees who are in process of suing his administration's ass for their trouble. That's kind of the playbook, right?


And we're glad we held off on blogging about this because we are seeing more evidence of the "success" of the General Motors bailout as the Treasury Department released some rather impolite news on Friday:

The Treasury Department says in a new report the government expects to lose more than $25 billion on the $85 billion auto bailout. That's 15 percent higher than its previous forecast.

In a monthly report sent to Congress on Friday, the Obama administration boosted its forecast of expected losses by more than $3.3 billion to almost $25.1 billion, up from $21.7 billion in the last quarterly update.

The report may still underestimate the losses. The report covers predicted losses through May 31, when GM's stock price was $22.20 a share.

On Monday, GM stock fell $0.07, or 0.3 percent, to $20.47. At that price, the government would lose another $850 million on its GM bailout.

GM stock would need to get to $53/share for the U.S. tax-payer to break even. That's not happening. As it stands now, if the government were to dump all of its shares at the current price, the tax-payer would lose more than $16 billion on the GM bailout. Obviously, not 3 months in front of the election, that's not happening either, so not only are we're stuck with this turkey of an "investment", we have the economic illiterate currently in the White House doubling down on the same stupidity.

Last line of linked article:

GM CEO Dan Akerson told employees at a town hall meeting Thursday that the company was working to take actions to boost the automaker's sagging price.

Gee, can't wait to see what that's going to be and more importantly, how much it's going to cost us.

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Tales from Bailout Nation (cont.)

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At our very first tea party rally in the spring of 2009, someone stuck a mic in our face and asked us why we were there. We had nothing prepared but it didn't take any deep thinking to know that what was being sold to the American public as a response to the recession was not going to work as it was simply more of the same:

"We're here because we were told that we got into this mess because we borrowed and spent beyond our means and now we are being told in order to get out of this mess we need to borrow and spend beyond our means".

This isn't 2007 and it doesn't appear people have learned anything from what got us into this debacle starting 4-5 years ago.



From Investors Business Daily:

President Obama has touted General Motors (GM) as a successful example of his administration's policies. Yet GM's recovery is built, at least in part, on the increasing use of subprime loans.

The Obama administration in 2009 bailed out GM to the tune of $50 billion as it went into a managed bankruptcy.

Near the end of 2010, GM acquired a new captive lending arm, subprime specialist AmeriCredit. Renamed GM Financial, it has played a significant role in GM's growth .

The automaker is relying increasingly on subprime loans, 10-Q financial reports shows.

Potential borrowers of car loans are rated on FICO scores that range from 300 to 850. Anything under 660 is generally deemed subprime.

GM Financial auto loans to customers with FICO scores below 660 rose from 87% of total loans in Q4 2010 to 93% in Q1 2012.

The worse the FICO score, the bigger the increase. From Q4 2010 to Q1 2012, GM Financial loans to customers with the worst FICO scores — below 540 — shot up 79% to more than $2.3 billion. The second worst category, 540-599, rose 28% from about $3.4 billion to $4.3 billion.

To be fair, we would like to know what other auto lenders are doing such as those affiliated with Toyota and Ford, companies that did not receive bailouts.

Is is it possible that subprime loans are being made simply because the recession has cut so deeply that not many people's credit has been able to be restored?

As it stands, a company in which we have sunk billions with scant hope of ever getting it back is engaging in the same risky practices that sunk our economic house of cards 4 years ago.

Tales from Bailout Nation

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In this case, it would be the tale.

For years, we have been chronicling the goings-on and happenstances of Bailout Nation and particularly that of TARP, the Troubled Assets Relief Plan. As long as tax-payers continue to bail out moneyed interests that should be allowed to sink or swim on their own, we will continue to do so but this post feels like a culmination of sorts.


The man charged with overseeing the Troubled Asset Relief Program (TARP) as its Special Inspector General, Neil Barofsky, is coming out with a new book, "Bailout" which tells the story of his time serving in that capacity. TARP, initiated under President Bush was effectively the Wall Street bailout that was continued under the current administration and expanded far beyond its original scope to include everything from the Chrysler and GM bailouts to underwater home loan bailouts.

We have excerpted portions of an interview he did with the New York Times in advance of his book release.

As Mr. Barofsky writes, he had assumed that his assignment to oversee TARP meant that he should be fiercely independent from the Treasury Department, and vigilant against waste, fraud and abuse. But after canvassing other inspector generals for guidance, he writes, he learned of different priorities: maintaining and possibly increasing budgets, appearing to be active - and not making enemies.

"The common refrain went like this," Mr. Barofsky writes. "There are three different types of I.G.'s. You can be a lap dog, a watchdog or a junkyard dog." A lap dog is seen as too timid, he was told. But being a junkyard dog was also ill-advised.

"What you want to be is a watchdog," he continues. "The agency should perceive you as a constructive but independent partner, helping to make things better for the agency, so everyone is better off." He also learned, he says, that success as an inspector general meant that investigations come second. Don't second-guess the Treasury. Instead, "focus on process."

Thus the collision course was set between Mr. Barofsky and a crew of complacent, bank-friendly Treasury officials. He soon discovered that the department's natural stance of marching in lock step with the banks meant that he had to question its policies and programs repeatedly to ensure that taxpayers weren't at risk for fraud and abuse.

"The suspicions that the system is rigged in favor of the largest banks and their elites, so they play by their own set of rules to the disfavor of the taxpayers who funded their bailout, are true," Mr. Barofsky said in an interview last week. "It really happened. These suspicions are valid."

The failure of the underwater home loan bailout or HAMP (Home Affordable Modification Program) is explained as such:

Another skirmish involved the department's ill-conceived loan modification plan, known as the Home Affordable Modification Program. When the Treasury began discussing the program's outlines, Mr. Barofsky said he became concerned that it would open the door to fraudulent foreclosure rescue schemes, in which large upfront fees could be extracted from desperate borrowers eager to participate in what was supposed to be a free government program. When his office recommended fraud-prevention measures, several were ignored, he writes.

A few months after the modification plan was announced, his office began a preliminary audit of its rollout. "We soon verified what we had suspected," Mr. Barofsky writes. "Treasury had failed to ensure that the servicers had the necessary infrastructure to support a massive mortgage modification program." It barely got off the ground, and few homeowners have received the help they hoped for.

Barofsky explains that the Treasury Department/Wall Street relationship is the very epitome of regulatory capture whereby the regulatory nature of the department is gamed exclusively to favor the Wall Street financial firms and has become so self-serving that in Barofsky's words Washington had abandoned Main Street while rescuing Wall Street.
So, what's to be done to change the culture - to change the way the actual regulators do their jobs?

"We need to re-educate our regulators that it's O.K. to be adversarial, that it's not going to hurt your career advancement to be more skeptical and more challenging," he said. "It's implicit in so much of the regulatory structure that if you don't make too many waves there will be a job for you elsewhere. So we have to limit those job opportunities and develop a more professional path for regulators as a career. That way, they won't always have that siren call of Wall Street."

Barofsky doesn't expect any help to come from the Dodd-Frank law:

"So much of what's wrong with Dodd-Frank is it trusts the regulators to be completely immune to the corrupting influences of the banks," he said in the interview. "That's so unrealistic. Congress has to take a meat cleaver to these banks and not trust regulators to do the job with a scalpel."

And finally, because the system is rigged towards making sure Wall Street has a soft landing no matter what their transgressions, Barofsky sees the situation as ripe for another financial collapse.

Mr. Barofsky joins the ranks of those who believe that another crisis is likely because of the failed response to this one. "Incentives are baked into the system to take advantage of it for short-term profit," he said. "The incentives are to cheat, and cheating is profitable because there are no consequences."

Despite all of this, Mr. Barofsky ends on something of a positive note. Meaningful changes to our broken system may finally come about, he writes, if enough people get angry. His conclusion is this: "Only with this appropriate and justified rage can we sow the seeds for the types of reform that will one day break our system free from the corrupting grasp of the megabanks."

Terrific. The most heavily regulated industry in the nation is set up to take another dive precisely because of the regulatory regime under which it operates and a law that was supposed to fix things but has every appearance of further entrenching the same problems that led us to the disastrous results of 2008.

That old definition of insanity would appear to apply here.

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Tales from Bailout Nation (cont.)

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... or how green energy loans are like steak sauce.




The ranks of Department of Energy green loan failures continue to mount.

A geothermal energy company with a $98.5 million loan guarantee from the Obama administration for an alternative energy project in Nevada — which received hearty endorsements from Energy Secretary Steven Chu and Senate Majority Leader Harry Reid — faces financial problems, and the company’s auditors have questioned whether it can stay in business.

Much like Solyndra LLC, a California solar-panel manufacturer with a $535 million federal loan guarantee that went bankrupt, Nevada Geothermal Power (NGP) has incurred $98 million in net losses over the past several years, has substantial debts and does not generate enough cash from its current operations after debt-service costs, an internal audit said.

“The company’s ability to continue as a going concern is dependent on its available cash and its ability to continue to raise funds to support corporate operations and the development of other properties,” NGP auditors said in a financial statement for the period ending March 31.

“Consequently, material uncertainties exist which cast significant doubt upon the company’s ability to continue as a going concern,” the statement said.

(italics, ours)


So, we are being told that NGP's ability to continue as a going concern is dependent upon factors other than actually turning a profit. Good to know.

Mr. Reid, a Nevada Democrat who led passage of the $814 billion stimulus bill and worked to include the loan guarantee program to help finance clean-energy projects, predicted in 2010 that NGP would “put Nevadans to work” and declared that Nevada was the “Saudi Arabia of geothermal energy.”

Comparing your state to a country that hands out checks to its citizens because of all that oil they're sitting on begs the question of why NGP would need tax-payer assistance in the first place.



Cue the evil Republicans:

But Rep. Jim Jordan, Ohio Republican and chairman of the House Oversight and Government Reform subcommittee on regulatory affairs, stimulus oversight and government spending, is concerned about NGP’s finances and the timing of the loan guarantee.

“The company was in danger of defaulting on its financial obligation, and the [Department of Energy‘s] assistance served as a de facto bailout,” Mr. Jordan said. “After receiving a taxpayer-backed $98.5 million loan guarantee, the company is still struggling.”

He said the loan guarantee “essentially served to prop up an already-faltering firm.”

We thought the following was of particular interest:

Mr. Jordan said the Energy Department handed out more than 20 loan guarantees to companies with an average credit rating of BB-, or “junk status,” meaning they were vulnerable to default if economic or business conditions changed. NPG was rated BB+, which is considered speculative or junk and a step below investment grade.

Mr. Jordan and Mr. Issa have questioned why taxpayer money was “put at such risk.”

That pretty much sums up why this DOE green loan program is such a disaster. Where you wouldn't waste a wooden nickel of your own scratch on junk-rated investments, the DOE, because it has no real skin in the game - it's not like it's coming out of their hide, is more than willing to pour billions of tax-payer dollars down the drain.


The next time you hear the President drone on about "investing" in the future with respect to clean/green energy, recall the rule our chow hall table captain laid down during our first year at Seminary regarding his ban on steak sauce: "Good steak don't need it and bad steak don't deserve it."


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Tales from Bailout Nation (cont.)

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Recall how Team O wants to make the General Motors bailout, the one that will cost taxpayers tens of billions of dollars when all said and done, a centerpiece of their re-election campaign and how GM isn't, for obvious reasons, thinking that is not such a hot idea? Well, chalk up yet another reason why bringing attention to such a smashing success may backfire.

New emails obtained by The Daily Caller contradict claims by the Obama administration that the Treasury Department would avoid “intervening in the day-to-day management” of General Motors post-auto bailout.

These messages reveal that Treasury officials were involved in decision-making that led to more than 20,000 non-union workers losing their pensions.

Republican Reps. Dan Burton and Mike Turner say that during the GM bailout, Treasury Secretary Timothy Geithner decided to cut pensions for salaried non-union employees at Delphi, a GM spinoff, to expedite GM’s emergence from bankruptcy.

At a Wednesday hearing, the House Oversight Committee’s Subcommittee on Regulatory Affairs, Stimulus Oversight and Government Spending started pushing the Treasury Department for answers on the effects of the bailout and on how much of a role the department played in picking winners and losers.

The key point of the Wednesday hearing was to show that the Obama administration advised GM on how to eliminate the Delphi workers’ pensions. The evidence suggests Geithner’s team played a significant role in that process, despite claims to the contrary.

In 2009 congressional testimony, senior Obama administration official Ron Bloom said the president told the Treasury Department to stay out of the management of these companies and downplayed any administration intervention.

“From the beginning of this process, the President gave the Auto Task Force two clear directions regarding its approach to the auto restructurings,” Bloom said then. “The first was to behave in a commercial manner by ensuring that all stakeholders were treated fairly and received neither more nor less than they would have simply because the government was involved. The second was to refrain from intervening in the day-to-day management of these companies.”

We know that first directive was a crock as the unions were shoved to the head of the line ahead of secured creditors in the bankruptcy divvy-up and now it looks like the second was not adhered to either as that noted captain of industry and business tycoon, Timothy Geithner, was wacking pensions in order to hasten an exit from bankruptcy.

The exchanges go on to clearly demonstrate that the administration had a controlling stake in GM’s management timeline.

Borst replied that GM had not “begun conversations with the UAW pending hearing back from you and the PBGC. We can begin that dialogue but our reading of the benefit guarantee is clear that it’s for the benefit of the retirees and not the PBGC. The UAW may not be available to us this week as GM is in the summer shutdown.”

Feldman responded by reminding Borst the steps required to eliminate Delphi’s pension plans.

“Keep in mind we need the PBGC’s help to terminate this plan so we will have to deal with the PBGC,” wrote Feldman. “If you think there is a way to cause its unilateral termination (outside of Delphi going down an 1113 process) let me know.”

Team O will want to take credit for saving a couple of heartland American institutions and the domestic auto industry along the way but the record will show that this was a hostile take-over with the government wielding unprecedented powers in a private sector business to curry favor with the unions and where that government-GM partnership will lose billions of dollars while pushing a heavily-subsidized technology that nobody's buying right now and which may not even be any good for the environment and then turn around and lie about how it is they paid off the loan they received from the Feds. For that you are to be thankful.

Yeah, sounds like a record to run on.



* The dreariness of this post demanded we do something to cheer it up. So we did.

Tales from Bailout Nation (cont.)

Well, Gitmo's still open, he formalized indefinite detention of suspected terrorists, he just signed an extension of the Patriot Act he opposed as a Senator, we're still kinetically engaged over in Libya despite the expiration of the War Powers Act, the economy shows real signs of double-dipping and unemployment is still way too high...

... the dude has to run on something though, right?


Team O desires to make the domestic auto bailout a signature feature of it's re-election campaign but yet another recent development may have them re-thinking that strategy.

It would appear that some dealerships are buying up Chevy Volts, taking advantage of the $7,500 credit and flipping them as used cars at a slight mark down.

If you’re desperate to get yourself into a Chevrolet Volt you might make a visit to the Kia dealer in Glendale, Calif. Though most Chevy dealers in the seven initial launch markets for the plug-in hybrid claim to be on back order, three “used” Volts are sitting on the Kia dealer’s lot.

But don’t expect much of a bargain. True, the asking price of $39,995 is a modest discount off the $41,000 sticker price. But a salesman at the suburban Los Angeles showroom said he did not believe the three Volts would qualify for the $7,500 federal tax credit allocated for buyers of new battery vehicles.

The salesman's comment suggests there is truth to reports that some dealers are gaming the system to claim battery car tax credits for themselves, as first reported by a conservative think tank called the National Legal and Policy Center.

“Many Volts with practically no miles on them are being sold as ‘used’ vehicles, enabling the dealerships to benefit from the $7,500 credit supplied by the American taxpayers on each car,” NLPC’s Mark Modica said in a blog post on the practice. “The process of titling the Volts technically makes the dealerships the first owners of the vehicles, which gives them the ability to claim the subsidies. The cars are then offered to retail customers as ‘used’ vehicles."

Though, technically not illegal, we can't imagine this is what the administration had in mind to get people to buy their cars.

Or is it?

A spokesman for the Internal Revenue Service declined to comment beyond pointing to the language of the tax code passed by Congress to help promote the sale of battery vehicles. According to Title 26 Section 30D, a vehicle qualifies for the credit when:

(a) The original use (of the vehicle) "commences with the taxpayer," or
(b) The vehicle "is acquired for use or lease by the taxpayer and not for resale."

Sounds like the dealer ought to lease the car or else they would be running afoul of the law.


While this may seem a minor deal compared to lying to the American public over how the GM TARP loan was paid off or how unions were rushed past secured creditors to the head of the line in the bankruptcy proceedings (and it is), it represents just one more element of shadiness to the whole sorry affair of the GM and Chrysler bailouts.

Tales from Bailout Nation (cont.)

Like rats leaving a sinking ship...

The U.S. government plans to sell a significant share of its remaining stake in General Motors Co. this summer despite the disappointing performance of the auto maker's stock, people familiar with the matter said.

A sale within the next several months would almost certainly mean U.S. taxpayers will take a loss on their $50 billion rescue of the Detroit auto maker in 2009.

To break even, the U.S. Treasury would need to sell its remaining stake—about 500 million shares—at $53 apiece. GM closed off 27 cents a share at $29.97 in 4 p.m. trading Monday on the New York Stock Exchange, hitting a new low since its $33-a-share November initial public offering.

At current share prices, the American tax-payer would take an $11 billion dollar loss if the remaining government-owned shares were put up for sale today.

So, why are the feds so eager to dump this turkey?

Government officials are willing to take the loss because the Obama administration would like to sever its last ties to the auto maker, the people familiar with the matter said. A summer sale makes it more likely Treasury could sell all of its stake in GM by year's end, avoiding a potentially controversial sale in the 2012 presidential election year.

A summer sale when, hopefully, no one is paying attention. And good to know the calculus for selling GM stock is now purely political instead of based-upon any economic rationale. Perhaps, Team O can divert some of their campaign warchest funds to this IPO because, at this point, they really would serve the same purpose.

So, if you are scoring at home you have a) a bankruptcy cramdown where unions were shoved to the head of the line before secured creditors, b) a pack of blatant public lies regarding the payback of the TARP loan, c) a $9 billion loss on the first IPO last November and now this... a massive stock dump in order to clear the books ahead of the 2012 presidential elections.

Yep, this public-private partnership has been a smashing success all the way around.


Just to repeat... we will never... never buy a GM product for as long as we live.

MAXED OUT: 8 beers a week

Hey, what can we say - last month's time change has everything a little screwy so we're bumping MAXED OUT back to its original Thursday afty time slot. We're slaves to ratings - sue us!

A good day to you all my hop loving heroes, and what a magical day it is! I’m in a good mood and feel like sharing some delightful tales of the hop vine with you. This week, I’m going to tell you what beer to drink Monday through Sunday, and while some of you are 9-5ers and some of you have random schedules, I probably have the best/worst schedule out of everyone on this forum as I work until midnight most nights, but how I’m going to work this in on a standard 9-5, Monday thru Friday schedule. So, adjust accordingly, you crazy kids. Let’s rock this Casbah!



MONDAY

Let’s face it, Mondays suck. You just got back from Vegas, hung out with the wife and kids all weekend, partied till 3 a.m. or just did chores all weekend, but it never fails. They’re called the Mondays for a reason. For this reason, I recommend a beer that will kick you in your teeth, something with high alcohol content and one that won’t take it easy on your pallet as the day most certainly hasn’t taken it easy on your nerves. How about a Barleywine? Yes, this is a style of beer despite its name. It is a big (typically between 10 & 15% ABV) beer, often sweeter on the spectrum of beers and typically has fruity notes. Don’t get me wrong, there is nothing sweet about this beer when it comes to being a cuddly little hop friend. Typically, amberish in color and can often be cellared for years and tends to age very well. This is a beer for after dinner, after the dishes are done, the kiddies are in bed and you’re laid back in your Lay-Z-Boy, feet up and Letterman is on the boob tube. My personal favorite is Old Numbskull from Alesmith Bewery, an 11%er with caramel notes and a yeasty mouth feel. Most Barleywines pair well with most fruity desserts, so grab yourself a slice of cheesecake and enjoy this beast of a beer.



TUESDAY

Tuesdays are just those blah days that never seem to go anywhere. Nothing really amazing happens at work, you still have three more days to go before the weekend and everyone is jonesing to get home and see what’s on TV. Booooooring! So, let’s spice things up with a nice Belgian Tripel, shall we? We’ve talked about these beers before, and next week I will be talking about my favorite Tripel, but let’s just go with it. I’m going to go with one of my favorites, La Fin du Monde, a French Canadian beer (yes, the French and Canucks actually did something awesome for once) from Unibroue out of Quebec. At 9% ABV, this beer is spicy, sassy, and delicious. While it is technically a Tripel in style, I have always said that this beer is actually my favorite Blonde out there. Pairs well with a pork and chicken, so I say make yourself some kinda garlic chicken delight, perhaps even Thai. Tuesdays are so meh that I’m not even going to end this paragraph with some witty comment. MOVING ON!




WEDNESDAY

HUMP DAY! Who doesn’t love the day of hump(ing)? It’s half way through your work week and I say it’s time to celebrate with happy hour. Oh, who am I kidding? Every day is cause for happy hour in my opinion. But Wednesday especially. Wednesdays should be the day of Witte beers so you can pound em down and not wake up the next day hating your Thursday. Ommegang Witte would be my recommendation since it’s only 5.1% ABV and rather tasty. Wittes tend to have notes of clove and banana, are smooth and easy drinking. Pairs well with spicy fair so get yourself to some kind of Indian restaurant (dots not feathers) and slam a few of these bad boys while hitting up some Curry. If you live in the Bay Area do yourself a favor and look up Kennedy’s Irish Pub and Curry House as they often have a decent selection of Ommegang and some damn tasty Indian food. WITTE BEER WEDNESDAYS! I’m trade-marking that one, kids. Who’s coming with me?



THURSDAY

One more day to go till the weekend, but haven’t you heard? Thursdays are the new Fridays! Get ready to start your weekend right and knock back a couple of Pale Ales. We don’t want to ruin the rest of the weekend by over doing it, so a lighter version of the IPA is the way to go. Green Flash’s 30th Street Pale Ale is a 6% HOPPY Pale Ale brewed in a delightful San Diego native brewery and is readily available in 6 packs and on draft throughout the county. The IBUs are quite crazy for being a Pale Ale, shooting close to the 90s, which is unprecedented for a Pale Ale. Have I mentioned that this is a Pale Ale? Just take the I out of the IPA and you have yourself a Pale. Pairs well with just about anything, so go grab some din-din with the Mrs./Mr. and have a few Pales for your Thursday night brew. Just do it, don’t ask questions.



FRIDAY

HOPPY FRIDAY! It’s IPA day! Of course I’m going to pick my favorite beer style for my favorite day of the week, silly buns. Grab a Ballast Point Sculpin, Firestone Union Jack, Bear Republic Racer 5…. Just order a damn IPA for god sakes. Heck, make it a pitcher, it’s Friday!



SATURDAY

Pace yourself today, kiddos - it’s a long day and you don’t need to go too crazy too early. Pilsners/Lagers are perfect Saturday beers, whether you’re doing yard work, or down at the pub, Pilsners tend to be lighter on the ABV (3.5-6%) and are very sessionable beers. Samuel Adams Noble Pilsner is a Czech style Pilsner, light, dry crisp and refreshing, and at 4.9% ABV is a very sessionable beer, perfect for a warm summers day at a beach side bar and grill. Pilsners go with just about everything, so grab some oysters on the half shell, a couple fish tacos and take out a 6 pack of these bad boys to get your Saturday off on the right foot. Is it Saturday yet?



SUNDAY

The most bitter-sweet day of the week. Work is just around the corner as you hold on to every last minute of God’s Day, so treat yourself with something good. Just have a few, start early, go big (ABV that is) and finish it off with a night cap (A nice Manhattan up always does the trick for me.) For Sundays, I’m going to go with a Double IPA, maybe make a trip out to Alpine Brewery, get yourself a pulled pork sandwich, fill the growler with Exponential Hoppiness and treat yourself and a friend. At 10.75% ABV, this delicious brew is a perfect way to finish off the weekend in style. Exponential pairs well with ANYTHING because you won’t be able to taste your food after this F-16 bombs your mouth with flavor. But hey, it’s Sunday, God would want you to.


Well, that about wraps up this week’s edition of MAXED OUT! Sorry it’s a day late, I was slacking yesterday and didn’t get it to the Chief in time. Next week will be promptly up at 4:30pm on Thursday, so join me as I get back into my top 10 beers of all time. You guys are awesome, thanks for joining me again and as always feel free to leave a comment or suggestion for a topic I should cover on Facebook, at maxamilliondollars@gmail.com, or in the comment section below.

Until next time my beer loving brethren, have a beer for me.

(ed. note: Sunday, particularly Sunday afternoon growing up as a kid was always filled with a sense of existential dread as we faced down the reality of being sent back to the mental gulag of California's public schools the following day. Perhaps if we were allowed to hammer back a few Exponential Hoppiness bombers, it would've eased this anxiety. We're not condoning under-age drinking. We're just sayin'...

Also, re: "sessionable". We believe what Max means by that term is that you can drink a lot of them, as in, "We plowed through a twelve pack of that stuff in one session.")

Tales from Bailout Nation: the apocalypse edition

“Our jaws are literally dropping as we’re reading this,...every one of these transactions is outrageous.”

So, what would you say to a TARP-receiving Wall St. exec making $800,000 accepting zero dollars in the way of bonuses? You might look at that salary and think that was mighty big of that guy but that you were greatly appreciative just the same of that symbolic gesture considering all the other shenanigans going on with Wall St. bonuses.

Then what would you think if ol' boy in 2009 purchased a 107-year-old limestone carriage house on the upper east side of New York for $13.5 million? You might say that perhaps this guy had some spare change setting between the seat cushions in order to make this purchase. No biggie.

But then what if we told you that instead of his own money, he possibly used that of his wife who along with her girlfriend received $220 million from the Feds for their start-up investment firm Waterfall TALF Opportunity?



Sunshine laws passed last year have thrown the door open and have shed light onto just how dirty the dirty Fed may be. We apparently have two budgets: one that's on the books and the other that's off the books. One with which you are familiar with income via taxes and expenditures via aircraft carriers and Social Security payments and the other that is giving out hundreds of billions in near-interest-free loans only to be lent back to the Treasury Department at 3%.

This whole setup — in which millionaires and billionaires gambled on mountains of dangerous securities, with taxpayers providing the stake and assuming almost all of the risk — is the reason that it’s insanely premature for Wall Street to claim that the bailouts have actually made money for the government. We simply can’t make that determination until the final bill comes in on all the dicey securities we financed during the bailout feeding frenzy.

Ditto for the housing market. What completely freaks us out is that Fannie and Freddie are still holding mountains of toxic assets that have not been allowed to be wrung out of the system. To say the housing market is making a rebound is folly until we unwind the entire mess.

Read the entire article here. And since it will appear in Rolling Stone, remember, it was all the Republicans' fault.

Tales from Bailout Nation Pt. XXIX

Do you remember when they told us that if we voted for McCain it would mean at least 4 more years of Jesus Land in the White House? Well they were right.

At least $140 million of the $787 billion stimulus package was directed to "religiously inspired" groups, Politico reports, making the Obama initiative "the largest-scale embodiment of what was, not long ago, a conservative priority: directing tax dollars to 'faith-based initiatives.' " While the stimulus was initially attacked for being "anti-religious," a Politico investigation finds that a significant amount of money went to groups associated with religious organizations, including charities and the secular arms of churches. (Politico didn't include universities and hospitals with religious affiliations in the study). The money, which came from agencies like the Departments of Agriculture, Education, and Energy, went to programs for school lunches, energy-efficiency, and education, among other things. To make sure faith-based organizations got the money, federal agencies also launched an "aggressive" outreach campaign to educate groups about how to apply for the funds and to ensure that state officials gave it to them. While Obama has been alternately praised and criticized for taking "what President Bush did and [expanding] it," White House officials maintain that funding faith-based groups isn't part of a political strategy. "Part of our job is to ensure that there's a level playing field—we don't encourage anyone to favor faith-based groups over other organizations, but we do want to ensure that there's no discrimination against faith-based organizations," said administration official Joshua DuBois.

To head off the inevitable yet fair question: Yes, we were opposed to Bush's faith-based initiative program as well.

Charities, whether faith-based or not, would appear to operate more efficiently and be better structured to pursue their ends free of government entanglement.

Unfortunately, we were unable to link to the Politico story and while the SLATE piece does not suggest anything untoward, what is to keep the government from attaching conditions to their hand outs in the future?

Tales from Bailout Nation Pt. XXVIII

And the beat goes on...

General Motors Co.'s recent stock offering was staged to start paying back the government for its $50 billion bailout, but one group made out much better than the taxpayers or other investors: the company's union.

Thanks to a generous share of GM stock obtained in the company's 2009 bankruptcy settlement, the United Auto Workers is well on its way to recouping the billions of dollars GM owed it — putting it far ahead of taxpayers who have recouped only about 30 percent of their investment and further still ahead of investors in the old GM who have received nothing.

The boon for the union fits the pattern established when the White House pushed GM into bankruptcy and steered it through the courts in a way that consistently put the interests of the union ahead of many suppliers, dealers and investors — stakeholders that ordinarily would have fared as well or better under the bankruptcy laws.

The union's health care and pension trust fund earned $3.4 billion through the sale of one-third of its shares in GM last week. Analysts estimate that it would break even if it sells the remaining two-thirds of its shares at an average price of $36 — close to where the stock traded shortly after the offering hit the market. GM shares closed at $33.45 on Wednesday.

Analysts predict that stocks will have to rise anywhere from $52 to $103 a share for the U.S. taxpayer to break even. Currently, the U.S. taxpayer is $9 million in the hole.


At the bottom of the linked article, we get this:

John Paul McDuffie, a professor at the Wharton School of Business, said the full funding of the union's pension and health care trust fund through the bankruptcy process represents progress because it helped solve one of most "persistent and difficult" bones of contention between GM and its union.

GM and the UAW had been at loggerheads for years over how to deal with GM's so-called "legacy" costs — funding the generous worker health care and retirement benefits it promised in earlier eras.

The bankruptcy settlement enabled GM to proceed with a hard-won 2007 plan it negotiated with the union to spin off those huge liabilities and let them be funded in the future by the trust fund that received the stock.

If this plan was already "won" then why was it part of the sweetheart bankruptcy deal?

Translating McDuffie then: Thorny legacy cost issue? Wave magic wand and give union trust fund exceedingly favorable stock treatment regardless of what had been negotiated previously. Problem solved.


We suppose that what is also part of the outrage with respect to this tax-payer funded bailout is that even if you tried to justify this unholy arrangement, where is the evidence that the federal government will not simply swoop in again to salvage a poorly-run business that makes horrible business decisions and manufactures products that no one wants to purchase?

Oh, and did we mention no guarantees against a tax-payer funded bailout with the attendant arm-twisting and smearing of those voicing objections to the bankruptcy proceedings and the lying about how the bailout money was paid back?

Tell it to this guy.

Craig Coffey, a retiree in Nevada who invested $55,000 in bonds in the old GM that are now worthless, was outraged that the union is on its way to recovering all its money before investors get even a cent of compensation.

"We just sat and watched [the stock offering]. We got nothing," he said. "Screwed again."

Quickies: the "junk" edition

A round up of news items, columns and blog posts that caught our attention this past week.













Once again, the Taiwanese, of all people, provide a summation of the American cultural zeitgeist:







Charles Krauthammer on the new TSA screening procedures? Not a big fan:

Don't touch my junk is the anthem of the modern man, the Tea Party patriot, the late-life libertarian, the midterm election voter. Don't touch my junk, Obamacare - get out of my doctor's examining room, I'm wearing a paper-thin gown slit down the back. Don't touch my junk, Google - Street View is cool, but get off my street. Don't touch my junk, you airport security goon - my package belongs to no one but me, and do you really think I'm a Nigerian nut job preparing for my 72-virgin orgy by blowing my johnson to kingdom come?

And David Harsanyi on the General Motors IPO? Yeah, not a big fan either.

Oh, good, the Obama administration has another imaginary victory for taxpayers to celebrate.

As you've probably heard, there's quite a bit of hubbub surrounding the news that the administration's car company is going public.

President Barack Obama tells us that General Motors' IPO is proof that one of the toughest tales of recession "took another step to becoming a success story." Not "survival," but success. Taxpayers are going to make a profit, even!

Now, admittedly, success is a malleable concept. If by success we mean that General Motors still owes the government $43 billion — not including that piddling $15 billion it borrowed to fund its financial arm — with many analysts uncertain that it can ever flourish, we're home free.

Success will mean temporarily setting aside the fact that the Treasury actually lost billions on the IPO as it "bought" GM stock at inflated prices. To break even on the freshly printed money taxpayers are "getting back" will probably mean GM needs to double in value over the next year to make us whole.

$9 billion to be exact.

So, Team O strong-arms secured creditors and bond holders, shoving them behind the unions at the bankruptcy buffet, they lie about how they are paying off the TARP loan, lose billions on the IPO and their "star" attraction is an expensive, yet heavily-subsidized lemon that no one wants. Yep, highly successful all around.



Iowahawk pens some new lyrics to a classic standard:




And you know who else hates the new TSA rules? TSA screeners, naturally.

"It is not comfortable to come to work knowing full well that my hands will be feeling another man’s private parts, their butt, their inner thigh. Even worse is having to try and feel inside the flab rolls of obese passengers and we seem to get a lot of obese passengers!"

Not doing much for morale.

"Molester, pervert, disgusting, an embarrassment, creep. These are all words I have heard today at work describing me, said in my presence as I patted passengers down. These comments are painful and demoralizing, one day is bad enough, but I have to come back tomorrow, the next day and the day after that to keep hearing these comments. If something doesn’t change in the next two weeks I don’t know how much longer I can withstand this taunting. I go home and I cry. I am serving my country, I should not have to go home and cry after a day of honorably serving my country."

We've said it before but without exception, TSA screeners have been the epitome of professionalism and efficiency in our travels around the country since 9-11. Homeland Security leadership would do well to rethink the current screening policies as they are accomplishing nothing but pissing off the public and providing a disincentive to any effective screening that is performed.





Is Chris Christie a "true conservative"? Shane Atwell does yeoman's work in breaking down an otherwise assertion made by Conservative New Jersey, here.

Thin slicing: Him cheezing off the right people should count for something, right?





And finally, B-Daddy on the Republicans' unity with respect to earmarks:

Now this is in fact a small, but symbolic victory. I have always felt that earmarks were "the gateway drug" to Congressional wasteful spending. This is only a rule that governs Senate Republicans, but it gives them a moral advantage over the Democrats in the Senate. Further, it shows that the Republican establishment can be made to listen. Until Monday, McConnell had been opposed to ending earmarks, but he realized that in these times, it was important to listen to the voters.

Amen.

Tales from Bailout Nation Pt. XXVII

...and like that, it's gone.

The special inspector general for the Troubled Asset Relief Fund (TARP) has reported that the Treasury Department’s initial estimates of the cost of the American International Group bailout are likely too low, according to Bloomberg. In a report on Tuesday, Neil Barofsky said the government’s latest projection of a $5 billion loss on AIG’s TARP investment “represents a dramatic shift from the $45 billion loss that Treastury had projected in its AIG investment just six months earlier.”

Barofsky acknowledged that there has been improvement in the situation over the past six months, but said the dramatic revision was likely more a product of “a change in Treasury’s methodology for calculating the loss,” and called the discrepancy a “serious question.” However, a Treasury official defended the estimate and insisted that the methodology has remained consistent, clashing with claims from the watchdog that the latest estimate “fails to meet basic transparency standards,” for withholding information about a new calculation protocol. The Treasury official said the lower loss estimate treats the government’s AIG position like common stock due to recent a recapitalization transaction announcement.

$40 billion makes like Keyzer Soze.

You wouldn't be blamed one bit for thinking no one knows what the hell is happening here and also thinking this stinks to high heaven.

Barofsky has appeared to be a stand-up guy in watch-dogging Bailout Nation so if we are taking any sides in this, it's got to be his.

Apply Occam's razor: if General Motors can simply draw from a seperate line of TARP credit and apply it to original TARP loan and then lie about it claiming the retirement of that debt was from sales revenue, what's to prevent the Treasury-AIG partnership from engaging in similar shenanigans?

Given their track record why should we believe them?

Instead of scolding the electorate or opining that voter frustration is due to poor "salesmanship", perhaps this country's electoral leadership should look at the fact that they have exercised such malfeasance and have done so in such a dishonest fashion that the country's default position on everything they do and say is... You Lie!

Tales from Bailout Nation Pt. XXVI (UPDATED)

(please scroll down to bottom of post for update. Thanks.)

Now, would these be jobs created or saved?

The Treasury Department encouraged automakers seeking TARP funds to rapidly close their dealerships, even though the plan contributed no specific savings to the companies and caused job losses at a time of mounting unemployment, according to a scathing new audit published Monday.

The report focuses on the plans by Chrysler LLC and General Motors Corp. to rapidly reduce their number of dealerships by about 25 percent each, and the role that Treasury played in encouraging the automakers to do so quickly instead of over the course of five years.

The audit was prepared by Neil Barofsky, a former federal prosecutor who now serves as special inspector general for the $700 billion Troubled Asset Relief Program.
Chrysler eliminated 789 dealerships in June 2009, and GM plans to wind down 1,454 dealerships by October of this year. The rationale behind those moves was that the old dealership network was too big, and that by closing some of the dealerships, the remaining ones would be more profitable and better positioned to re-invest in their businesses.

Chrysler and GM , part of the $81 billion auto industry bailout, were told by Treasury that their plans to spread out those closures was not acceptable, largely because the agency thought that the companies should take advantage of their bankruptcies and close their dealerships as quickly as possible, to avoid state franchise laws that would have made the gradual closing more difficult and more costly.

But Barofsky's report said that Treasury should have taken further steps to ensure that the speedy closures were truly necessary to save the automakers. It added that the agency should have considered whether the benefits to Chrysler and GM outweighed the cost to the economy of potentially tens of thousands of job losses.

And later from same article:

The report said the accelerated closures were encouraged even though they afforded no particular cost savings to the automakers and instead provided "amorphous" benefits, such as reduced incentive payments to dealerships and better customer service at the surviving sales outlets. Estimates of how much the closing would save the automakers were only developed after the decision to close them had been made.

The report also reveals that there wasn't widespread agreement on the plan. Some experts consulted by Treasury's auto team noted that the strategy of having fewer dealerships and concentrating on metro areas - the so-called "Toyota model" - wouldn't work for Chrysler and GM, which appeal to customers in rural areas where foreign cars are less popular.

(italics, ours)

Awesome. Among other sins, first the Feds screwed over the secured creditors in the bankruptcy cram down, then GM flat out lies about the repayment of their TARP loan which was doubled-down by Steve Rattner, former head of the Treasury's auto task force, double-talking his own way around the source of the TARP re-payments and now we find out Team O effectively axed thousands of jobs before they really even had a plan to move forward with dealership closures.


(UPDATE #1): We had seen her piece earlier in the day and in the comments B-Daddy reminded us of yet another egregious transgression in Team O's handling of the Chrysler and GM dealership shut-downs (goodness. it's like some sort of right-wing Journolist cabal). Michelle Malkin dug into Inspector General Barofsky's report and came up with this:

“no one from Treasury, the manufacturers or from anywhere else indicated that implementing a smaller or more gradual dealership termination plan would have resulted in the cataclysmic scenario spelled out in Treasury’s response; indeed, when asked explicitly whether the Auto Team could have left the dealerships out of the restructurings, Mr. Bloom, the current head of the Auto Team, confirmed that the Auto Team ‘could have left any one component (of the restructuring plan) alone,’ but that doing so would have been inconsistent with the President’s mandate for ‘shared sacrifice.’”

(italics, ours)

There it is, again. That whole equality of outcome thing.

They knew they could've kept dealerships open but that did not square with the narrative of this administration. Jobs were lost because of a narrow-minded and bankrupt ideology.

This is the exact same philosophy that will dictate how ObamaCare will operate. It matters not if the product or service being provided is substandard or that its delivery makes no earthly sense, as long as it's portioned out by the ruling class in equal amounts, success will have been achieved.

Jobs, health, lives... mere objects to be tinkered with in making America a better place.

Tales from Bailout Nation Pt. XXV

The hits, they just keep on coming...

Freddie Mac, the second-largest US mortgage finance company, said on Wednesday it would need an additional $10.6bn from the US Treasury Department to staunch losses on bad loans.

The company said it had lost $8bn, or $2.45 per share, in the first three months of 2010. The amount includes a $1.3bn dividend payment to the Treasury Department on senior preferred stock issued as part of a 2008 government-led bail-out. Along with larger rival Fannie Mae, Freddie is propping up the housing market by purchasing mortgages in the secondary market.

Since September 2008, both Fannie and Freddie have been operating under a legal framework known as conservatorship. Together they have eaten up $136bn in taxpayer money. The final bill could be much higher. The government has pledged to provide unlimited support to the companies over the next three years. The Congressional Budget Office estimates that taxpayer aid could approach $400bn over the next decade, making the bail-out of Fannie Mae and Freddie Mac far more costly than the rescue of big Wall Street banks.

In spite of government-led efforts to modify mortgages, foreclosures continue to mount. As a result, Freddie Mac said writedowns on uncollectible loans on single-family residences had totalled $2.8bn in the period, compared with $2.4bn in the fourth quarter of 2009. Delinquencies on those residences rose slightly to 4.13 per cent as of March 31, compared with 3.98 per cent as of December 31.

(italics, ours)

Gee, do you think perhaps that it's precisely because of government-led efforts we're still in this mess? Precisely, how is enticing bad risks to stay in bad loans good for the housing market?

Of course, don't expect the Feds to change course because as they are spending your money, there is absolutely no incentive to step back and take a look at this in a rational manner and possibly come to the conclusion that their actions are simply exacerbating the situation.

As the article states (and as we covered the Christmas Eve Dump), the federal government is all in with respect to bailing out Fannie and Freddie and they will continue to dump money into both ad infinitum, ad nauseum.


Exit question: For two entities which will collectively cost us more than the eeeeevil Wall St. financial firms, where is the outrage from Congress or this administration?

Tales from Bailout Nation Pt. XXV

The indespensible Heritage Foundation does their usual fine work in making the dense and complex understandable because in the case of the Wall St. reform bill and like members of Congress who will be voting on it, we have no intention of reading it.

But in the interest of public service and being all-around good Joes, here it is in .pdf.


Reasons to hate:

1. Creates a protected class of “too big to fail” firms. Section 113 of the bill establishes a “Financial Stability Oversight Council,” charged with identifying firms that would “pose a threat to the financial security of the United States if they encounter “material financial distress.” These firms would be subject to enhanced regulation. However, such a designation would also signal to the marketplace that these firms are too important to be allowed to fail and, perversely, allow them to take on undue risk. As American Enterprise Institute scholar Peter Wallison wrote, “Designating large non-bank financial companies as too big to fail will be like creating Fannies and Freddies in every area of the economy.”[1]

2. Provides for seizure of private property without meaningful judicial review. The bill, in Section 203(b), authorizes the Secretary of the Treasury to order the seizure of any financial firm that he finds is “in danger of default” and whose failure would have “serious adverse effects on financial stability.” This determination is subject to review in the courts only on a “substantial evidence” standard of review, meaning that the seizure must be upheld if the government produces any evidence in favor of its action. This makes reversal extremely difficult.

3.Creates permanent bailout authority. Section 204 of the bill authorizes the Federal Deposit Insurance Corporation (FDIC) to “make available … funds for the orderly liquidation of [a] covered financial institution.” Although no funds could be provided to compensate a firm’s shareholders, the firm’s other creditors would be eligible for a cash bailout. The situation is much like the scheme implemented for AIG in 2008, in which the largest beneficiaries were not stockholders but rather other creditors, such as Deutsche Bank and Goldman Sachs[2]—hardly a model to be emulated.

4. Establishes a $50 billion fund to pay for bailouts. Funding for bailouts is to come from a $50 billion “Orderly Resolution Fund” created within the U.S. Treasury in Section 210(n)(1), funded by taxes on financial firms. According to the Congressional Budget Office, the ultimate cost of bank taxes will fall on the customers, employees, and investors of each firm.[3]

You can read the rest of the 14, here.

We blogged about #4 months ago. This is the idea floated originally by Barney Frank that would punish good behavior and reward bad behavior. We don't know about you, but we don't think we'd cotton to having a portion of our salary set aside to cover the poor performance of a co-worker.

We suppose we shouldn't be surprised that this good/bad response mechanism has been central to the entirety of Bailout Nation, whether it's bailing out poor performing auto manufacturers or financial institutions, or enticing people to stay in bad home loans.

Perhaps, we were already there, but Bailout Nation has cemented the notion of rewarding the bad at the expense of the good as the prevailing paradigm of this country aided, abetted and enforced by the federal government.

Tales from Bailout Nation Pt. XXIV.5

When we blogged a few days ago about Fannie and Freddie regulator, Armando Falcon's, testimony before Congress with respect to the attacks unleashed upon him by those GSEs when he had the temerity to suggest that those two GSEs might be on some questionable financial footing because of loose lending practices and Enron-like accounting practices, we left out a minor detail, though, it's one that should not surprise you if you've been a regular reader: Fannie and Freddie are still going to require a wee more bit o' cash.

A pair of former regulators who oversaw Fannie Mae and Freddie Mac told a panel Friday that the two government sponsored enterprises - which taxpayers have already bailed out to the tune of $125 billion - will likely need even more aid.

Their testimony came on the third and final day of this week's Financial Crisis Inquiry Commission hearings on securitization and subprime lending. The panel tasked with determining the factors that contributed to the financial crisis.

Armando Falcon and James Lockhart, former directors of the Office of Federal Housing Enterprise Oversight, said the price tag for taxpayers would almost certainly climb, as Fannie Mae and Freddie Mac to draw on their credit lines.

And how much more tax-payer cash are Fannie and Freddie going to require? Does it matter? Let's hit the way-back button to this past Christmas Eve, yes, Christmas Eve when Treasury boss and two-time tax cheat, Timothy Geithner, effectively removed the cap on how much more money could be poured into Fannie and Freddie.

The Obama administration pledged on Thursday to back beleaguered mortgage finance giants Fannie Mae and Freddie Mac no matter how big their losses may be in the next three years.

It also jettisoned a demand that the two companies cut the size of their mortgage-related investment portfolios next year, allowing them to provide even more support in the near term for a housing market recovering from its worst slump in decades.

Fannie and Freddie are still holding these toxic assets and not only is there not any incentive for them to shed them so we can begin a true recovery in the housing market there is not any incentive for them to continue bad lending practices.

Why we are even bothering holding these hearings is a mystery to us.