Behind Administration Spin: Bailout Still $123 Billion in the Red

The administration has been on a PR offensive in recent months to tell the good news about the TARP. As the Treasury Department official in charge of the TARP said at a congressional hearing yesterday, the bailout won't cost anywhere near the full $700 billion Congress authorized. In fact, many of its investments have turned a profit, and some of its most infamous bailouts -- such as the rescue of AIG -- won't end up being the tax dollar black holes [3] they once seemed sure to be.

But the true picture isn't so rosy.

ProPublica has provided a comprehensive bailout database since TARP's launch. It shows not only how much money has gone to each recipient, but how much each has paid in interest and dividend payments. With all this data, they are able to clearly show how deep in the hole the program remains. And the answer as of today is $123 billion.

Add that to the bailout of Fannie Mae and Freddie Mac -- which the site also tracks and is separate from the TARP -- and taxpayers are $257 billion in the hole.

Freddie Mac posts $4.1B loss for Q3

Government-controlled mortgage buyer Freddie Mac on Wednesday posted a narrower loss of $4.1 billon in the third quarter as it asked for an additional $100 million in federal aid - substantially less than the $1.8 billion it sought in the second quarter.

Freddie Mac’s loss attributable to common stockholders for the July-September quarter works out to $1.25 a share. It takes into account $1.6 billion in dividend payments to the government. It compares with a loss of $6.7 billion, or $2.06 a share, in the third quarter of 2009.

The government rescued McLean, Virginia-based Freddie Mac and sibling company Fannie Mae nearly two years ago to cover their losses on soured mortgage loans, and it estimates the bailouts will cost taxpayers up to $259 billion.

That’s nearly twice the $133 billion Fannie and Freddie are in line to receive from taxpayers so far and would make theirs the costliest bailout of the financial crisis.

Read More: MBJ

Freddie Mac narrows loss, but firm needs more government aid

Mortgage finance giant Freddie Mac said Monday that its loss in the second quarter narrowed but that taxpayers would still be on the hook for the foreseeable future.
Freddie's loss in the three-month period ended June 30 was $4.7 billion, compared with $6.8 billion in the first quarter.

As a result of the losses, Freddie will need $1.8 billion in government aid on top of more than $60 billion already provided by taxpayers.

Freddie's quarterly loss resulted from the company's decision to set aside more money to cover losses on home loans that are not being paid off. The Reston company is also losing money as it restructures mortgages for borrowers who can't afford the monthly payments, part of the Obama administration's efforts to reduce foreclosures.

"Freddie Mac continues to support the still-fragile housing market by providing America's families with access to affordable home financing and foreclosure alternatives," chief executive Charles E. Haldeman Jr. said in a statement. "We recognize that high unemployment and other factors still pose very real challenges for the housing market, and with that in mind, we continue to focus on the quality of the new business we are adding to our book to be responsible stewards of taxpayer funds as we support the nation's housing market."

The federal government stepped into Freddie and its larger rival, Fannie Mae, two years ago. Now, it is government decisions that are driving a good bit of the companies' losses.

Since then, they have been run by government overseers who have told the companies to help carry out the Obama administration's housing policy. They have focused on continuing to guarantee mortgages to keep interest rates low and on reworking unaffordable home loans so borrowers can avoid foreclosure. The federal government has pledged to keep the companies solvent.

The firms are also paying steep dividends to the government in return for the aid. The dividend rate, 10 percent, is far more than the companies would pay to raise money in the capital markets.

After the latest round of assistance, Freddie will be required to pay $6.4 billion in annual dividends to the government. "This dividend amount exceeds the company's annual historical earnings in most periods," Freddie said in a statement. "Freddie Mac expects to request additional draws under the Purchase Agreement in future periods."

Fannie is facing a similar challenge. The D.C.-based firm reported a $1.2 billion loss last week.

The dividends are forcing Fannie and Freddie to borrow money from the Treasury to repay taxpayers, creating a cycle of ever-increasing demands for government infusions of money and dividend payments.

The Obama administration and Congress are beginning to devise a new housing finance system to replace Fannie and Freddie. No decisions about the future of U.S. housing policy have been announced.

WP

Despite The Spin: Still Government Motors

From Forbes:

GM is paying back Uncle Sam to shake him down for more money.

GM CEO Ed Whitacre announced in a Wall Street Journalcolumn Wednesday that his company has paid back its government bailout loan "in full, with interest, years ahead of schedule." He is even running TV ads on all major networks to that effect--a needless expense given that a credulous media is only too happy to parrot his claims for free. Detroit Free Press' Mike Thompson, for example, advises bailout proponents to start "warming up their vocal chords" to jeer their opponents with chants of "I told you so."

But before belting out their victory aria, GM-boosters ought to hear the whole story--not just the fairytale version about Government Motors' grand comeback that Mr. Whitacre is feeding them.

But when Mr. Whitacre says GM has paid back the bailout money in full, he means not the entire $49.5 billion--the loan and the equity. In fact, he avoids all mention of that figure in his column. He means only the $6.7 billion loan amount.


But wait! Even that's not the full story given that GM, which has not yet broken even, much less turned a profit, can't pay even this puny amount from its own earnings.

As it turns out, the Obama administration put $13.4 billion of the aid money as "working capital" in an escrow account when the company was in bankruptcy. The company is using this escrow money--government money--to pay back the government loan.

GM claims that the fact that it is even using the escrow money to pay back the loan instead of using it all to shore itself up shows that it is on the road to recovery. That actually would be a positive development--although hardly one worth hyping in ads and columns--if it were not for a further plot twist.

Sean McAlinden, chief economist at the Ann Arbor-based Center for Automotive Research, points out that the company has applied to the Department of Energy for $10 billion in low (5%) interest loan to retool its plants to meet the government's tougher new CAFÉ (Corporate Average Fuel Economy) standards. However, giving GM more taxpayer money on top of the existing bailout would have been a political disaster for the Obama administration and a PR debacle for the company. Paying back the small bailout loan makes the new--and bigger--DOE loan much more feasible.


In short, GM is using government money to pay back government money to get more government money. And at a 2% lower interest rate at that. This is a nifty scheme to refinance GM's government debt--not pay it back!

GM boasts that, because it is doing so well, it is paying the $6.7 billion five years ahead of schedule since it was not due until 2015. So will there be an accelerated payback of the rest of the $49.6 billion investment? No. That goal has been pushed back, as it turns out.

In order to recover that investment, the government has to sell its equity. It plans to do that only when GM becomes a publicly traded company once again. GM was hoping to turn a profit by the end of 2010 and float an initial public offering this winter. However, GM Chief Financial Officer Chris Liddell, when queried about that timeline a few days ago, demurred. The offering will be made, he said, "when the markets and the company are ready."

(Take that, taxpayers!)