Monday
Jul272009
Congressional Panel Scrutinizes Use Of Auto Bailout Funds
Monday, July 27, 2009 at 1:29PM
By Learned Foote- Talk Radio News Service
Representatives from GM, Chryler, and the White House’s auto-task force defended the bailout of the two auto manufacturers and their subsequent use of TARP funds during a hearing Monday with Congressional Oversight Panel held in Detroit, Michigan.
Walter Borst, Treasurer of the General Motors Company, said that “we are grateful for our nation’s support,” and promised that the “new GM will repay our nation’s investment.” He noted that GM is a “new company with less debt, a stronger balance sheet, with the right size manufacturing, products, and dealer network to match today’s market realities.”
Borst emphasized that “both the Obama and Bush administration made it quite clear that they were reluctant investors. We were equally reluctant recipients.” Ron Bloom, the head of the Obama administration’s auto task-force, said that “every creditor will almost certainly receive more than they would have had the government not stepped in.”
Bloom illustrated the main principles by which the government is operating in its partial ownership of the auto companies. He said that the government “has no desire to own equity in companies any longer than necessary,” it will manage its “ownership stake in a hands-off, commercial manner” and “will only vote on core governance issues, including the selection of the company’s board of directors.”
Committee Chairman Elizabeth Warren, a bankruptcy expert who teaches at Harvard Law, questioned when the federal government will relinquish ownership of the auto companies, asking, “When can we expect to see some timelines?” Bloom responded that “the decision has been made to not articulate a specific timeline.” Bloom noted that presenting a timeline would “create an overhang in the market that would be deleterious to receiving the best price,” but the government will act “as soon as is practicable.”
Warren also asked why the leadership of financial institutions had not been altered as drastically as the leadership of the auto companies, but Bloom said his “sole focus...has been on the auto companies.” “I’ve had my hands full trying to wrestle with two very large troubled auto companies. That takes up 21 hours of the day,” he said.
Bloom stated that his tasks include three priorities, including financial and operational restructuring, as well as a “third leg...the cultural change,” which included establishing a new board of directors, which will be made up of “people of extraordinary accomplishment in the private sector, people who have had experience effectuating turn-around.”
Rep. Jeb Hensarling (R-Texas) adopted a critical tone towards the actions taken by the Obama administration. Hensarling argued that TARP was “ostensibly designed for financial firms, [and it] is clearly now being used to rescue auto manufacturers.” He added that the fund “now appears to be nothing more than a 700 billion dollar revolving bailout fund used to promote the administration’s political, social, and economic goals.” He also argued that senior bondholders were set aside and “junior creditors like the UAW [United Auto Workers]...were given far more preferential treatment.” He said that he worried that the Treasury Department would “politicize our economy and hinder our economic recovery.”
Hensarling asked whether it was “wise economic policy” to subsidize GM and Chrysler while Ford, who had reported financial trouble in 2008, functions without federal assistance. In response, Bloom said that Ford officials supported the bailout of the other two auto companies.
Representatives from GM, Chryler, and the White House’s auto-task force defended the bailout of the two auto manufacturers and their subsequent use of TARP funds during a hearing Monday with Congressional Oversight Panel held in Detroit, Michigan.
Walter Borst, Treasurer of the General Motors Company, said that “we are grateful for our nation’s support,” and promised that the “new GM will repay our nation’s investment.” He noted that GM is a “new company with less debt, a stronger balance sheet, with the right size manufacturing, products, and dealer network to match today’s market realities.”
Borst emphasized that “both the Obama and Bush administration made it quite clear that they were reluctant investors. We were equally reluctant recipients.” Ron Bloom, the head of the Obama administration’s auto task-force, said that “every creditor will almost certainly receive more than they would have had the government not stepped in.”
Bloom illustrated the main principles by which the government is operating in its partial ownership of the auto companies. He said that the government “has no desire to own equity in companies any longer than necessary,” it will manage its “ownership stake in a hands-off, commercial manner” and “will only vote on core governance issues, including the selection of the company’s board of directors.”
Committee Chairman Elizabeth Warren, a bankruptcy expert who teaches at Harvard Law, questioned when the federal government will relinquish ownership of the auto companies, asking, “When can we expect to see some timelines?” Bloom responded that “the decision has been made to not articulate a specific timeline.” Bloom noted that presenting a timeline would “create an overhang in the market that would be deleterious to receiving the best price,” but the government will act “as soon as is practicable.”
Warren also asked why the leadership of financial institutions had not been altered as drastically as the leadership of the auto companies, but Bloom said his “sole focus...has been on the auto companies.” “I’ve had my hands full trying to wrestle with two very large troubled auto companies. That takes up 21 hours of the day,” he said.
Bloom stated that his tasks include three priorities, including financial and operational restructuring, as well as a “third leg...the cultural change,” which included establishing a new board of directors, which will be made up of “people of extraordinary accomplishment in the private sector, people who have had experience effectuating turn-around.”
Rep. Jeb Hensarling (R-Texas) adopted a critical tone towards the actions taken by the Obama administration. Hensarling argued that TARP was “ostensibly designed for financial firms, [and it] is clearly now being used to rescue auto manufacturers.” He added that the fund “now appears to be nothing more than a 700 billion dollar revolving bailout fund used to promote the administration’s political, social, and economic goals.” He also argued that senior bondholders were set aside and “junior creditors like the UAW [United Auto Workers]...were given far more preferential treatment.” He said that he worried that the Treasury Department would “politicize our economy and hinder our economic recovery.”
Hensarling asked whether it was “wise economic policy” to subsidize GM and Chrysler while Ford, who had reported financial trouble in 2008, functions without federal assistance. In response, Bloom said that Ford officials supported the bailout of the other two auto companies.
Oversight Panel Criticizes Mortgage Modifications For Falling Short
By Kyle LaFleur
The Congressional Oversight Panel held a meeting Wednesday to discuss the Treasury Department’s role in foreclosure mitigation programs under the Trouble Asset Relief Plan (TARP). The Treasury Department, which was represented by the department’s Chief of Homeownership Preservation Office Phyllis Caldwell, was criticized for the modest number of foreclosures prevented by these programs.
“Recently as the goal of preventing three to four million foreclosures has appeared increasingly distant, the Treasury has redefined as saying the goal now is offer temporary mortgage modification to three to four million homeowners,” said departing Delaware Senator Ted Kaufman (D), the panel’s chairman.
Kaufman warned that of these three million modification offers granted as few as 100,000 foreclosures would be prevented, which he felt deviated the program’s measurement of success from the ultimate goal of keeping homeowners in their homes.
“In many ways its like a major league baseball batter pledging to swing at every pitch,” Kaufman said. “What matters is not how often you swing, what matters is how often you get on base.”
In defense of the Treasury, Caldwell highlighted the Home Affordable Modification Program (HAMP) which was unveiled in 2009 and aids homeowners in bankruptcy by allowing them to modify their mortgage before they fall under foreclosure. Caldwell said the program has given struggling homeowners relief, used tax money efficiently and transformed the operations of the entire mortgage system.
“In the first quarter of 2009, nearly half of mortgage modifications increased borrowers’ payments or left their payments unchanged,” said Caldwell. “By the second quarter of 2010, 90 percent of mortgage modifications lowered payments for the borrower. This means homeowners are receiving better solutions.”
According to Caldwell, it was still the department’s goal to reach three to four million homeowners with the expansion and enhancement of programs to respond to the housing crisis.
“Our programs targeting unemployment and negative equity are just underway, and we continue to focus our efforts on reaching as many homeowners as possible,” said Caldwell.
In the 18 months since HAMP was created, panel member Damon Silvers said there have only been 467,000 modifications compared to seven million homeowners struggling with the possibility of foreclosure. Silvers described this number as a good thing that unfortunately “does not appear by any means, by any measure to be good enough.”