Sweet! If the Euro collapses, US taxpayers could be on the hook for $1 trillion! Oh, yay!

December 15, 2011

You know what they say, don’t you? A trillion here, a trillion there, and pretty soon you’re taking about real money.

James Pethokoukis posts about the risks for the US taxpayer in the Euro crisis, pointing that, contra Fed Chairman Ben Bernanke (1), the US bailout of Europe is on. I’ll refer you to Pethokoukis’ article for the details, but the gist is this: the International Monetary Fund, to which the United States is far and away the largest contributor, has already loaned Portugal, Greece, and Ireland (three of the five PIIGS countries) roughly $100 billion, of which our share is $20 billion. Petty cash these days, you say? Hah! We’re not done yet…

If the two biggest PIIGS, Italy and Spain, come to the IMF trough, their needs may exceed the IMF’s reserves, so the EU has agreed to loan hundreds of billions to the IMF, which the IMF could then re-loan to Spain and Italy (2) — loans totaling as much as $1.3 trillion. (They don’t call them “PIIGS” for nothing.) Since this is a loan to the IMF, the US taxpayer would be on the hook to European lenders for roughly 17% of that amount in the event Italy and Spain default, or as much as $220 billion.

Makes you wince, doesn’t it? But wait, it gets better!

The Fed is hedging their bets via currency swaps with the European Central Bank. Supposedly, in the event of a default by the borrowers, the ECB could limit US exposure by buying dollars, even if it meant devaluing the Euro through printing as much needed. But that assumes the Euro and the ECB even survive a real crisis. If they don’t, we’re on the hook for it all.

I’ll let James summarize:

U.S. taxpayer exposure is $220 billion via the IMF. That’s scary enough. But then you have the Fed. Lachman notes that the counterparty to the potential $600 billion in swaps is the ECB and that “one must suppose that the European Central Bank would be able to buy whatever quantity of US dollars that it might need to repay the Federal Reserve.” Unless there is a complete euro collapse and then there might not be a ECB to repay anybody. So in addition to a global depression and 20 percent U.S. unemployment, America [‘s exposure] would be nearly $1 trillion.

The insanity of it all becomes clear when one realizes this is like nothing so much as giving an alcoholic another bottle of booze and trusting himself to go on the wagon later. Really. This time he’s serious.

European nations have loaned Greece billions time after time, and yet the Greeks continue their profligate social spending and never reform. And the problem is spreading, as Italian and Spanish finances near collapse. But, instead of recognizing the desperate need to find an orderly end to the Euro so that debtor nations can devalue national currencies as much as needed to grow their way out of debt via exports, they keep trying to save it by buying their way out of debt with more debt. This only delays and makes worse the inevitable end: massive defaults, bankruptcies at major banks, and social chaos.

Now we’re getting into the act in a potentially very big and very harmful (to us) way. And on top of our own horrendous debt.

There is no easy way out of the international debt crisis, but surely the way to start is to stop being stuck on stupid.

Footnotes:
(1) Sure, Ben, we won’t bail them out directly. We’ll just do it through our seat at the IMF. That makes all the difference in the world. And I bet you’ll respect us in the morning, too.
(2) Anyone else reminded of a shell game?

(Crossposted at Sister Toldjah)

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Today GM, tomorrow we bailout the world!

May 6, 2010

US taxpayers will be happy, no doubt, to learn that they’re helping to finance the Greek bailout, too.

I’m beginning to feel left out. Where’s my bailout?  Crying

(via Instapundit)


They really do think we’re that stupid

April 26, 2010

Late last week, I started seeing commercials from General Government Motors announcing to the world that GM had paid off its government loan – early and with interest. I thought that was good news, a sign that the company was recovering, jobs would be saved, and the government could unwind the majority ownership stake it had taken in the company.

Then the other shoe dropped and I realized we were being played for suckers:

Uncle Sam gave GM $49.5 billion last summer in aid to finance its bankruptcy. (If it hadn’t, the company, which couldn’t raise this kind of money from private lenders, would have been forced into liquidation, its assets sold for scrap.) So when Mr. Whitacre publishes a column with the headline, “The GM Bailout: Paid Back in Full,” most ordinary mortals unfamiliar with bailout minutia would assume that he is alluding to the entire $49.5 billion. That, however, is far from the case.

Because a loan of such a huge amount would have been politically controversial, the Obama administration handed GM only $6.7 billion as a pure loan. (It asked for only a 7% interest rate–a very sweet deal considering that GM bonds at that time were trading below junk level.) The vast bulk of the bailout money was transferred to GM through the purchase of 60.8% equity stake in the company–arguably an even worse deal for taxpayers than the loan, given that the equity position requires them to bear the risk of the investment without any guaranteed return. (The Canadian government likewise gave GM $1.4 billion as a pure loan, and another $8.1 billion for an 11.7% equity stake. The U.S. and Canadian government together own 72.5% of the company.)

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.

So how is it paying it?

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.

In other words, they used their Visa to pay off their American (Taxpayer) Express. Pardon my language, but this is bullshit.

The American people are still bailing out a company that should have been allowed to go bankrupt, the US and Canada still own nearly three-fourths of the company, and not a dime has been repaid. All they did was move money from one pocket to the other.

And the worst part is that Treasury and their lackeys at GM think we’re such gullible children that we wouldn’t see this for the insulting con game it is.

Congratulations, guys, you’ve given us something else to remember in November.

LINKS: Sister Toldjah, Dan Mitchell, Hot Air, Fausta, Power Line (and here).

RELATED: Senator Grassley is not amused.


Cash for clunker mortgages?

January 8, 2010

On Larry Kudlow’s show, Dan Mitchell of the libertarian Cato Institute and Christian Weller of the progressive Center for American Progress go head to head to answer Kudlow’s question about the money spent on the Obama administration’s mortgage-adjustment program: What do we have to show for $75 billion?

The plan to adjust mortgages is a failure: with the economy showing no real sign of improving and unemployment getting worse, thousands of homeowners still cannot afford their newly adjusted mortgages. What’s the statist, progressive answer? More intervention by the government! Mr. Weller and a banker quoted early in the clip advocate forgiving principle and using government power to coerce banks into, essentially, breaking contracts. This, of course, after government helped create the problem by using its coercive powers to push banks into making loans to marginal borrowers and then making it easy by guaranteeing those same bad loans.

In other words, the answer is more cowbell!

Watch the video. You will never see a clearer divide between the free-market and statist paradigms.

And, like Larry, I want my $75 billion back.  Not talking

RELATED: Is Ginnie set to join Fannie and Freddie in the poor house?


We don’t need no steenking bailout!

July 23, 2009

Unlike GM and Chrysler, Ford refused the crack turned down the federal bailout money. Unlike GM and Chrysler, Ford managed to adapt and stay out of bankruptcy court and didn’t need President Obama to rip off bondholders.

And, unlike GM and Chrysler, Ford has managed to turn a profit. Imagine that.

Helped by a lightened debt load, Ford Motor Co. posted a surprise second-quarter profit of $2.8 billion Thursday, following the worst loss in company history a year earlier. Shares rose more than 6 percent in morning trading.

The net profit ends a string of four straight quarterly losses for the nation’s second-largest automaker, which has gained U.S. market share at the expense of crosstown rivals Chrysler Group LLC and General Motors Co., both of which spent time under bankruptcy court supervision. Ford last went into the black in the first quarter of 2008, with net profit of $70 million.

However, excluding its debt reduction and other items, Dearborn, Mich.-based Ford would have reported a quarterly loss, though smaller than Wall Street expected.

Okay, so GAAP accounting rules helped create the profit. Ignore them. Even the smaller-than-expected loss is a good sign, often the first in a genuine turnaround.

It’s also a sign that sound business practices and making cars people want to buy is better than becoming Congressional Motors: