Tag: GM

  • Auto Bailout

    Posted by

    Adam Levitin

    TARP funds are now going to be used to bail out the auto industry.  Whether or not this is ultimately a good or responsible idea is something that I will reserve comment on for now.  The loans' term sheet isn't out yet, but it's outlines are being reported:  $13.5bn now, callable on March 30 (conveniently on the Obama administration's watch) if the automakers haven't reduced their debt by 2/3s (including via deb/equity swap–shareholders will get diluted) and worked out a competitive labor deal.

    The idea animating these bridge loans is that the exploding deadline will force the automakers and their major creditor constituencies–labor, secured creditors, suppliers, dealers, and bondholders–to work out a restructuring.  That's a nifty move, but it is a gamble, and as I explain below, it is a very risky one for taxpayers. The Times reports that the loan will have priority over other creditors, which should protect taxpayers/  Only problem is that I don't know how that would be possible under existing law.     

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  • Citi and GM

    Posted by

    Adam Levitin

    If I were a line-worker at GM, I’d be pretty pissed right now. My boss flew into DC on a private plane and came away with bupkes. Citi, on the other hand, just got a fourth big bailout. (Bailout 1: Bear Stearns; Bailout 2: AIG; Bailout 3: TARP preferred share investment; Bailout 4: the Citi-specific bailout. The first two bailouts propped up Citi and other financial institutions by protecting their counterparties.)

    What’s most troubling about the GM non-bailout and the Citi bailout is the disparity in the moral hazard angle. It seems to me that from a moral hazard perspective (and I recognize that is not the end all and be all here), we have our bailouts exactly backwards.

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