So Much Misinformation

No BS Weekly Update  2/27/2012

QOTD

Dear  ,

So Much Misinformation

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Here was the response from one guy that amazed me.  "My facts are Chrysler has paid back their money, I don't think that is much of a secret and we have been paid by GM some of the money while we still own shares, which will most likely end up with us getting a profit."  "GM has also made every re-payment on time since this happened. This is not to mention Chrysler has already paid us back. In fact, we will make money on the GM deal."  "Not $13,466,757,290.22. A number pulled from someone's axx."   

So the question is what is the truth?  We'll get to that in a moment.  Before getting to that I want to point out that this article is not addressing the issue of whether it was a good idea or not, we'll leave that to another time.  Today we are just looking at whether the American Taxpayer is making money on the auto bailout or losing.

 
First as to whether it is true or not.  Let me give you links to three articles and some of the relevant passages.

http://wot.motortrend.com/new-report-says-treasury-will-lose-23-77-billion-on-bailouts-of-chrysler-gm-163223.html#ixzz1nPSMFPXT 

"In a report to Congress, the U.S. Treasury has said it expects to lose even more money on bailouts of domestic automakers than previously expected. According to The Detroit News, the Treasury now expects to lose $23.77 billion on the $85 billion bailout package, up from the $23.6 billion loss predicted in fall 2011."

"The Treasury also expects to lose about $1.3 billion on its bailout of Chrysler Group. Last summer, new owner Fiat paid $625 million to buy out the remaining Chrysler shares held by the U.S. and Canadian governments. However, another $1.3 billion is still owed by the since-dissolved "Old Chrysler" and has been written off as a loss by the Treasury." 

http://money.cnn.com/2011/07/21/autos/chrysler_government_exit/index.htm 

"U.S. taxpayers likely lost $1.3 billion in the government bailout of Chrysler, the Treasury Department announced Thursday." 

http://www.nydailynews.com/news/election-2012/fact-check-presidential-candidates-michigan-squirm-explain-auto-bailout-stances-article-1.1026187 

"Chrysler and Fiat have paid back all but $1.3 billion of Chrysler's $12.5 billion bailout -- with taxpayers likely to be out the rest." 

"The government has recouped more than $22 billion of its nearly $50 billion GM bailout, after agreeing to take stock in return for most of its investment. The government would get an additional $13.5 billion if it sold its remaining stock at current value. It is waiting for the stock price to rise before doing so, meaning the final cost to taxpayers is unknown." 

So if we go with the January report to Congress by the U.S. Treasury (who I think would be the ones to really know), the government says that they expect to lose $23.77 Billion on the auto bailouts.  If we use the numbers from the NY Daily News "Fact Check" article we get a loss of $15.8 Billion.   

Now to be fair it is possible that the government could make a profit on the deal so we have to take a realistic look at whether that will happen or not.  GM is currently trading in the $26 range.  It would have to trade in the $54 dollar range just to break even.  GM initially traded in the $33 range when it emerged from "bankruptcy" in Nov. 2010.  It rose to a high of 38.98 on January 7, 2011 and has trended down to just below $20 in December of 2011.  GM just reported record profits for 2011 but if you analyze the report you find that while North America was profitable, Europe continues to be unprofitable and South America which had been profitable swung over to the unprofitable side.  So in my view it doesn't look likely to happen.

Either way the facts are that in its latest report to Congress the United States Treasury says that they expect to lose $23.77 Billion on the auto bailout.

 
To me the more interesting question is how do beliefs that are so factually wrong get so accepted as true.

This goes back to an issue that we have raised before.  You can't just take what you read at face value.  You have to dig a little deeper.  The sad fact is that many people just don't have the time, energy, or interest to do the research.  It's human nature to accept news stories that back up our beliefs without really checking the source material.  When you see enough headlines like these: 

Car Czar: Auto Bailouts a "Great Deal" for Taxpayers, Govt. Should Hang on to GM Stock  

Obama Treasury Celebrates Bailout Profits While Ignoring Costs, Legacy  

Geithner touts auto bailouts  

it is easy to see how you could come to believe that the bailouts were a great success and if they were a great success they must have been profitable.  Not necessarily so.  As we've said before, if you want a true sense of what is going on you have to dig. 

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Until next week , Protect Your Wealth! 

Sincerely,

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