Chrysler Group CEO Sergio Marchionne (r) escorts U.S. Treasury Secretary Timothy Geithner on a factory tour in Detroit last year.
The U.S. Department of the Treasury announced today the end of its guaranteed mortgage-backed securities (MBS) holdings, which Treasury acquired as part of its response to the financial crisis. Overall, Treasury’s MBS portfolio generated a profit of $25 billion for taxpayers.
While this is good news in a slowly recovering economy, taxpayers are still on the hook for billions upon billions advanced to Freddie Mac and Fannie Mae – up to $100 billion each in capital – to prop up their $5 trillion in outstanding mortgage debt and other obligations. An unknown amount will never be repaid, of course.
Treasury invested $225 billion in MBS during 2008 and 2009 through authority provided to it by Congress under the Housing and Economic Recovery Act of 2008. The MBS purchases allegedly helped preserve access to mortgage credit during the worst financial crisis since the Great Depression. Overall, taxpayers received total cash returns of $250 billion through sales, principal, and interest on the securities.
In March 2011, Treasury announced that it would begin the “orderly wind down” of its MBS portfolio through the gradual sale of those securities over time. Those sales were part of Treasury’s efforts to exit the emergency financial crisis response programs put in place in 2008 and 2009 after the collapse of Lehman Brothers triggered a global financial panic much to the surprise of then Treasury Secretary Hank Paulson.
This and numerous other taxpayer-financed bailouts put in place under the Bush and Obama Administrations remain controversial, and have recently become fodder for the Republican presidential candidates – all of whom oppose the successful auto company bailouts without any rational or even possible alternatives since the private capital markets were closed to auto and parts makers.
General Motors Company (NYSE: GM) posted a record 2011 calendar-year net income of $9.1 billion, with $7.6 billion of that attributable to common stockholders, or $4.58 per fully diluted share, up from $4.7 billion, or $2.89 per share, in 2010.
Taxpayers still own 32% (~27% fully diluted) of GM after the U.S. Treasury sold 28% of its holding in November of 2010 when GM returned to public trading at $33 a share Therefore, the government still has a substantial position in what remains the country’s largest as well as the world’s largest automaker measured by sales. Taxpayers also still hold 70% of Ally Financial, formerly GMAC or GM’s financing arm, which got in deep trouble with worthless housing loans during 2008.
The other bailout automaker, Fiat-owned Chrysler, also posted a profit in 2011 of $183 million. Ford Motor Company, which did not receive a taxpayer bailout but received $5.9 billion in taxpayer subsidies from the Department of Energy to retool plants, made $8.8 billion for the year.
Chrysler Fiat has paid its loans back. General Motors, which is in a recovery that may or may not generate enough market momentum near term to allow Treasury to sell its stake profitably, would love to, if for no other reason than to get out of the political mud slinging.
“The successful sale of these securities marks another important milestone in the wind down of the government’s emergency financial crisis response efforts,” said Assistant Secretary for Financial Markets Mary Miller, Treasury’s statement.
See:
- DOE Nixes Carbon Motors Loan in Taxpayer Subsidy Storm
- Ally Squeals after Flunking New Fed Capital Stress Test
- Ex President George Bush Endorses Federal Auto Bailouts
- GM Posts Record $9.1 Billion Profit in 2011 – $7.6B on Common
- Chrysler Group Posts a Modest 2011 Profit of $183 Million
