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Your Bailout Questions Answered: A Reddit Chat with Paul Kiel

Bailout protesters gather outside of the New York Stock Exchange, Oct. 24, 2008. (Spencer Platt/Getty Images)

The bailout has become a prominent talking point during the Democratic National Convention this week, with former Ohio Gov. Ted Strickland praising President Obama for having “saved the American auto industry” and Vice President Joe Biden boiling Obama’s record down to nine words: “Bin Laden is dead and General Motors is alive.”

GM may be alive, but as our Bailout Tracker database shows, taxpayers are still $27 billion in the hole on GM’s bailout. And they’re not the only ones — hundreds of companies (mostly banks) still haven’t repaid their TARP funds.

 

So who’s in the red? And what is the current status of GM’s bailout? Take a look at our refreshed Bank Tracker app, then join financial reporter Paul Kiel tomorrow for a Reddit chat on the bailout. Kiel will answer almost anything about the Troubled Asset Relief Program (he’s also an expert on the foreclosure crisis and Fannie Mae/Freddie Mac bailout).

UPDATE: Thanks to everyone who tuned into our Reddit chat on the bailout. If you missed it, we've compiled highlights below. 

Which instruments used in TARP would you say were most quickly deployed and most effective? —NorbitGorbit

It will help to remember what happened back in the fall of 2008. (Here's a timeline of major bailout events on our site.) The sky was falling, and the Bush administration got the TARP through Congress. The basic idea of the TARP was that the government would go and buy up about $700 billion worth of crappy mortgages in order to shore up the banks and the rest of the financial system. But shortly after TARP passed, the Bush administration changed its mind. It would take too long to do that. So they decided instead to just invest lots of cash directly into the banks. Those were the first investments under the TARP. Those were effective in the sense that they had the immediate effect of stabilizing the largest banks, at least for a couple months. They had to give Citi and BoA an additional $20 billion shortly thereafter.

The auto bailout took longer to carry out since it's just more complicated to put a company through bankruptcy, but I think they were undeniably successful in that GM and Chrysler are alive and well. You didn't ask, but I'll go ahead and say that the foreclosure prevention programs have been probably the least effective. — Paul Kiel

How much was borrowed by GM and how much was paid back? — viaalockdown

Currently, the government is $27 billion in the hole on GM. … The government is not going to sell all at once on any stock, but it has been quite awhile since they sold their last batch (2010). One reason surely is that the stock has been down since then. There's also the natural suspicion that the administration would rather not realize that loss shortly before an election.

Now that the banks are out of their hole, does it seem likely that they will change their ways in the private sector without insistence from the government?— via snelsonian

To me, the most striking thing is how the banks were treated with regard to foreclosures. The biggest mortgage servicers are Bank of America, Wells Fargo, JPMorgan Chase, and Citi. In early 2009, the government had them over a barrel. Bank of America and Citi specifically required a second bailout to keep going.

But the foreclosure prevention plan that the Obama administration came up with (the Bush administration hadn't done anything) was a voluntary program for the banks. They signed up, agreed to follow some rules for how they handled homeowners, and they'd receive subsidies for doing so. There was no provision for penalties or anything like that if they didn't actually help people. And, predictably, the program has been a huge disappointment. — Paul Kiel

First bankers are risky with the people who put their money in the banks. They lose it on failed mortgages, businesses, etc. Then they get bailed out. How can we fix this system?— via random5guy

To bring it back to the TARP, I will say that one big criticism -- I reference Neil Barofsky (who was the inspector general for the TARP before) in my story today -- is that the TARP essentially preserved the system as it was rather than doing anything to really change it. — Paul Kiel

Now that we've avoided the nationalization problem, what prevents banks from getting into this situation again? — via snelsonian

To keep on the issue of foreclosures, I do think the government could have had a much firmer hand without it being anything like a takeover. Just providing the power to issue significant penalties if the banks didn't prevent enough foreclosures would have been an example.

Separately, the Obama administration and Congress did put some strictures on the money after the fact, specifically with regard to executive salaries. Your broader point of “what's changed?” is a valid one. The administration managed to pass Dodd-Frank, which has some provisions meant to address the too-big-to-fail problem, but it certainly wasn't a sea change! — Paul Kiel

 
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