While Income Taxes Increase, Loses from 2008 Financial Bailout Likewise Grow

With the increase of income taxes at both the federal level and for many states at the start of 2013, taxpayers frustration is continuing to grow because of repercussions from the 2008 governmental bailout of many large financial institutions.

The Troubled Asset Relief Program, or TARP, is issuing a report today outlining its latest analysis of the bailout costs.  The report now indicates the loss from that bailout will top $27 billion.  The previous estimate of losses from the bailout, which was released by this organization last fall, pegged the number at $22 billion.

The $5 billion increase in losses stems from higher than expected losses the Treasury Department is incurring as it sells shares in companies that were purchased in 2008 as part of the bailout.

One of the biggest financial institutions tied to the loses is Ally Financial, which provides financing for automaker General Motors.  Ally Financial, formerly known as GMAC, received over $17 billion in bailout funds in 2008, of which it still owes almost $15 billion back to the Treasury Department.  In addition, General Motors was loaned approximately $50 million.

The report levies criticism at the Treasury Department because there is not a clear plan on how they will recoup the over $67 billion in monies still owed to them by Ally Financial and other bailed-out companies.  The report estimates the bailout of Ally Financial alone with cost taxpayers $5.5 billion, as taxpayers still technically own almost 75 percent of Ally Financial, an ownership stake that may have to be sold at a loss.

Likewise, General Motors still owes over $21 billion.  The money provided to General Motors was through the purchase of stocks.  For the Treasury Department to recoup the money provided, it would need to sell its remaining ownership stake for almost $72 per share.  However, the stock is currently trading at under $30 per share.

Timothy Massad, Assistant Secretary for Financial Stability, responded to the allegations via a letter.  While Ally Financial is not a publicly traded company, they had planned to issue stock in 2011 to repay the remaining money.  However, that plan was put on hold so Ally Financial could sell its international operations and restructure one of its subsidiaries, Residential Capital LLC, in a bankruptcy proceeding.

Massad noted that once the restructuring was complete the Treasury Department would still be able to recoup the loan by issues stock to the public or selling various assets of Ally Financial.

A representative of Ally Financial likewise indicated the restructuring was geared to allow them to repay the remaining bailout money owed in full.

The Treasury Department originally loaned approximately $413 billion to companies as a part of the 2008 bailout.  The largest single sum was $182 billion, which was loaned to Insurer American International Group.  They finished repaying the loan in 2012.

TARP is responsible for issuing quarterly reports to Congress on the status of the repayment of bailout funds.  In addition to an accounting of the monies owed and loses, TARP also highlights attempted actions of fraud.  To date, TARP has brought criminal charges against 119 people, many of whom were senior executives of companies, and civil charges against 58 people.  TARP has received convictions of 83 people.

by Mark Johnston

Mark has been a contributor to legal web sites related to bankruptcy, tax, and criminal law since 2011. He has an Accounting degree from Texas A&M University.