Treasury Defends Plan to Make Banks Pay for Auto Bailout Losses

WASHINGTON - The nation's banks told the Senate Finance Committee that it is unfair to make them pay for taxpayer losses on the automotive bailout. The Obama administration and some congressional Democrats want to impose a new fee or tax on the nation's largest financial institutions to cover any losses from the $700 billion Wall Street and auto bailout fund known as the Troubled Asset Relief Program, The Detroit News reported. The auto industry has received an $85 billion bailout, and the administration's most recent estimate says it expects to lose $28 billion. But the Treasury Department will update that estimate later this month. Treasury Secretary Timothy Geithner also defended the government's proposal. "Banks should pay for the cost of bank failures -- not taxpayers," Geithner testified. General Motors Co. and Chrysler Group have received about $62 billion in government bailouts. If taxpayers lost money on either investment, banks would be required to make up those losses. Geithner says GM and Chrysler shouldn't be covered by the fee because they have already been restructured in bankruptcy. "The auto companies are a different case," Geithner said. "Despite the many mistakes they made over time managing those businesses, they did not cause this financial crisis. Their challenges were made substantially worse by this financial crisis." He said Treasury didn't think "it was necessary or appropriate" to apply the tax to the automakers. Geithner said GM and Chrysler are in a "much stronger position today than any of us expected." But the new tax would apply to Detroit-based GMAC Inc., Geithner said. GMAC, which will be renamed Ally Bank next week, has received a $17.2 billion bailout and is 56.3 percent owned by the U.S. Treasury. The Obama administration said the new tax would raise $90 billion over 10 years. "We question why the financial industry should be asked to pay for TARP losses attributable to other industries," said Steve Bartlett, president and CEO of the Financial Services Roundtable. James Chessen, chief economist for the American Bankers Association, testified that if the TARP program had been limited to financial institutions, "there would be no losses." He said it was "unfair" for banks to have to cover the losses of automakers. Sen. Orrin Hatch, R-Utah, questioned why banks that didn't receive government bailouts are also covered. He said the tax wouldn't be fair because it would not cover GM, Chrysler and Fannie Mae and Freddie Mac. Sen. Charles Grassley, R-Iowa, a harsh critic of GM's recent advertisements that touted its repayment of $6.7 billion in loans, asked Geithner why GM isn't returning unused government bailout funds that had been in escrow. On April 21, the Treasury gave GM unrestricted use of $6.6 billion in unused government bailout funds. "Why shouldn't GM return the funds to the U.S. government?" Grassley asked. Grassley and other Republicans have been angry that GM hasn't emphasized that the Treasury Department swapped $43 billion in loans for a 61 percent majority equity stake in GM. Grassley and others have criticized GM ads that featured GM CEO Edward Whitacre Jr.; the ads stopped running last week. A conservative think tank, the Competitive Enterprise Institute, filed a complaint with the Federal Trade Commission over the ads today, asking the agency to investigate. GM has defended the ads and even Grassley has acknowledged they were "technically accurate." Sen. Debbie Stabenow, D-Lansing, said the automakers shouldn't be covered by the new fee. Automakers were hurt by the frozen credit markets and didn't engage in reckless behavior as banks did, Stabenow said. She called it "apples to oranges" to apply the fee to automakers.