Despite government bailouts, flaws still abound
Photo credit: AP Photo/Mary Altaffer | FILE - In this Sept. 25, 2008 file photo, Dara Blumenthal, of Brooklyn, holds up a sign during a rally against Wall Street bailout in front of the New York Stock Exchange in New York. (AP Photo/Mary Altaffer, file)
Call it the year of the bailout.
Over the past year the federal government coughed up $700 billion to rescue financial firms, earmarked $75 billion to avert home foreclosures and came up with $38.5 billion after two auto companies filed for bankruptcy.
Twelve months later things are looking better, experts say. Banks are eager to pay back the money that helped them bear the weight of toxic mortgage assets - even partly because they want to get away from government oversight. The auto industry did well with the Cash for Clunkers program, which generated nearly 700,000 new-car sales in a month. And thousands of eligible homeowners are seeing mortgages modified.
"A year has passed since the crisis peaked. There is little doubt that we have moved back from the financial brink and toward economic recovery," Treasury Secretary Timothy Geithner told a congressional committee this week. "But make no mistake: The flaws in our financial system and regulatory framework that allowed this crisis to occur, and in many ways helped cause it, are still in place."
Here is an update on the various bailouts:
Banks
In the financial industry the bailout money "had an impact, and it did stabilize the system," said Roberta Schroder, chairwoman of the economics and finance department at Nassau Community College. But initially "a regulatory safety net was not set up when the money was given out . . . there was no signal they had to change the ways they did business."
In the coming months, she said, look for Congress to work on legislation to overhaul the financial system and strengthen consumer protections.
Homeowners
In March the Treasury Department announced the $75-billion Home Affordable Modification Program to help eligible borrowers modify loan terms and stay in their homes.
"We have seen a definite uptick in resolutions by servicers - there's no question about it," said Marianne Garvin, president and chief executive of the Community Development Corp. of Long Island in Centereach.
But she sees new problems, including an increasing number of unemployed homeowners seeking help with mortgages that don't fall under federal guidelines for modification, and a reduction in federal funding for foreclosure-prevention counseling.
Autos
Earlier this year General Motors and Chrysler entered and emerged from bankruptcy, with the U.S. government now owning stakes in each.
But the automakers' viability rests on more than cash infusions or cutting brands and jobs, which are all part of "painful restructuring," said Deborah Mitchell, executive fellow at the Center for Brand and Product Management at the University of Wisconsin School of Business at Madison. "You can even cut to the bone to make them more efficient. But if you can't turn around consumer perception, you will die. It will not work."
So, she said, she'll be looking at what automakers do to shift consumer views. So far, new advertising has been old-school and not relevant to the Twitter generation, she added.
The problem? No one told the auto companies, "You have to bring in a Steve Jobs to reinvent the demand side."Bailout: Where are We?
Banks
Government ponied up $700 billion to keep troubled banks afloat.
Citigroup and Bank of America each received $45 billion.
Banks have been eager to pay money back to get out from under government oversight.
After "stress tests" to determine viability, more than 30 firms have paid back $70 billion.
NEXT: Legislation to strengthen industry supervision and beef up consumer protection.
Autos
In December, Chrysler and GM got government bridge loans for $4 billion and $13.4 billion, respectively. In the spring they received another $280 million and $6.36 billion, respectively.
Government provides $30.1 billion to GM and $8.5 billion to Chrysler, after their bankruptcy filings
U.S. owns 61% of GM and 8% of Chrysler
Cash for Clunkers program cost the government $2.88 billion
NEXT: It's unclear how the program affects future sales, with consumers who would have bought cars later this year or next already driving new fuel-efficient models.
Homeowners
45 mortgage servicers are participating in the $75-billion Home Affordable Modification Plan to rework loans. Program is designed to help 3 million to 4 million at-risk homeowners avoid foreclosure. To date, over 360,000 trial modifications are under way.
NEXT: The government has asked servicers to speed the process by increasing resources, hiring staff. Servicers have agreed to a target of 500,000 modifications by Nov. 1.
comments