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The Real Story Behind the U.S. Auto Bailouts

Romney's suggestion was for the government to provide guarantees to any lender that chose to provide debtor-in-possession financing to the automotive giants.

Why the guarantee?

It was November 2008, the stock market had crashed after Lehman Brothers' collapse and the country was losing heaps of jobs per month. Credit had dried up, and banks were in survival mode.

"Romney argued for private equity only, but in the depth of the recession in 2009 there wasn't any - a fact Mitt Romney knew well," the Obama campaign official said.

True, Romney must have understood this, but this is likely why he argued for private lenders backed with a federal guarantee.

The government can guarantee loans, but the problem is that if a bank doesn't have the money to lend from the start, then there's nothing to guarantee.

Appointed "car czar" Steven Rattner, who the administration tapped to lead the team that eventually devised the bailout plan for the American automotive giants, wrote in an op-ed that there wasn't any liquidity.

"I know this because the administration's auto task force, for which I was the lead adviser, spoke diligently to all conceivable providers of funds, and not one had the slightest interest in financing those companies on any terms," wrote in The New York Times in February.

Kirk Ludtke, a GM equity analyst at CRT Capital Group, said the DIP financing needed to bailout and restructure GM and Chrysler was too much for a private lender to handle.

"It was just too much money. I don't know that you could raise that much money -- if GM filed today, I'm not sure you could raise the kind of money that they needed," Ludtke said.

The government injected some $50 billion into GM and $12 billion into Chrysler in order to keep critical operations running as the companies went through bankruptcy and restructuring. That's $62 billion combined to save two automotive giants.

For some perspective, data provided by Dealogic showed all lenders had provided a combined $13.63 billion on 47 DIP deals in 2008, which was up from $10.58 billion on 16 deals in 2007. All DIP loans of 2007 and 2008 accounted for just 39% of what a lender would ultimately have needed to finance the GM and Chrysler restructurings.
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