This is a rush transcript from "Your World With Neil Cavuto," July 19, 2010. This copy may not be in its final form and may be updated.
NEIL CAVUTO, ANCHOR: Well, a rush job costing jobs. I said it. Now the inspector general overseeing the bailout saying it. Him in a moment — me first:
(BEGIN VIDEO CLIPS)
CAVUTO: I’m no fan of bailouts for anyone, big financial firms that screwed up how they handle their money, big auto companies that now just can’t make money.
We do have bankruptcy, you know, Congressman. And when you put the fear of God into people and say, do this or else, why should we give money to an industry that’s going through that cash faster than me bakery products on a Ponderosa buffet line?
(END VIDEO CLIPS)
CAVUTO: Well, here with me now, Neil Barofsky, the inspector general for the government’s $700 billion financial bailout fund, he, of course, a stranger to anything bakery on any Ponderosa line.
But, Neil, bottom line, the gist of your report that has got the White House in dithers and others supporting TARP in dithers is that there were some problems with the rush. Explain.
NEIL BAROFSKY, TARP SPECIAL INSPECTOR GENERAL: Well, basically as part of the bailout of GM and Chrysler, they were required to come forth with their plan on how they were going to maintain and stay viable.
And GM, for example, put forth its plan and said, we’re going to close a number of dealers, about 1,600 dealers, and we’re going to do it over the course of five years. And we think that’s important for us.
And the administration, the Treasury Department’s auto team, rejected that. And they said they rejected it. They said the pace was too slow, and they sent GM back, said, you have got to fix this proposal, as well as other parts of the proposal for them to retain viability, before they could get additional government money.
And, after they did that, after they publicized that determination, not surprisingly, GM and Chrysler both came back with highly accelerated termination schedules that used bankruptcy to get around state franchise laws to close more than 2,000 dealers.
And basically what our audit did was, we looked into the decision-making for that process, and we found that, one, they really didn’t do the necessary diligence, the necessary review to make the determination that it would be necessary for the auto dealers — for the auto companies’ ongoing viability for them to have to accelerate these terminations.
And, second, they didn’t even consider the broader economic impact, the fact that potentially up to 100,000 jobs could be in jeopardy, that 2,000 businesses could be shuttered at the time of the greatest recession in generations. At the same time...
CAVUTO: Well, they turn it around, Neil — one at a time — I will get to Chrysler and GM — that the proof’s in the pudding. It worked. The industry is viable today and a lot of jobs are saved. That’s their view.
Now the White House statement on this: "The steps that the administration took prevented" — this is from the White House — "the almost certain liquidation of those companies and saved hundreds of thousands of jobs across multiple industries."
What do you say to that, Neil?
BAROFSKY: Well, I think that’s accurate, but it misses the point.
The question isn’t whether giving $80 billion to GM and to Chrysler and to their auto finance companies, whether that saved those companies and kept them from going out of business. There’s no question about that. The question this audit raises is a different one. Was it necessary to order, to direct, to make as a condition of additional money to encourage GM and Chrysler to terminate thousands of businesses?
And, from our review, before they made that decision, they simply did not do the necessary diligence to be sure that that was necessary for their viability. And the fact is that hundreds of dealers have been reinstated through arbitration and through unilateral decisions from the companies. And the companies think that they’re just going to be fine. So, clearly, they overshot, to a certain extent.
CAVUTO: But they also predicted that they would be fine, but they proposed, even if, as I said, a court would dispose, right?
BAROFSKY: No, and that’s the point here.
And to sort of say that, OK, because they didn’t go out of business, therefore, it would have been necessary to accelerate these terminations, it just doesn’t make sense. And even during out audit, we spoke to the head of the auto team. And he even acknowledged this wasn’t essential for them, that the auto companies wouldn’t have failed completely had they not accelerated these terminations of dealerships.
CAVUTO: Well, let me ask you about that. I know you had to look at just the raw numbers and whether they produced the savings thought. But what about the quality of those jobs, in other words, what dealerships were closed and for what reason? At the time, there were a lot of criticisms that these were politically motivated. Did you find anything of that sort?
BAROFSKY: No, not at all. We saw no indication that the auto team was in any way involved in the actual selection of which dealerships got closed and which ones remained open.
CAVUTO: Did you find it odd that some — we’re going to talk to one dealer who had a very successful dealership who just was arbitrarily shut down for reasons to this day he can’t figure — but you hear stories like that.
Now, I don’t know whether they’re a significant plurality or a majority or what have you, but I heard a lot of stories like that. What was the method to the shutdown madness?
BAROFSKY: Well, that’s one of the problems that we detail in this report.
GM said that they were going to have a very objective process, and it just wasn’t. They didn’t follow that process at all. Chrysler actually acknowledged they had a very subjective process and they acknowledged that they shut down highly profitable dealers.
There’s one that’s detailed in the report who was leading his market, was selling more Jeeps, more vehicles than any other Chrysler-related dealer in that market. He got shut down basically because he wouldn’t play ball. He wouldn’t allow other Jeep dealers to be added within his radius under his franchise agreement. So they used it, with Treasury’s full encouragement, to use the bankruptcy law to throw him out.
CAVUTO: There’s still hundreds of billions of TARP dough left over. I hear from a lot of powers that be in Congress that Congress can decide any venue that they a choose for that money and any cause for that money.
Does TARP have a purpose anymore, or is it just a credit line?
BAROFSKY: Well, I think it’s about to be — the ability to initiate new programs is likely going to get shut down this week.
As part of the financial regulatory reform, it cuts the number for TARP down from $700 billion to $475 billion. Right now, the commitments are in excess of $475 billion. So, Treasury is going to need to trim some of its existing...
CAVUTO: Yes, but you can use that money for a variety of purposes, right? Let’s say you have an existing program there. You can add to that existing program, right, as long as it’s not a new program?
BAROFSKY: Absolutely. As long as it’s not a new program, up until the cap of $475 billion.
CAVUTO: Man, oh, man, the gift that keeps giving.
Neil Barofsky, always good seeing you. Thank you very much.
BAROFSKY: Thank you, Neil.
CAVUTO: Neil Barofsky.
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