If you set the bar low enough, you'll never be disappointed. And apparently, the U.S. Department of the Treasury isn't disappointed about Chrysler. A May 17th press release maintained a positive, optimistic tone about Chrysler Financial's recent repayment of $1.9 billion of the original $4 billion bailout, even though this means that the government is still out $1.6 billion ($500 million of the loan has since been taken up by New Chrysler). The Treasury Department said that this payment is "significantly more than the Treasury expected to recover on this loan." Relatively speaking, this is good news--provided that we never expected Chrysler to repay anything.
But that's exactly why it's bad news. We should expect all loans to be repaid. But furthermore, the government ought to act like it expects all loans to be repaid. The positive tone in the press release certainly makes the government look better. It says, "Hey, we didn't make the worst decision because we may have a chance at breaking even." What may seem like harmless positive spin is actually harmful, though. When the government says it is pleased with any payment less than full payment, it communicates the wrong message. Now, not only is there a moral hazard in that companies may expect the government to bail them out if they fail, but the moral hazard is amplified by the belief that the government may not even expect to be repaid!
So what could the government have done better? Communicate the same news, albeit with a less positive frame. I'm not saying that everything the government says should have a negative, pessimistic tone--it's just that when firms base their decisions on what the government may or may not do, precedent and expectations become very important. Title the press release "CHRYSLER FINANCIAL PARENT COMPANY REPAYS $1.9 BILLION, STILL OWES $1.6 BILLION MORE". Emphasize the fact that Chrysler Financial is still in debt to taxpayers instead of downplaying it. Tell Chrysler Financial that it is expected to repay in full. This better sets the precedent for companies that bailouts should not be expected, and that when they happen, the government absolutely expects the loans to be repaid.