Reason‘s Nick Gillespie, resplendent in his ubiquitous black jacket, explains, “How The Hell Did GM Pay Back Its Loans “in Full And Ahead of Schedule”? Well, It Didn’t.”
The script:
General Motors CEO Ed Whitacre has bragged in TV commercials and newspaper columns that GM has paid back its bailout “in full and ahead of schedule.”
As with the Pontiac Aztek, an ugly exterior masks an ever darker problem: Whitacre is being fanciful to the point of deceit. GM received $50 billion in TARP funds (never mind that TARP was only supposed to cover financial institutions). About $7 billion of that came in the form of a straight-up, low-interest loan. And about $13 billion came in the form of an escrow account.
So how has GM, which lost $38 billion in 2007 even as it sold 9.4 million cars, paid back its debt? It took money from the escrow account to pay back the $6.7 billion loan.
Do you remember when you were a kid and your parents gave you $20 to buy them a Christmas present? You bought them something worth $3 and pocketed the rest? That’s what GM has just done.
Oh, and do you remember when you hit your parents up for college? GM has applied for a $10 billion, low-interest loan from the government to modernize its plants so its cars will meet new federal mileage standards.
If you think all this constitutes paying back their debt in full and ahead of schedule, you might want to check out the new line of GM cars. And hope that the company’s safety engineers are better at math than their CEO.
Via Ed Morissey, I see that NYT’s Gretchen Morgenson is on this one, too, in a piece titled “Repaying Taxpayers With Their Own Cash.”
AS we inch closer to a clearer understanding of the products and practices that unleashed the credit crisis of 2008, it’s becoming apparent that those seeking the whole truth are still outnumbered by those aiming to obscure it. This is the case not only on Wall Street but also in Washington.
[…]
G.M. also crowed about its loan repayment in a national television ad and the United States Treasury also marked the moment with a press release: “We are encouraged that G.M. has repaid its debt well ahead of schedule and confident that the company is on a strong path to viability,” said Timothy F. Geithner, the Treasury secretary.
Taxpayers are naturally eager for news about bailout repayments. But what neither G.M. nor the Treasury disclosed was that the company simply used other funds held by the Treasury to pay off its original loan.
[…]
Armed with this information, [Senator Chuck] Grassley fired off a letter to Mr. Geithner on April 22, asking for details of the transaction. “I am concerned … that this announcement is not what it seems,” he wrote. “In fact, it appears to be nothing more than an elaborate TARP money shuffle.”
Mr. Grassley heard back from the Treasury last Tuesday. Herbert M. Allison Jr., assistant secretary for financial stability, confirmed that the money G.M. used to repay its bailout loan had come from a taxpayer-financed escrow account held for the automaker at the Treasury. Emphasizing that the cash in the account was “the property of G.M.,” Mr. Allison said that the department had approved the company’s use of the money to retire the original debt because it was “consistent with Treasury’s goal of recovering funds for the taxpayer and exiting TARP investments as soon as practicable.”
One can at least understand GM’s motivation for telling a big fat lie through the vehicle of a technical truth. But having the Treasury Security of the United States go along with it?
Of course, since the government now owns GM, the two are one and the same thing. What’s good for General Motors actually is what’s good for the country. So, it’s in the mutual interest of GM and the Treasury to perpetuate the myth that not only is GM a good citizen but a thriving auto company. But, my, what a conflict of interest.
And, while I’m so far from an expert in securities law that I hesitate to go out on a limb here, this has to be mighty close to illegal. After all, the motivation of both GM and Treasury here is to artificially inflate GM’s stock price.
