Government Motors is using government money to pay back government money to get more government money
Posted by Karen De Coster on April 26, 2010 08:01 PM
My hometown is electrified about the great news: GM is paying back its loans. A cartoon from the Detroit Free Press on the “seven dirty words”:
![[]](http://karendecoster.com/wp-content/uploads/2010/04/bilde1.jpg)
I can think of two really dirty words that would please even Joe Wilson: “You Lie!” When I heard the payoff figure of $6B on the news, my eyebrows did an about-face on my forehead. GM CEO Ed Whitacre threw a party for the press, stating that GM paid off the government loans “in full, with interest, years ahead of schedule.” Here’s the propaganda piece (commercial) from Mr. Ed for the Big Lie.
Newsbusters has a nice story on this that links to a Forbes story on this house of lies. GM received $50B in bailout funds while only $6.7B of that amount was deemed a loan (at 7% interest). As most folks know, most of the bailout money was given to GM, by the US and Canadian governments, in return for a large stake in the company. As to how the loan is being paid back, as Shikha Dalmia of Forbes explains:
- As it turns out, the Obama administration put $13.4 billion of the
aid money as “working capital” in an escrow account when the company was
in bankruptcy. The company is using this escrow money–government money–to
pay back the government loan.
- Sean McAlinden, chief economist at the Ann Arbor-based Center for
Automotive Research, points out that the company has applied to the
Department of Energy for $10 billion in low (5%) interest loan to retool
its plants to meet the government’s tougher new CAFÉ (Corporate Average
Fuel Economy) standards. However, giving GM more taxpayer money on top of
the existing bailout would have been a political disaster for the Obama
administration and a PR debacle for the company. Paying back the small
bailout loan makes the new–and bigger–DOE loan much more
feasible.
- On Tuesday of this week, Mr. Neil Barofsky, the Special Inspector
General for TARP, testified before the Senate Finance Committee. During
his testimony Mr. Barofsky addressed GM’s recent debt repayment activity,
and stated that the funds GM is using to repay its TARP debt are not
coming from GM earnings. Instead, GM seems to be using TARP funds from an
escrow account at Treasury to make the debt repayments. The most recent
quarterly report from the Office of the Special Inspector General for
TARP says “The source of funds for these quarterly [debt] payments will
be other TARP funds currently held in an escrow account.” See, Office of
the Special Inspector General for TARP, Quarterly Report to Congress
dated April 20, 2010, page 115.
- Furthermore, Exhibit 99.1 of the Form 8K filed by GM with the SEC on November 16, 2009, seems to confirm that the source of funds for GM’s debt repayments was a multi-billion dollar escrow account at Treasurynot from earnings.
- Furthermore, Exhibit 99.1 of the Form 8K filed by GM with the SEC on November 16, 2009, seems to confirm that the source of funds for GM’s debt repayments was a multi-billion dollar escrow account at Treasurynot from earnings.
- Essentially, GM no longer needs emergency government aid to stay
afloat. While the taxpayer still has a sizable investment wrapped up in
the automaker, GM has returned to decent health for the time
being.
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