Government Motors is using government money to pay back government money to get more government money

Monday, April 26, 2010
Posted in category Uncategorized

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”:

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.

Additionally, as Dalmia goes on to say,

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.

The gist of this is – if you didn’t catch it – that General Motors will get a DOE loan at 5% to pay off its 7% loans, so essentially it is a refinance of debt, at a lower rate, with the Government playing banker with your money. Even the awful, pro-bailout Charles Grassley referred to this as the TARP Shuffle. In a letter from Grassley to Timmy Geithner, he stated:

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 Treasury—not from earnings.

Yet so many people, including those in the media, are swept off their feet by the lies. A really, really, really bad article on cars.com has the nerve to make this Mickey Mouse statement:

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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3 Responses to Government Motors is using government money to pay back government money to get more government money

  1. liberranter says:

    April 27th, 2010 at 3:11 am

    Yet so many people, including those in the media, are swept off their feet by the lies.

    Average Amoricons don’t understand simple economics or finances as they apply to their own households, let alone major corporations. Should it therefore surprise anyone that the obvious mathematical nonsense behind this shell game would fly right over their heads? The media’s job, of course, is to propagate government lies, no matter how absurd, so it’s to be expected that they’d hide the bullshit flag on this one.

  2. Iluvatar says:

    April 27th, 2010 at 4:38 am

    I am payng YOU: Peter, b/c I borrowed from Paul who got the money from Steve after borrowing it from Tom who borrowed it from you: Peter to begin with. So I am borrowing from Peter to pay Paul – or whatever.

    This was delightful. I was so hopeful to hear that GM was starting to pay off its debt until I did some discovery. Nope – a sham. But wait; the giant under the hood is—- wait a sec…………. oh yea, AIG!!!

    Just frickin’ swell…… (I do not believe we will EVER see that money back – ya think?)

  3. Michael says:

    April 27th, 2010 at 8:20 pm

    I love their new tag line: “May the Best Car Win”.

    The best cars already won. Years ago. They’re called “Accord”, “Camry”, “Civic” and “Corolla” and they ain’t made by GM.

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