Late last week, I started seeing commercials from General Government Motors announcing to the world that GM had paid off its government loan – early and with interest. I thought that was good news, a sign that the company was recovering, jobs would be saved, and the government could unwind the majority ownership stake it had taken in the company.
Then the other shoe dropped and I realized we were being played for suckers:
Uncle Sam gave GM $49.5 billion last summer in aid to finance its bankruptcy. (If it hadn’t, the company, which couldn’t raise this kind of money from private lenders, would have been forced into liquidation, its assets sold for scrap.) So when Mr. Whitacre publishes a column with the headline, “The GM Bailout: Paid Back in Full,” most ordinary mortals unfamiliar with bailout minutia would assume that he is alluding to the entire $49.5 billion. That, however, is far from the case.
Because a loan of such a huge amount would have been politically controversial, the Obama administration handed GM only $6.7 billion as a pure loan. (It asked for only a 7% interest rate–a very sweet deal considering that GM bonds at that time were trading below junk level.) The vast bulk of the bailout money was transferred to GM through the purchase of 60.8% equity stake in the company–arguably an even worse deal for taxpayers than the loan, given that the equity position requires them to bear the risk of the investment without any guaranteed return. (The Canadian government likewise gave GM $1.4 billion as a pure loan, and another $8.1 billion for an 11.7% equity stake. The U.S. and Canadian government together own 72.5% of the company.)
But when Mr. Whitacre says GM has paid back the bailout money in full, he means not the entire $49.5 billion–the loan and the equity. In fact, he avoids all mention of that figure in his column. He means only the $6.7 billion loan amount.
But wait! Even that’s not the full story given that GM, which has not yet broken even, much less turned a profit, can’t pay even this puny amount from its own earnings.
So how is it paying it?
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.
In other words, they used their Visa to pay off their American (Taxpayer) Express. Pardon my language, but this is bullshit.
The American people are still bailing out a company that should have been allowed to go bankrupt, the US and Canada still own nearly three-fourths of the company, and not a dime has been repaid. All they did was move money from one pocket to the other.
And the worst part is that Treasury and their lackeys at GM think we’re such gullible children that we wouldn’t see this for the insulting con game it is.
Congratulations, guys, you’ve given us something else to remember in November.
RELATED: Senator Grassley is not amused.