Fausta's Blog

American and Latin American Politics, Society, and Culture

April 27, 2010 By Fausta

GM paid nothing. You did.

Betsy explains it (emphasis added):

Shikha Dalmia writes at Forbes to explain how GM is essentially lying to say that they have paid back the money that the government spent to bail them out.

But before belting out their victory aria, GM-boosters ought to hear the whole story–not just the fairytale version about Government Motors’ grand comeback that Mr. Whitacre is feeding them.

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.

And no surprise that Robin Gibbs is practically wetting himself in triumphalist celebration of the supposed proof of the wisdom of Obama’s supporting the bailout of GM.

Betsy says,

I guess the Obama administration has run our of true good news about their economic policies so they’re just making this stuff up and hoping no one else will notice.

The way I see it, the Obama administration sees this as actual good news since it’s further dependence on government.

Betsy also links to Micky Kaus, who’s running for Senate. Kaus points out that

After the bailout, GM and Chrysler made “few changes to [their] pension plans,” which are of the “defined benefit” variety, according to the Government Accountability Office. As a result, taxpayers may have to shore them up with another $10+ billion.

We’re now in the Land of the Never-Ending Bailout, while being lied to.

Was it good for you too?

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Filed Under: Barack Obama, Democrats Tagged With: bailout, Detroit, Fausta's blog, GM

Comments

  1. safariman says

    April 27, 2010 at 1:03 pm

    This is an old trick…worked in reverse! Banks often extend new loans to a debtor, and credit the new loan to repay the bank loan. No money really changes hands, and the bank doesn’t have to report non-performing loans. Particularly popular in loans guaranteed by third world governments. The interest keeps compounding, of course.

    As was said in the movie Godfather, “an accountant with a brief case can steal more money than ten armed men with guns”

    They want to dupe us. When you look at the way people vote, sometimes I think we really want to be duped!

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