The GM loan shell game
You’ve no doubt heard that GM is repaying their debt to taxpayers five years earlier than expected. Of course, the Obama Administration is touting this as success:
First thing [Wednesday] morning, Press Secretary Robert Gibbs alerted his 56,000 followers on Twitter of “BIG NEWS.”
“GM pays back US $6.7 billion used to save jobs,” Gibbs exulted. But he had more.
“BIGGER NEWS,” he trumpeted. “Payment was 5 years ahead of schedule.”
And Gibbs still had a few of his 140 characters left to link to a New York Times article about it.
Later at his daily press briefing, Gibbs didn’t wait for a reporter to ask him about the GM payback. He portrayed it as a vindication of President Obama’s decision to provide a federal bailout to GM and Chrysler:
“In the 12 months before the President took office, the auto industry lost nearly 40 percent of its sales volume and over 40 — I’m sorry, lost over 400,000 jobs. Today employment in the auto industry has stabilized. Since GM exited bankruptcy in early July 2009, the industry has added 45,000 jobs.”
The amount repaid by GM is less than 13 percent of the $52 billion in federal bailout funds provided to the automaker. The remainder of the bailout was converted into stock, which GM still intends to pay off. Gibbs concedes, “obviously, we’re not out of the woods by any stretch of the imagination.” But he thinks the payback demonstrates that GM is on a path to renewal.
They aren’t “repaying” these loans from a position of financial stability. After all, they posted a loss in the first quarter of the year.
So how are they paying back taxpayers? By taking TARP funds, bailout money funded by taxpayers designed to buy up toxic assests from financial institutions:
The issue came up yesterday at a hearing with the special watchdog on the Wall Street Bailout, Neil Barofsky, who was asked several times about the GM repayment by Sen. Tom Carper (D-DE), who was looking for answers on how much money the feds might make from the controversial Wall Street Bailout.
“It’s good news in that they’re reducing their debt,” Barofsky said of the accelerated GM payments, “but they’re doing it by taking other available TARP money.”
In other words, GM is taking money from the Wall Street Bailout - the TARP money - and using that to pay off their loans ahead of schedule.
“It sounds like it’s kind of like taking money out of one pocket and putting in the other,” said Carper, who got a nod of agreement from Barofsky.
“The way that payment is going to be made is by drawing down on an equity facility of other TARP money.”
Translated - they are using bailout funds from the feds to pay off their loans.
For you and me, that might be like using one credit card to pay off another, eh?
So taxpayers are at a loss here either way. Yet, GM is running television commericials telling consumers that they have paid back their loans and the administration is claiming a desperately needed politicial victory, attempting to boost their poll numbers and salvage their majorities in Congress. Either way here, taxpayers get the short end because “too big to fail” is still the game plan in Washington.