GM Pays Back Its Loans-Sort Of

Yahoo News:

WASHINGTON – Fallen giant General Motors Co. accelerated toward recovery Wednesday, announcing the repayment of $8.1 billion in U.S. and Canadian government loans five years ahead of schedule.

The Obama administration crowed about the "turnaround" at GM and fellow bailout recipient Chrysler LLC, saying the government's unpopular rescue of Detroit's automakers is paying off.

Oh, wait. Never mind.

The “big” news that GM would be paying off its bailout early left out some really big details. Like, oh, GM is paying back the taxpayers with money from the taxpayers. Sen. Grassley is not amused. In a letter to Treasury Secretary Geithner he wrote:

…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. In the 8K filing GM acknowledged:

 Of the $42.6 billion in cash and marketable securities available to GM as of September, 30, 2009, $17.4 billion came from an escrow account with Treasury,

 $6.7 billion of the escrow account available to GM was allocable to the repayment of loans to Treasury,

 $5.6 billion in cash would remain in the Treasury escrow account following the repayment by GM of their loans, and

 Upon repaying Treasury, any balance of escrow funds would be released to GM.

Therefore, it is unclear how GM and the Administration could have accurately announced yesterday that GM repaid its TARP loans in any meaningful way. In reality, it looks like GM merely used one source of TARP funds to repay another. The taxpayers are still on the hook, and whether TARP funds are ultimately recovered depends entirely on the government’s ability to sell GM stock in the future. Treasury has merely exchanged a legal right to repayment for an uncertain hope of sharing in the future growth of GM. A debt-for-equity swap is not a repayment.

So I guess we won’t be uncorking the champagne just yet. The problem is that this was a stupid lie. The Administration “crowed” and GM put the news in its commercials. Yet the immediate reaction from the public was, “What’s that smell?” The smell was the fertilizer being spread by the government. What was the point? Does the Obama Administration really think that the public is so slow witted that it wouldn't recognize a snow job?

Hopefully the next administration will treat us like adults.

Read the rest.

Your Tax Dollars at Work, Part ?

Frankly, I've lost count of how much money has been wasted so far.  This latest example come from Don Surber:

I suspected it, and now a report in the Detroit News confirms it: “Advisers, lawyers and consultants have billed General Motors Co.’s bankruptcy estate more than $90 million in fees and expenses since last summer, a figure that will grow as unwanted assets such as real estate, equipment and factories are liquidated.”

Where are those Astroturf busloads of protesters who marched against AIG bonuses last year?

Perhaps our president should issue a proclamation that you cannot go to Detroit on the taxpayers dime.

Yeah well, I wouldn't hold my breath waiting for that.
 
No small part of the GM problem is that it is an additional $1,600 in "legacy costs" has to be tacked on to the price of every vehicle sold.  Legacy costs refer to the health care and pension benefits guaranteed to each and every retiree* by their UAW contract.  Guess who is backing up those costs now.
 
The only reason GM continues to exist is the largess of the taxpayer.  But in this country when a company fails to adjust to market forces that company deserves to go under.  We are a free market society not a socialist society.  At the risk of being called naive, I believe that had the taxpayers been forced to come to GM rescue the company and the UAW would have found some way to pull their own fat out of the fire.  As it is, they have no incentive to innovate or trim expenses.

GM has emerged from bankruptcy but the taxpayer remains on the hook.  The time has come to pull the plug.

*For an eye-opening look at what "legacy costs" are doing to individual state budgets courtesy of bloated SEIU contracts see Doug Ross' post The New Math:  Union Pensionomics Levies Crushing Debt on State and Local Governments.

Whose Stock Is It Anyway?

Sen. Lamar Alexander (R) TN, has introduced a bill that would require that within one year of Chrysler and GM emerging from bankruptcy the Administration divvie up its holdings in the two companies among the American taxpayers. This issue is addressed by Smitty in The Other McCain: I'm not sure this was part of the narrative. Not a day has gone by since this whole boondoggle began that I haven’t heard that same idea expressed by one of my friends After all, the taxpayers are the ones on the hook for this entire mess and we should get something out of it besides the undying gratitude of the UAW. Snark. Somehow, that solution just doesn’t feel right to me.

People invested in the car companies to fund their retirement and to provide for their children’s education. This administration kicked those investors to the curb without so much as a second thought. If their shares end up being distributed to the taxpayers isn’t that just another way for the government to re-distribute the wealth? Yes, it is my tax dollars at stake. But I didn’t choose to invest in GM and Chrysler and because I didn’t choose to take that risk I am not sure that I should (potentially) profit from another taxpayer’s risk. The government wrongly stepped in to what should have been a private matter. Accepting stock, which prior to this administration, legally belonged to someone else is also wrong.

Even under Socialism, two wrongs don’t make a right