By Kevin Meyer
I guess we should have suspected it: GM didn't receive just a few billion in bailout funds from the government. It also received some knowledge of funny accounting – accounting only the government is allowed to legally do.
Like many people I saw the ads over the past week touting how GM had paid back, with interest and several years early, the bailout loan from the people of the U.S. and Canada. It sounded a bit fishy to me and apparently others, leading to this piece in The Wall Street Journal.
Is General Motors no longer Government Motors? That's the impression left by the company's announcement this week that is has fully repaid the $6.7 billion in loans it got last year from the U.S. and Canadian governments. The company is "paying back—in full, with interest, years ahead of schedule—loans made to help fund the new GM," declared chairman and CEO Ed Whitacre. That certainly is the truth, but not the whole truth.
So what's the problem? The government… uh… people… didn't just loan the company money, they took it over. Big difference.
But its early loan repayment represents a little more than 10% of the money it got from both governments. Understanding why means peering under the hood of last year's government-sponsored bailout and bankruptcy.
So the U.S. and Canadian governments decided, more or less arbitrarily, to classify some $6.7 billion of its aid as debt and a ballpark estimate of $52 billion in equity. That $52 billion represents nearly 90% of the government money given to General Motors. None of that has been repaid.
Getting the remaining $52 billion back from GM will require an initial public offering, which means convincing the investing public to buy the 73% of the company's stock owned by the U.S. and Canadian governments. (The other 27% is owned by the United Auto Workers union and by bondholders in the old company.)
It won't be easy for an IPO to raise $52 billion for the government shares. That's more than Ford Motor's current market capitalization, some $48 billion. And Ford, the only U.S. car company to avoid bankruptcy, already is profitable, which GM isn't. For GM to show sustained profits means doing business in a new way and breathing new life into long-moribund brands.
So that's where the story was last night – a simple "I forgot about the other $52 billion." This morning it got even more interesting.
General Motors is running ads on all the major networks this week claiming it has repaid its bailout from the taxpayers "in full." But the claim isn't standing up to scrutiny from lawmakers and government watchdogs who have found that the automaker was able to repay the bailout money only by dipping into a separate pot of bailout funds.
Yes, you read that right.
Iowa Sen. Chuck Grassley's charge was backed up by the inspector general for the bailout — also known as the Trouble Asset Relief Program, or TARP. Watchdog Neil Barofsky told Fox News, as well as the Senate Finance Committee, that General Motors used bailout money to pay back the federal government.
"It appears to be nothing more than an elaborate TARP money shuffle," Grassley, the ranking Republican on the Senate Finance Committee, said in a letter Thursday to Treasury Secretary Timothy Geithner.
Barofsky said that while it's "somewhat good news," there's a big catch. "I think the one thing that a lot of people overlook with this is where they got the money to pay back the loan. And it isn't from earnings. … It's actually from another pool of TARP money that they've already received," he said Wednesday. "I don't think we should exaggerate it too much. Remember that the source of this money is just other TARP money."
And who know's about shuffling funds from one account to another to avoid real accounting better than the government? Social Security anyone? Where's Al Gore and his lockbox when you need him?
mike says
Its not entirely a seperate pot of bailout funds. Unlike what it sounds like from grassly they didnt do additional borrowing. Part of the $50 billion in bailout money from the US Govt wasnt yet spent by GM and was sitting in a escrow account at the treasury. The treasury gave them aproval to use a majority of the money that was still left to pay off the interst bearing loan part.
GM did give us back $6.7 billion. Now all we and the canadians have to worry about is the $52 billion…
Whittacres commercial is being investigated by FTC for truth in advertising.
Bryan says
Kevin,
This is outright theft. If you and I, or Bernie Madoff as a recent example, pulled this one over on the governed, we would go to jail for 150 years. But not our politicians!
For people who are interested in learning about inflationary, deficit spending, in plain English, I recommend picking up a copy of Economics in One Lesson by Henry Hazlitt. Mises.org has other great economics lessons for people who are wondering what the hell is going through the minds of our politicians and business community.
Bryan
mike says
Ugh i heard the commercial tonight… we repaid our government loan in full wit interest… Ugh what a liar.
Albert J. Benson says
Speaking for myself, I own a few shares of
GM preferred stock. They said we were going to get common stock, which as of yet has not
had an IPO value established. However, there
have been a number of people wanting to buy
my stock. No way, Jose. I have confidence in
the new General Motors Company, and Mr.
Whitacre, as for the previous administrators of GM, well, essentially it
appears they were told to not let the screen
door hit them in the butt, as they left.
Sounds like that was a good decision. As for
the Hummers, good riddance. Even the Chinese
do not want them, guzzlers that they are.
Since they have resolved for the most part
the enormous debt and load on the company
which was the medical plan and other plans,
they are going to start clean. What more
could we ask. Sounds good to me.