Vail Valley Voices: GM’s sleight of hand
Vail, CO, Colorado
The bailout of General Motors was extensive, complex and may have been conducted unconstitutionally.
GM has not paid back its loans from the government in full. And the costs to the taxpayer could be more substantial than even the staggering loan amounts already granted.
The taxpayers’ “investment” in GM (and Chrysler) may have exposed the public to an even greater risk of catastrophic pension plan failure.
First, why did GM need a bailout?
Simply because GM lost $88 billion between 2004, the last year GM turned a profit, and the intervention of the federal government.
The reasons for the losses are extensive and will not be discussed here. But based on my research over the past several years, I believe they are rooted in management, unions and distortion of the market by well-meant but misguided federal regulations.
Under the current administration the U.S. government, in conjunction with GM, developed a plan that included:
n GM declaring bankruptcy. At the time of bankruptcy, GM had a staggering debt of $95 billion, most of which was wiped out at the expense of shareholders and creditors.
n Reorganizing a “new” GM. The newly reorganized GM purchased substantially all of the assets of the old GM needed to implement its business plan out of a Chapter 11 in exchange for the U.S. government relinquishing the majority of its loans to GM.
What does that mean? Well, our political leadership (starting with George Bush and continuing with Barak Obama) gave GM loans totaling some $52 billion.
These monies were in the form of three large loans granted over the period December 2008 to June 2009. There were other amounts, such as $361 million of taxpayer monies granted to “backstop” GM warranties, and the $3 billion “cash for clunkers” program designed to primarily help domestic automakers, but these are difficult to track.
As part of this plan, the Obama administration swapped about $43 billion of the loans for approximately 61 percent of GM. That is what was referred to as “relinquishing” and as a result the American taxpayer became the majority shareholder of GM.
As part of this plan, Canada chipped in another $9.5 billion and got about 12 percent of GM, and as far as I can understand, the UAW received about 15 percent of GM.
n These actions allowed both GM and the administration to claim a “reduced” federal loan amount of $8.8 billion (of which several billion had been paid down over the past several months, although I have not yet found the source of funding). This figure, reduced accordingly, is what Mr. Whiteacre refers to when he states they have paid back the loan with interest ahead of the due date.
Unfortunately, he fails to state that:
n $43 billion of taxpayer loans was converted to shares (and last year GM had a non-investment credit rating) which will not be paid back until the shares are sold.
n GM paid the loan back using other TARP monies (see the TARP inspector general’s quarterly report to Congress submitted last week), not earnings (GM lost $3.8 billion in the last quarter of 2009). And for some reason this “payback” entitled GM to access an additional $6.6 billion in TARP monies immediately.
The administration has attempted to dispute the TARP inspector general’s statements. Jared Bernstein, chief economist and economic policy adviser to Vice President Joseph R. Biden Jr., stated to The Washington Times “That is not correct, I don’t think that is correct,” … “(General Motors) repaid with funds from their own cash accounts, from their own earnings.”
The cash used by GM to pay back the loan “is the property of General Motors, there is no question about that,” he insisted. Unfortunately he appears to be absolutely wrong.
A spokesman for the Special Inspector General’s Office explained: “We have a letter from General Motors requesting that they take the money out of escrow and pay the other debt down. And the money in the escrow was clearly TARP funding.”
That letter has been released by the Special Inspector General’s Office.
John A. Valersky is an Edwards resident.