GM's Bogus "All Paid Off" Claim

For those who have been paying attention, GM has been loudly proclaiming that they have "paid back" the taxpayer money they got through the bailouts. The problem is that this claim is bogus.

You see, they received a total of $49.5 billion in government aid, of which only $6.7 billion was a pure loan. All that GM has paid off was that $6.7 billion loan. But even that amount wasn't paid off with profits, because GM isn't profitable yet. Instead, GM actually used money from a $13.7 billion fund that was created with taxpayer dollars. So they used government money to pay back a loan from the government.
http://reason.com/archives/2010/04/27/gms-phony-bailout-payback

But when 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.

As it turns out, GM paid back this $6.7 billion loan in order to make a larger, $10 billion loan more politically feasible.

Sean McAlinden, chief economist at the Ann Arbor-based Center for Automotive Research, points out that the company has applied to the Department of Energy for $10 billion in low (5 percent) interest loan to retool its plants to meet the government's tougher new CAFÉ (Corporate Average Fuel Economy) standards. However, giving GM more taxpayer money on top of the existing bailout would have been a political disaster for the Obama administration and a PR debacle for the company. Paying back the small bailout loan makes the new—and bigger—DOE loan much more feasible.

In short, GM is using government money to pay back government money to get more government money. And at a 2 percent lower interest rate at that. This is a nifty scheme to refinance GM's government debt—not pay it back!

The entire bailout process was a colossal fraud perpetrated on the US taxpayer, and it's not getting any better. Let this be a lesson to you... be skeptical of those who are surviving by taking money from the taxpayers. They have little to lose by lying to us.