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April 28, 2010
We are obviously late to the party in understanding GM’s recent sleight-of-hand regarding them paying back a $4.7 billion loan from the US Treasury. But, it is quite objectionable to hear this GM ad below and then read about exactly how they were able to pay back the money. Click here for a quick summary.
First off, as part of GM’s plan to exit bankruptcy, the US Treasury converted its considerable financial help into a 60% common stock position in the new GM. Additionally, in return for help, the US Treasury also accepted a new GM bond for $4.7 billion. This is the bond GM now says it “paid back with interest five years ahead of schedule”. Finally, the US Treasury set up a side account with about $16 billion in it for GM to use if they needed money during the bankruptcy process.
More on this side account: Apparently, GM can use the $16 billion only with the Treasury’s permission. They have on a few occasions in the past year. However, by June 30th of 2010, if there is any money leftover, then GM must use it to pay back the $4.7 billion bond. That was written into the escrow account’s rules by the Treasury. So, as June 30th approached, GM used the money to pay back the US Treasury – with the US Treasury's own money. Kind of a neat trick, but it certainly doesn’t warrant a bragging ad campaign like the one below.
Finally, to add insult to injury, the Treasury also said that if there is any money leftover after paying back the $4.7 billion in debt, then GM can use the remaining cash however it sees fit without further permission. Well, there was $5.5 billion leftover and now GM gets to use it free-and-clear. This is all part of the original bailout. This detail was left off the ad campaign apparently.
Of all the money given to GM by the US Treasury, the total loss to taxpayers is estimated to be about $35 billion. I’d look into that figure further before spouting off at a party, but this is the number I’ve heard.
