How did GM pay off its bailout loans?

posted at 10:12 am on April 23, 2010 by Ed Morrissey

The backers of the bailouts to General Motors cried with triumph this week when the automaker announced that they had repaid their bailout loans ahead of schedule.  That amounted to proof of the wisdom of government intervention, the argument went, and wondered aloud why bailout critics didn’t acknowledge their errors.  Perhaps it’s because the government essentially got paid off with even more government money:

During an April 20 hearing on Capital Hill, Sen. Tom Carper, (D-Del.) asked some pointed questions of Neil Barofsky, the “special watch dog” on the Wall Street Bailout, aka, TARP.

“It’s good news in that they’re reducing their debt,” Barofsky said of the accelerated GM payments, “but they’re doing it by taking other available TARP money.”…

“It sounds like it’s kind of like taking money out of one pocket and putting in the other,” said Carper, who got a nod of agreement from Barofsky.

“The way that payment is going to be made is by drawing down on an equity facility of other TARP money.”

This prompted a stern letter from Senator Charles Grassley (R-IA), who backed the bailouts, to Treasury Secretary Tim Geithner about the shell game being played by the Obama administration and GM (via Yid with Lid, emphases mine):

General Motors (GM) yesterday announced that it repaid its TARP loans. I am concerned, however, that this announcement is not what it seems. In fact, it appears to be nothing more than an elaborate TARP money shuffle.

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.

I am also troubled by the timing of this latest maneuver. According to Mr. Barofsky, Treasury had supervisory authority over GM’s use of these TARP escrow funds. Since GM’s exit from bankruptcy court, Treasury had approved the use of the escrow funds for costs such as GM’s obligations to its parts supplier Delphi. See, Office of the Special Inspector General for TARP, Additional Insight on Use of Troubled Asset Relief Program Fund (SIGTARP-10-004), dated December 10, 2009, at page 6. According to the GM 8K, GM had planned to use the TARP funds in escrow to pay back the TARP loans on a quarterly basis beginning in the fourth quarter of 2009. But following the April 20, 2010, hearing of the Senate Finance Committee, where Treasury’s decision to exempt GM from the bank TARP excise tax was questioned and GM’s refusal to testify was noted, it is odd that GM suddenly drew down on the TARP escrow and accelerated the repayment of the remaining balance of GM’s outstanding TARP loans.

The bottom line seems to be that the TARP loans were “repaid” with other TARP funds in a Treasury escrow account. The TARP loans were not repaid from money GM is earning selling cars, as GM and the Administration have claimed in their speeches, press releases and television commercials. When these criticisms were put to GM’s Vice Chairman Stephen Girsky in a television interview yesterday, he admitted that the criticisms were valid:

Question: Are you just paying the government back with government money?

Mr. Girsky: Well listen, that is in effect true, but a year ago nobody thought we’d be able to pay this back.

Mr. Girsky then said that GM originally planned to pay the loan over the next five years. So the question is why—other than a desire to justify excluding GM from the administration’s TARP tax proposal—would Treasury and GM reduce GM’s TARP debt with TARP equity and then mischaracterize it as a repayment from earnings? Accordingly, please explain:

1) Your department’s justification for allowing GM to use funds from the TARP escrow account to repay TARP loans,

2) The amount of funds remaining in the TARP escrow account at Treasury that may be released to GM, and

3) The date that you anticipate that the remaining funds in escrow will be released to GM.

Thank you in advance for your cooperation. Please provide the requested information by April 30, 2010. …

Sincerely,
Charles E. Grassley
Ranking Member

In other words, this is just a shell game. As Jim Vicevich points out, it’s akin to paying off your Visa credit card with your Mastercard — and then bragging about your financial condition. Taxpayers are still on the hook for GM. Nothing at all has changed.

Instead, we have another good reason for government to refrain from bailing out private companies. It makes them act like government when it comes to transparency about their finances. This claim really does prove that GM now stands for Government Motors.


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GM’s still a bottomless pit of union pension and health care liabilities that the taxpayers will continue to be on the hook for.

Doughboy on April 23, 2010 at 10:19 AM

Let’s not forget the public sector “Raise my taxes! Raise my taxes!” unions as well.

VibrioCocci on April 23, 2010 at 11:22 AM

I HATE the GM president’s ads on TV. The guy is an arrogant, down-talking, deceiving, Obama-like, rat.

Schadenfreude on April 23, 2010 at 11:22 AM

Oh, and you can add Chrysler to that list too.

Yeah, but who would of bought one of those anyway?

humdinger on April 23, 2010 at 11:23 AM

The GM CEO should be fired

He was fired. This guy is the person put in charge by the real CEO President Obama.

duggersd on April 23, 2010 at 11:25 AM

My nephew was recently bragging about his purchase of Ford stock when it hit rock bottom last year and has tripled since.

Since his Mother (my sister) is a loyal democrat, I pointed out to him that he also owns stock in GM, via Obama, of which not only will he never profit, but will likely be taxed on his Ford stock profit to pay for GM’s bankruptcy. In addition, I explained, imagine how well your Ford stock would have done if GM would have been allowed to liquidate and fail and Ford would have picked up the additional market share.

Sometimes seeing the pain in a democrats eyes when they are slowly sobering up and seeing facts is extremely gratifying.

cntrlfrk on April 23, 2010 at 11:27 AM

I hope this “voodoo” accounting that GM and the Obie crew are using will be history after 2012. If it isn’t we are doomed.

Dire Straits on April 23, 2010 at 11:30 AM

I am trying to recall my securities law on this topic; perhaps someone who has more recent exposure can provide better information, but I recall that when a CEO tries to manipulate public perception of the value of a company by false assertions or ommissions of fact, it constitutes a 10(b)(6) violation. If anyone bought GM stock based on these representations, and the stock loses value, someone will be held liable. As far as criminal liabilities go, can you say “Enron?” There does not seem to be an appreciable difference in management conduct. In my opinion.

ObjectionSustained on April 23, 2010 at 11:30 AM

Cindy Munford on April 23, 2010 at 11:00 AM
===================
I am trying to remember how to work the “Bat Signal” to Sarah Palin’s Facebook account :)

faraway on April 23, 2010 at 11:03 AM

faraway:LOL:)

canopfor on April 23, 2010 at 11:31 AM

This is the old story that has been around for 100 years or more .Tell the same lie over and over and soon the masses will believe it,s true.

thmcbb on April 23, 2010 at 11:34 AM

Let’s not forget the public sector “Raise my taxes! Raise my taxes!” unions as well.

VibrioCocci on April 23, 2010 at 11:22 AM

I about friggin punched out my car window when I heard this ridiculous story on the radio in St. Louis a couple of days ago.

A protest to raise taxes? That’s got to be the most ridiculous thing I’ve ever heard.

MobileVideoEngineer on April 23, 2010 at 11:34 AM

I have never bought a “foreign” car and have always trended towards Ford anyway so not buying GM is not a hardship. If anyone fixes the union “problem” it will be Ford. Faster please.

Cindy Munford on April 23, 2010 at 11:36 AM

“Therefore, it is unclear how GM and the Administration could have accurately announced yesterday that GM repaid its TARP loans in any meaningful way.”

It’s one thing for politicians to lie to your face all day long…

… It’s another for a company to go on TV and do it, hoping you will buy their product.

If this isn’t a case for “Truth in Advertising”, I don’t know what is.

Maybe some smart lawyer from Ford or Toyota just might want to look into this.

Just sayin’…

Seven Percent Solution on April 23, 2010 at 11:39 AM

As a default position just assume they are lying. If it turns out they were telling the truth we can be pleasantly surprised shocked? stunned? dumbfounded?

Aviator on April 23, 2010 at 11:15 AM

Cicero43 on April 23, 2010 at 11:41 AM

I HATE the GM president’s ads on TV. The guy is an arrogant, down-talking, deceiving, Obama-like, rat.

Schadenfreude on April 23, 2010 at 11:22 AM

Shouldn’t he be charged by the FTC under the truth in advertising laws? The add is COMPLETELY misleading if not an outright lie!

texgal on April 23, 2010 at 11:49 AM

I about friggin punched out my car window when I heard this ridiculous story on the radio in St. Louis a couple of days ago.

A protest to raise taxes? That’s got to be the most ridiculous thing I’ve ever heard.

MobileVideoEngineer on April 23, 2010 at 11:34 AM

Well, you know what they want is really for the taxes on the private-sector worker to be raised, so they can be paid more. They don’t really want their taxes to go up, they want your taxes to go up.

LarryD on April 23, 2010 at 11:50 AM

The sad thing is that all these politicians crooks say this type of stuff with a straight face.

tommer74 on April 23, 2010 at 11:51 AM

GM – A lending company that has a sidelight in automobiles.

GM is not too big to fail… we know that because it is failing and nothing will keep it propped up. That and other companies we are ‘bailing out’ will be the ruination of the Nation as it is trying to forestall the inevitable. King Canute was not happy going to the seashore to show his advisors that he couldn’t stop the tide. King Obama is dancing amongst the waves…and yet the tide still keeps right on coming in.

ajacksonian on April 23, 2010 at 11:57 AM

I am trying to recall my securities law on this topic; perhaps someone who has more recent exposure can provide better information, but I recall that when a CEO tries to manipulate public perception of the value of a company by false assertions or ommissions of fact, it constitutes a 10(b)(6) violation. If anyone bought GM stock based on these representations, and the stock loses value, someone will be held liable. As far as criminal liabilities go, can you say “Enron?” There does not seem to be an appreciable difference in management conduct. In my opinion.

ObjectionSustained on April 23, 2010 at 11:30 AM

I agree. However, he’s not recommending buying the stock. He’s recommending the product.

That is how he can toot the horn and get by with it.

AnninCA on April 23, 2010 at 11:59 AM

BUY A G.M. CAR ???

NOT NOW!

NOT EVER!

bannedbyhuffpo on April 23, 2010 at 11:59 AM

Really if the government wants to get this ‘off the books’ just hand each and every US Citizen on share of GM from the amount the government has put in it.

A voting share.

The American People can do a damn-sight better job figuring out what to do with GM than the President, Fed, SEC, Treasury, Congress… all of them combined can. Do the same with all other companies the government invested in… you did it for the people? Then give me my share because you did it in my name and stop trying to be the intermediary between the people and their economy.

ajacksonian on April 23, 2010 at 12:04 PM

I guess that there are no truth-in-advertising laws that this GM CEO violated. He ought to be fired and serve a short sentence in the slammer for his false advertisement!

SC.Charlie on April 23, 2010 at 12:05 PM

My next vehicle will be a ford.

rollthedice on April 23, 2010 at 12:05 PM

“It sounds like it’s kind of like taking money out of one pocket and putting in the other,” said Carper
The problem is that there was no money in either pocket to begin with. It would be more analgous to filling a hole with more hole.

fourdeucer on April 23, 2010 at 10:28 AM

Correct. Nothing in either pocket, so they’re picking ours!

jack herman on April 23, 2010 at 12:05 PM

I wonder how much they (we) spent on these commercials? They’ve been running here in AZ pretty steadily, so I’m guessing they’ve bought millions of dollars in air time.

Nothing like having our own money used so that we can be lied to some more about how our money is being used.

AZCoyote on April 23, 2010 at 12:12 PM

I agree. However, he’s not recommending buying the stock. He’s recommending the product.

That is how he can toot the horn and get by with it.

AnninCA on April 23, 2010 at 11:59 AM

I haven’t practiced securities law for 20 years, therefore I am not a very reliable source on the subject, but any attempt to manipulate markets on the part of a corporate officer is considered a violation of the ’33 Act at least for civil purposes. It does not require a direct solicitation for the security itself. In any case, there appears to be an attempt to create market value based on materially false or ommitted information. And, yes, I suspect that this constitutes all sorts of consumer protection law violations on both the Federal and State levels. In my opinion.

ObjectionSustained on April 23, 2010 at 12:14 PM

Buy Ford. Screw GM.

smfoushee on April 23, 2010 at 12:14 PM

The Obama administration has no plan no clue on economics. All they do is make up stuff as they go along trying to convince the public that they are making some positive progress. On propoganda they are experts, on everything else noobs.

docdave on April 23, 2010 at 12:21 PM

Hey, I’ve paid my Visa with my MasterCard before. These bigwigs shouldn’t be doing that though. And they are leading companies? Hell, put me in there then.

johnnyU on April 23, 2010 at 12:22 PM

It is a VERY odd story. It sounds a lit like the government traded debt, which is paid out of assets in a bankruptcy, for equity, which is lost. Doubling down on a GM recovery seems a rather odd strategy for the Treasury to take with OUR money.

At the same time, as a major investor and insider into the exchange, they distorted the reporting of the financial aspects of this. If this had been another investor it might have meant a SEC investigation for market manipulation.

OBQuiet on April 23, 2010 at 12:26 PM

After hearing the GM CEO’s ad yesterday and reading this I’m now even further in the “I’ll never buy a GM vehicle again” camp.

diesirae on April 23, 2010 at 12:49 PM

Anyone have an email to GM or better yet to the CEO directly? I don’t really like the web based contact form on their web site.
I have a GMC HD, great truck, love it, but unfortunately can never buy GMC again. Pretty sad really, but can not support the lieing liars.

jywill on April 23, 2010 at 12:50 PM

So they took a cash advance on one credit card to pay off another. The debt is still there… perhaps GM should call a credit counseling outfit.

D2Boston on April 23, 2010 at 12:50 PM

manufactured and assembled in Japan for me.

Inanemergencydial on April 23, 2010 at 1:10 PM

LET THEM FAIL!!

Sheesh – already established bankruptcy law would have “solved” almost all the problems these “too big to fail” companies had AND it wouldn’t have cost the taxpayers billions upon billions upon billions!

Of course, that would have meant that the Unions would have had to take their proper place instead of being guaranteed to get everything they wanted by, what can only be described as, the most corrupt government this nation has ever seen.

Fatal on April 23, 2010 at 1:21 PM

Introducing two exciting new car models for 2010: The Chevy PeterPaysPaul and the sporty new PaulPaysPeter!

They paid off hard debt with soft equity; taxpayers would have been better off if they hadn’t paid at all.

GM says it lost 4.3 billion last year, but it was almost all one-time union pay-offs. We’ll see. I really do wish them well–especially as an involuntary “part-owner” of GM.

Noel on April 23, 2010 at 1:53 PM

GM is following the Bernie Madoff school of finance. But with less honor.

Squiggy on April 23, 2010 at 1:56 PM

No future.

ronsfi on April 23, 2010 at 2:17 PM

The lion’s share of GMAC’s financial problems can be laid at the feet of its mortgage operation, which cratered in 2007, thanks to the drop in subprime mortgages. That signaled another big ripple effect: the start of a retreat in the housing market, and ultimately the whole financial industry.

Has anyone seen any Ditech.com Mortgage Company commercials?

Anyone at all….?

I remember seeing at least 1 nearly every hour on most major news channels (FNC, CNN, MSNBC) starting in 2001….well here’s the fun factiod that relates the above quote

Ditech.com IS OWNED BY GMAC!

Don’t believe me? See their own page here

GMAC Mortgage, a major financial services company and one of America’s leading mortgage loan originator, acquired primarily all the assets of Ditech Funding Corporation in 1999. This marked the beginning of significant growth for ditech and enabled the company to invest further in its products, technology, and customer service – and set the stage back then for ditech’s emergence, and current status, as a leading mortgage loan originator.

SgtSVJones on April 23, 2010 at 2:19 PM

The lion’s share of GMAC’s financial problems can be laid at the feet of its mortgage operation, which cratered in 2007, thanks to the drop in subprime mortgages. That signaled another big ripple effect: the start of a retreat in the housing market, and ultimately the whole financial industry.

Has anyone seen any Ditech.com Mortgage Company commercials?

Anyone at all….?

I remember seeing at least 1 nearly every hour on most major news channels (FNC, CNN, MSNBC) starting in 2001….well here’s the fun factiod that relates the above quote

Ditech.com IS OWNED BY GMAC!

Don’t believe me? See their own page here

GMAC Mortgage, a major financial services company and one of America’s leading mortgage loan originator, acquired primarily all the assets of Ditech Funding Corporation in 1999. This marked the beginning of significant growth for ditech and enabled the company to invest further in its products, technology, and customer service – and set the stage back then for ditech’s emergence, and current status, as a leading mortgage loan originator.

SgtSVJones on April 23, 2010 at 2:20 PM

“You Lie”

faraway on April 23, 2010 at 2:26 PM

Related parody: New GM Cars Run on Efforts of U.S. Taxpayers http://optoons.blogspot.com/2010/04/new-gm-cars-run-on-efforts-of-us.html

Mervis Winter on April 23, 2010 at 4:42 PM

And once the SEC is finished surfing porn, they can get around to investigating GM for making false and misleading statements…

(although I won’t be holding my breath on this)

Neo-con Artist on April 23, 2010 at 5:39 PM

Gimme
Money

hillbillyjim on April 23, 2010 at 10:13 PM

This whole F’n administration is a ‘shell game’; What’s new(s)?

Cybergeezer on April 24, 2010 at 12:03 PM

I am trying to recall my securities law on this topic; perhaps someone who has more recent exposure can provide better information, but I recall that when a CEO tries to manipulate public perception of the value of a company by false assertions or ommissions of fact, it constitutes a 10(b)(6) violation. If anyone bought GM stock based on these representations, and the stock loses value, someone will be held liable. As far as criminal liabilities go, can you say “Enron?” There does not seem to be an appreciable difference in management conduct. In my opinion.

ObjectionSustained on April 23, 2010 at 11:30 AM

–It’s 10(b)(5) and Rule 10b-5. Material false statements or material omissions are violations. But it looks like the amounts in the escrow account may not have been TARP loans, but instead were some other type of financing. I’m wondering if they weren’t GM funds required to be held in escrow as security for the TARP loans.

Jimbo3 on April 24, 2010 at 12:04 PM

Didn’t expect a reply, but I emailed GM about the new ad saying they’ve repaid the loan and got this back as a reply:

Thank you for contacting General Motors. While we’re disappointed to hear that you feel this way, we understand and ask that you give us some time, and take another look at GM and our products in the future.

We are confident that we will emerge a leaner, stronger company, offering desirable, high-quality vehicles from the Chevy, Cadillac, Buick and GMC brands. The resulting General Motors will be more efficient. Smarter. Faster. More competitive. With a renewed commitment to cutting-edge automotive technologies, including improved fuel efficiency, quality and design.

I invite you to stay up-to-date on our promising new future by visiting GMreinvention.com.

Respectfully submitted,

General Motors

modnar on April 24, 2010 at 12:38 PM

Still Government Motors

tai-pan on April 24, 2010 at 12:59 PM

But doesn’t this mean the recession is over?

Dhuka on April 24, 2010 at 2:54 PM

It seems that beating up TOYOTA didn’t work out as well as planned. Plan B. seems to involve lying their way to prosperity. Those Gummint Motors douches sure are sneaky.

joe btfsplk on April 25, 2010 at 4:32 PM

These government hucksters should be working the Midway games at traveling carnies. No wait, that’s where they came from, right?

Goldy1 on April 26, 2010 at 12:10 AM

How does a company that doesn’t turn a profit or liquidate assets pay off loans?

Inanemergencydial on April 26, 2010 at 9:47 AM

Taxpayers are still on the hook for GM. Nothing at all has changed.

Except for those ‘little people’ who held GM bonds and are also taxpaying citizendry.

Who’s going to be their voice of ‘fair game’?

Sir Napsalot on April 26, 2010 at 11:17 AM

As a GM retiree I welcome the news that they have repaid the money you and I loaned to them. Now I expect they will relieve all of us (I pay taxes just like you do) from paying retiree pensions with our tax money through the PBGC. I expect GM will now pick up the entire cost of GM retiree pensions. After all, their solvent now, aren’t they?

As a side note, last year my son was shopping for his first car. He test drove a number of GM vehicles. Finally, at my suggestion he purchased a wonderful pre-owned vehicle with good looks, good gas mileage and good get up and go. My next car may be an Altima as well.

Know It All on April 26, 2010 at 1:15 PM

Unbelievable!

MCGIRV on April 26, 2010 at 11:16 PM

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