General Motors chairman Ed Whitacre made news last week with a series of national television advertising spots in which he claimed the company has repaid its government bailout loans in full, ahead of schedule and with interest.
Unfortunately, according to Neil Barofsky, the Inspector-General for the Troubled Asset Relief Program (TARP) under which the federal loans were made to GM, the repayments cited by Whitacre were simply made with other tax dollars made available to the automaker in its bailout deal with the government.
So in effect GM was repaying one government loan with another government loan.
Now Whitacre is not a dumb guy, nor are there any ethics scandals in his previous record as a very successful CEO at AT&T. He was even the national head of the Boy Scouts of America, so why all of a sudden is he making a transparently false statement in a GM TV spot?
Three Republican members of Congress are asking the same question and they are also demanding some answers from Secretary of the Treasury Timothy Geithner, who oversees the TARP program and who issued a statement endorsing the GM claim and citing the repayment as evidence that the government's bailout effort is working.
On the House side, Rep. Darrell Issa, R-CA, who is ranking minority member of the Oversight and Government Reform Committee, and Rep. Jim Jordan, R-OH, all but accused Whitacre in a letter of committing fraudulent advertising:
“We are concerned that GM, under your leadership, has come dangerously close to committing fraud, and that you might have colluded with the United States Treasury to deceive the American public.
“Your false statements may expose GM to millions of dollars in damages, further reducing the value of the taxpayer-owned company.
"The American people, as the majority shareholders of GM, have a right to know the truth behind the cost of the GM bailout and GM’s genuine financial condition,” Issa and Jordan wrote.
You can read their full letter here.
The government's bailout of GM consisted of $49.5 billion committed to GM through Treasury’s Automotive Industry Financing Program in return for which Treasury received a 60.8 percent common equity stake in GM, $2.1 billion in preferred stock, and $7.1 billion in GM debt.
Treasury put $17.4 billion of the $49.5 billion bailout in an escrow account, which required GM to obtain Treasury’s permission to draw down. It is from this account that the repayments boasted of by Whitacre were made.
A spokesman for Issa and Jordan noted that on Nov. 16, 2009, GM said it intended to use the taxpayer money in the escrow account to finish paying back the original $7.1 billion loan. The repayments would be made no later than June 30, 2010, drawing on the taxpayer money in the escrow account to pay back the taxpayer loan.
Issa and Jordan are not the first to raise concerns about government influence over GM advertising as a result of the bailout. I reported on such worries in this space last year.
On the Senate side, Sen. Charles Grassley, R-IA, is demanding some answers from Geithner, wondering in a letter made public this week if Treasury approved what effectively amounted to GM misusing TARP escrow funds that were supposed to be used to settle claims in GM's bankruptcy settlement with parts supplier Delphi:
"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."
You can read Grassley's entire letter to Geithner here.
Accusations and worries of improper government interference with business are inevitable results of government picking winners and losers in the private economy, as was done with the trillions of tax dollars used by the Bush and Obama administrations to bail out Wall Street investment firms, GM and Chrysler, insurance giant AIG, and multiple banks.
There is a name for the kind of regime that allows private ownership of businesses but effectively tells them what to produce and sell. It's called Facism. America is far from there, but becoming a bailout nation is a significant step in the wrong direction.
Comments
Can't we just Move On?
LOL.
Not funny Bill, and yeah I get teh joke... MoveOn.org... but really, this is bad.
Maybe Geithner didn't know about Whitacre's claims or the funding source for GM's loan repayment. After all, he didn't know about AIG's counterparties getting paid 100% out of taxpayer funds, and never told BofA not to inform its shareholders of a material change of value downward. He's too busy saving us all to be involved in that small stuff.
(sarcasm off) Exactly why is this man SecTreas?
I wonder how many investors were duped into buying GM stock and related equities on the "good news". Reminds me of the good old Enron days.
GM's & Treasury's announcements were laced with misleading information. That aside, by taking the $7.1 from the escrow account and returning it, is GM saying they won't need it after all? If that's the case, then giving it back to the taxpayers might not be such a bad thing in principle, disregarding the sleight-of-hand dealings that seem to permeate this Administration. However, I read elsewhere that the motivation for retiring the outright loan portion of TARP (the $7.1B) was so they could go after a large pot of money that the Dept. of Energy is offering under some program at a lower interest rate (5% vs 7%, I think) but couldn't do it politically as long as the TARP loan was still on the books. Using taxpayer monies to pay off a current taxpayer loan so they could get a different taxpayer loan, all the while representing it as a great milestone for the company's turnaround, WOULD be a certifiable scandal. Does anyone know whether there is any truth to this?
Haven't seen polling but I would bet that the effect of these bailouts was to create a solid one third of American consumers who will never, ever purchase a Chrysler or GM vehicle again, purely on principle. I know I'm among them, and I purchased a GM vehicle a few years ago. It was obvious all along that these companies could not afford to alienate this big a portion of their customer base, but apparently they thought they could sell enough cars to UAW families, rental car companies and Uncle Sam to stay in business. All they really did was drive the few remaining consumers well-disposed towards American cars to their local Ford dealer.
Somebody in the government or GM has belatedly realized this, and is now trying to do some damage control. "Hey, we weren't bailed out, it was a loan, we paid it back, give us another chance, America". Maybe they'll get away with it somewhat, but I still think the number of people they managed to turn off forever will eventually sink them both.
Maybe they think their sales are worse because of the bailout and want to get out from under that public perception.
Bill: Unlike John, I get the joke and appreciate its relevance. Had this been a republican administration, the democrats (in cahoots with their media lapdogs) would be screaming "scandal" from the rooftops.
They would be right. This is a scandal. We can't move on.
<i>There is a name for the kind of regime that allows private ownership of businesses but effectively tells them what to produce and sell. It's called Facism.</i>
Um, no. It's called <b>Fascism</b>. You might want to correct that.
I wonder how many investors were duped into buying GM stock and related equities on the "good news". Reminds me of the good old Enron days.
Haven't seen polling but I would bet that the effect of these bailouts was to create a solid one third of American consumers who will never, ever purchase a Chrysler or GM vehicle again, purely on principle. I know I'm among them, and I purchased a GM vehicle a few years ago. It was obvious all along that these companies could not afford to alienate this big a portion of their customer base, but apparently they thought they could sell enough cars to UAW families, rental car companies and Uncle Sam to stay in business. All they really did was drive the few remaining consumers well-disposed towards American cars to their local Ford dealer.
Somebody in the government or GM has belatedly realized this, and is now trying to do some damage control. "Hey, we weren't bailed out, it was a loan, we paid it back, give us another chance, America". Maybe they'll get away with it somewhat, but I still think the number of people they managed to turn off forever will eventually sink them both.
We bought a Chevy truck in 2007, but we will NEVER buy another Chevy or GM vehicle. We refuse to support Government Motors! And now they're lying about paying back the TARP funds? The arrogance just doesn't end.
Murgatroyd, maybe it *should* be called "Facism". It's the government running everything, like Socialism, but putting the Face of a once-great icon of capitalism on the airwaves to pretend that they still believe in private industry. "Facist Fascism", perhaps? Try saying that five times. Like "She sells seashells by the seashore", except that now the government tells her which seashells she can sell and how much she's going to charge so that she's no longer an entrepreneur but just another government employee, not unlike Whitacre. OK, now I'm starting to ramble a little bit. Time to Move On.
Thanks for pointing out the meaning of the term fascism. The original sense of the word seems not to be widely known nowadays.
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