Published April 23, 2010
General Motors announced this week that it repaid its multibillion-dollar taxpayer-backed TARP loans. GM even bragged that it was able to “repay the taxpayers in full, with interest, ahead of schedule, because more customers are buying [GM] vehicles.” There was great fanfare, including expensive, around-the-clock GM TV commercials nationwide. But, the hype is not the reality. In fact, GM did not repay the loans with money it earned from selling cars. Instead, GM repaid the TARP loans with money it withdrew from another TARP fund at the Treasury Department.
The day before the GM story broke, Neil Barofsky, the government TARP watchdog, testified before the Senate Finance Committee. He explained that GM did not use earnings to repay its TARP debt. The April quarterly report to Congress from his office stated: “The source of funds for these quarterly [debt] payments will be other TARP funds currently held in an escrow account.”
GM filings with the SEC reveal that GM was paying 7 percent interest on a $6.7 billion TARP debt. The filings also confirm that the source of funds for GM’s debt repayments was a multibillion-dollar TARP-funded escrow account at Treasury; that means it was taxpayer money — not earnings.
Meanwhile, in all the fanfare and patting themselves on the back, Treasury and GM made no mention of what happened to the $2.5 billion loan GM owes its union health care plan. The union loan carries a 9 percent interest rate and runs until 2017. Don’t most Americans try to pay off their higher-interest debts first? Well, the union loan was not paid off. Why not? Does the union get to keep collecting 9 percent from GM until 2017, courtesy of the American taxpayer, while taxpayers give up a 7 percent return over the next five years in exchange for the hope that GM stock will be worth more than what we paid for it, someday down the road?
It is far from clear how GM and the Obama administration could honestly say, much less trumpet in prime time television ads, that GM repaid its TARP loans in any meaningful way. The reality is that GM got additional TARP billions from a Treasury escrow account filled with taxpayer dollars. Taxpayers have not been paid back “in full” and are still on the hook for the TARP stock investment in GM. Whether taxpayer funds are ultimately recovered depends upon the administration’s ability to sell GM stock at a profit some day. Of course, we all hope it works out that way, and it might. But, the American people deserve more than puffed-up press releases and misleading commercials claiming that GM paid its loans back to the government with money it earned. I recognize that one of the goals of the GM ad campaign is to build trust, but GM did it all wrong, apparently with some help from the administration. Shifting bailout money from GM debt to GM stock is not the same as repaying it. Stock is riskier than debt. Maybe it’s a good idea. Maybe it’s a step in the right direction, maybe not. Only time will tell. But, we should be clear with the American people about what happened here.
The Wall Street Journal reports that Treasury is beginning to admit the truth. Treasury claims the source of the funds was “clearly disclosed” all along. Well, that might be technically true. However, to understand the disclosure you have to be a sophisticated investor with time to pore over the fine print buried in massive SEC filings and government reports prepared by independent watchdogs with teams of auditors. The average citizen, on the other hand, just sees the GM CEO saying that GM has paid back the taxpayer “in full.” The truth is that GM originally received over $49 billion from the US government and many billions remain to be recouped. That is why we were told at the Senate Finance Committee hearing that TARP losses related to the auto companies are expected to exceed $30 billion.
The timing of this maneuver also is troubling. The administration’s so-called Financial Crisis Responsibility Fee, a TARP excise tax intended to recover TARP losses, was the subject of the Finance Committee hearing. The Office of Management and Budget, and the nonpartisan Congressional Budget Office, estimate that overall taxpayer TARP losses will exceed $100 billion, and the auto companies will account for over 30 percent of that amount, more than $30 billion. So why does the president exclude the auto companies from his TARP excise tax proposal? I raised this issue at the hearing. I noted that GM refused to testify. The next day we learned that GM, with the permission of Treasury, withdrew billions from the TARP escrow fund and accelerated the repayment of the entire GM TARP loan. Immediately, GM and the administration launched a public relations campaign touting “repayment.”
Regardless of the motive, this situation is a perfect example of the shenanigans caused by excessive government intervention in the economy. Being honest with the American people is not optional. The sooner these extraordinary entanglements between taxpayers and the private sector are over, the better.
U.S. Senator Chuck Grassley of Iowa is the ranking member of the Senate Finance Committee and a senior member of the Judiciary and Budget Committees.
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