Outright Fraud

I was suspicious of GM's announcement that they were paying off government loans quickly, an action that was attached to a clear PR message that can be boiled down to "taxpayers did the right thing giving us billions."  I was suspicious because I had thought most of the money GM got was an equity infusion as well as certain guarantees, such as of the UAW mention and retirement medical plans.  As such, I suspected that a small debt repayment was trivial and just a token PR move.

I was wrong.  Well, actually, everything I wrote above is correct.  But I was wrong in that I underestimated how fraudulent this announcement was.

The issue came up yesterday at a hearing with the special watchdog on the Wall Street Bailout, Neil Barofsky, who was asked several times about the GM repayment by Sen. Tom Carper (D-DE), who was looking for answers on how much money the feds might make from the controversial Wall Street Bailout.

"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."

In other words, GM is taking money from the Wall Street Bailout "“ the TARP money "“ and using that to pay off their loans ahead of schedule.

"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."

Translated "“ they are using bailout funds from the feds to pay off their loans.

Un-freaking-believable.   And as an aside, I know that we traditionally have a 5-year waiting period, but can we go ahead and add TARP now to the hall of fame of worst legislation?

Update: It turns out it is even worse.  More Here.


  1. Judge Fredd:

    The Red Flag went up almost immediately when I read about this yesterday. I though to myself, "Something just isn't right about this announcement. A year ago, they're screaming for money, and now they're in tip top shape to pay off loans?"

    Glad to see my suspicion was correctly justified.

  2. TomB:

    The GMAC bailout also should figure into the amount given to GM. I guess that GMAC is technically a separate company. But it seems that GMAC is separate from GM in the same way the Fannie and Freddie are separate from the federal government.

  3. Noah:

    Except for GM and Chrysler shenanigans, TARP turned out to be profitable.

    The Obama administration went far beyond the statutory language of TARP when it went to the aid of the UAW. TARP belongs in the worst executive actions hall of frame.

  4. IgotBupkis, Official Proofreader To The Stars:

    > ...of the UAW mention and...

    Ummm... is that supposed to be "UAW pension"?

  5. mesaeconoguy:

    The real brilliant fraudulence (fraudulent brilliance?) of this is, because all equity shareholders have been wiped out, and virtually all creditors who would challenge this are gone, no class action can arise from what is simply debt-shifting, and re-upping a lending facility (at further taxpayer expense).

    And, because GM (and Chrysler) are now government-owned, they’re effectively no longer subject to Sarbanes-Oxley, which this violates, or GAAP rules, which this clearly violates.

    Somebody needs to stop these people.

  6. ben:

    can we go ahead and add TARP now to the hall of fame of worst legislation?

    No no, surely Cash For Clunkers has to be up there, right along slaughtering pigs, as Great Ideas in Amercian politics. Ok, it wasn't nearly large enough to do much damage, but for sheer bone-headedness, the sheer ignorance of ignoring every basic economic law in spite of the near (Krugman excepted) universal condemnation by economists, despite falling so obviously once again for the broken window fallacy, it went ahead.

    There's also something deeply disturbing as an outsider watching Americans, the world's richest and most powerful nation, referring to five year old perfectly serviceable cars as 'clunkers' and needlessly destroying good vehicles.

  7. keith:

    These people have no shame. GM (http://www.foxnews.com/politics/2010/04/23/gm-hot-water-ftc-truth-advertising/) and the administration (http://www.whitehouse.gov/blog/2010/04/21/auto-industry-a-year-later) both are claiming that they paid this loan back 5 years early. It only takes a quick trip to the Edgar database on the SEC website to pull up the 10-Q (quarterly) report GM filed on April 4th to see that this is misleading at best. From page 39 of the report:

    "UST Loans and VEBA Notes

    The $16.4 billion in escrow will be distributed to us at our request upon certain conditions as outlined in the UST Credit Agreement. Any unused amounts in escrow on June 30, 2010 are required to be used to repay the UST Loans and GMCL Canadian Loan with EDC. Unless the UST agrees to an extension, at our request, of up to an additional 12 months to June 30, 2011, any funds remaining in our escrow account after repayment of the loans will be released to us."

    Elsewhere it states that GM signed an agreement in January removing their ability to extend the one year. It was planned all along to repay the loans with the escrow account this spring. I don't know why I find their dishonesty so infuriating but I do. I guess it's because I know most people are not skeptical enough to question the administration position let alone actually looking it up. You would think this is the kind of thing an eager journalist could look up. It took me less than five minutes to pull up Edgar and find this.

  8. mbts-mbtshoes:

    It was planned all along to repay the loans with the escrow account this spring