GM’s “Claims” of Repayment
During the economic crisis that unfolded over the last few years, the federal government became the lender of the last resort, not because it had any money, but because it had the ability to borrow money on behalf of the taxpayers to lend to struggling businesses.
The Treasury Department and Congress were the judge and jury, and summarily decided which failing businesses were worth saving and which ones were to be allowed to ride out the financial storm unassisted. The American International Group (AIG) and General Motors (GM) were two of the chosen ones and were offered an enormous amount of taxpayer aid. GM received about $50 billion, while AIG received in excess of $180 billion in government support. According to an April 2, 2010 FOXBusiness article, AIG has made some progress in repaying taxpayers, but is still 80 percent owned by the taxpayers and owes $70 billion in government aid. GM’s repayment issues are even more difficult to parse, partly due to recent TV ads claiming that the company has repaid some of its government loans.
The ads, which aired on major network television stations in April, claimed that GM has repaid $6.7 billion worth of its government loans, with interest, five years ahead of schedule. While taxpayers may believe they are on the way to being made whole again, GM’s statements are misleading.
Capitol Hill lawmakers, including Sen. Charles Grassley (R-Iowa), immediately raised questions about the veracity of the company’s claims. In fact, the company was apparently allowed to dip into one pool of taxpayer funds to repay its other bailout obligations. In an April 20, 2010 hearing on the matter before the Senate Finance Committee, Sen. Tom Carper (D-Del.) said, “It sounds like they’re kind of taking money out of one pocket and putting it in the other to do that.”
To add insult to injury, Sen. Grassley cited the Congressional Budget Office when he said that the government is expected to take a loss of $30 billion or more on its GM investment. It does not help that the company has not had a profitable year since 2004, and even rudimentary economic theory suggests that it will be tricky for any company so deep in a financial hole to pay back a loan of that magnitude. The federal government still owns more than $40 billion in GM stock, about 61 percent of the company. Even President Obama’s so-called “Car Czar,” Steve Rattner, said that GM executives “slightly elasticized the reality of things” by airing an ad claiming it had repaid its government loans “‘in full.’”
The Competitive Enterprise Institute filed a formal complaint on May 4, 2010 with the Federal Trade Commission asserting that the ads violated truth-in-advertising laws.
Unfortunately, as if GM’s misleading ads are not enough, the government loan given to the company’s financing arm, GMAC Inc., also looks like a terrible investment. The Congressional Oversight Panel tasked with oversight of the $700 billion TARP program has been critical of the weak oversight and absence of accountability in the program, including the TARP funds that went to GMAC. A March 10, 2010 report by the Congressional Oversight Panel noted, “Treasury’s early decisions in its rescue of GMAC resulted in missed opportunities to increase accountability and better protect taxpayers.” The report also noted that the Office of Management and Budget estimated that more than $6 billion of the $17.2 billion in aid may never be repaid.
Taxpayers are once again learning that they should be suspicious whenever Congress and the executive branch collaborate and act in haste to pass enormous and complex legislation, especially when borrowed money is used to bail out specific industries. The GM ads reinforce the old adage that people should not believe everything they hear on television.
— MacMillin Slobodien
