On Wednesday, the Detroit Free Press published the Mike Thompson cartoon seen at the right. It shows a GM bigwig carrying a briefcase telling a recoiling Barack Obama, Nancy Pelosi, and three other politicians that "We're going to pay off the loan." The cartoon's caption is, "The Seven Dirty Words You Can't Say in Washington."
At his blog, where a full-size version of the cartoon can be found, Thompson writes:
You have to wonder what those who opposed the GM bailout think about the loan repayment. ...
It’s way too early for those who favored government aid for GM to break out in loud chants of “I told you so,” but if the good news out of GM continues, they might want to start thinking about warming up their vocal cords.
In his April 23 "Uncommon Sense" column at Forbes.com (HT Instapundit), Shikha Dalmia tells Thompson what he thinks, and suggests not scheduling the opera any time soon (bold is mine):
... before belting out their victory aria, GM-boosters ought to hear the whole story--not just the fairytale version about Government Motors' grand comeback that Mr. (GM Chairman Ed) Whitacre is feeding them.
Uncle Sam gave GM $49.5 billion last summer in aid to finance its bankruptcy. (If it hadn't, the company, which couldn't raise this kind of money from private lenders, would have been forced into liquidation, its assets sold for scrap.) So when Mr. Whitacre publishes a column with the headline, "The GM Bailout: Paid Back in Full," most ordinary mortals unfamiliar with bailout minutia would assume that he is alluding to the entire $49.5 billion. That, however, is far from the case.
... when Mr. Whitacre says GM has paid back the bailout money in full, he means not the entire $49.5 billion--the loan and the equity. In fact, he avoids all mention of that figure in his column. He means only the $6.7 billion loan amount.
But wait! Even that's not the full story given that GM, which has not yet broken even, much less turned a profit, can't pay even this puny amount from its own earnings.
So how is it paying it?
As it turns out, the Obama administration put $13.4 billion of the aid money as "working capital" in an escrow account when the company was in bankruptcy. The company is using this escrow money--government money--to pay back the government loan.
GM claims that the fact that it is even using the escrow money to pay back the loan instead of using it all to shore itself up shows that it is on the road to recovery. That actually would be a positive development--although hardly one worth hyping in ads and columns--if it were not for a further plot twist.
Sean McAlinden, chief economist at the Ann Arbor-based Center for Automotive Research, points out that the company has applied to the Department of Energy for $10 billion in low (5%) interest loan to retool its plants to meet the government's tougher new CAFÉ (Corporate Average Fuel Economy) standards. However, giving GM more taxpayer money on top of the existing bailout would have been a political disaster for the Obama administration and a PR debacle for the company. Paying back the small bailout loan makes the new--and bigger--DOE loan much more feasible.
In short, GM is using government money to pay back government money to get more government money. And at a 2% lower interest rate at that. This is a nifty scheme to refinance GM's government debt--not pay it back.
Dalmia concludes by asking, "surely it's premature for its media boosters to pop open the champagne bottle without getting their story straight?"
Given how the establishment press has virtually ignored the criticisms of TARP Inspector General Neil Barofsky and Iowa Senator Chuck Grassley (noted Friday at NewsBusters; at BizzyBlog) I would guess not. It would be nice to see Mike Thompson or other media members own up to the fact that GM's loan payment has no substantive significance, and that their gullible relaying of Whitacre's spin -- including the Wall Street letting the deceptive headline appear -- has been irresponsible. You can rest assured that I won't be waiting by my e-mail box 24-7 to see if this occurs.
Cross-posted at BizzyBlog.com.
