GM Pays Back Government Loans

GM Pays Back Government Loans


Yep. We’ll never see that money again. And certainly not 5 years ahead of schedule.

Just like we’ll never see the TARP money again.

From the AP:

GM got a total of $52 billion from the U.S. government and $9.5 billion from the Canadian and Ontario governments as it went through bankruptcy protection last year. At first the entire amount of U.S. aid was considered a loan as the government tried to keep GM from going under and pulling the fragile economy into a depression.

But during bankruptcy, the U.S. government reduced the loan portion to $6.7 billion and converted the rest to company stock, while the Canadian governments held $1.4 billion in loans. Those loans were repaid Tuesday, five years ahead of schedule.

The automaker hopes to repay the remaining $45.3 billion to the U.S. government and $8.1 billion to Canada via a public stock offering, perhaps later this year. The U.S. government now owns 61 percent of the company and Canada owns roughly 12 percent.

And just like with the TARP repayments…we’ll make a profit.

In fact, we’ve had $186B paid back and less than $200B is outstanding. So, if we get it all back in the next 2 years…will we get some recognition from conservatives and libertarians that doing this was better than letting our banking system collapse and driving us into a second Great Depression?

I’m just saying…

  • bobcat

    Its rarely pointed out that if the government hadn’t purchased those banking industries, foreign interests might have. I’m glad things are improving.

  • Transplanted Lawyer

    You’ll get recognition of that fact from this libertarian GOP’er, although I can’t speak for anyone else. I’m glad to have been wrong about not getting the money back and I’ll be gladder when the PSO actually happens so that the two governments become divested of equity stakes in the company.

  • gerryf

    thank you toyota!

  • Justin Gardner

    bobcat, exactly. That wouldn’t be ideal. The free market, especially in a global marketplace, doesn’t make us stronger from a national perspective.

    TL, appreciate the honesty and agreed about the PSO. The government shouldn’t own common stock in normal circumstances, but these last couple years proved that normal circumstances aren’t necessarily the norm. Thankfully we had a government that would intervene and make sure to catch the falling knife.

    gerryf…exactly! I’m so much more inclined to purchase an American car than ever before. How weird is that? In fact, I’ve got my eye on that Ford Flex.

  • kranky kritter

    Funny, I just heard on TV yesterday that the gov’t forgave a substantial portion of this debt, meaning they don’t expect to get that portion back. Sort of dents your snarky hypothesis.

  • Jimmy the Dhimmi

    Dont forget that this money was all printed out of thin air, and credited to GM by the federal reserve. Just like TARP, the money for the loan never existed until the day the loan was issued. We’ll see how long we can keep this up before there are serious reprocussions.

  • Nick Benjamin

    Are you sure the loans were forgiven?

    I googled for that story, and found a blog post from 2009 that said Obama was thinking about forgiving some loans. But nothing recent, and nothing that said any loans were actually forgiven.

  • kranky kritter

    It’s just something I heard in passing on the radio or tv, just a day or two ago. that some portion of the GM loans were forgiven. It was a news reporter though, not a pundit. That’s all I remember. Maybe CNN or CNBC, but i just don’t recall.

    If it’s wrong, my bad for passing on hearsay.

  • Justin Gardner

    kranky, I can’t find any mention of it online. I found some stories about Chrysler mentioning that they wouldn’t be able to pay their loans last year at this time, but not right now.

    Appreciate the acknowledgment that it could be hearsay.

  • Jimmy the Dhimmi

    Well, there is this article but it doesn’t have much detail in it:

    “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.”

    We propped up a failing business model with printed money, and now they seem to be using more printed money to pay off their loans. Hopefully they invent some revolutionary new automotive technology soon, because I’m not so hopeful for the future.

  • Tully

    In short, bullshit. Go look up the meaning of the phrase “confirmation bias,” Justin, because you’ve a bad case of it. It’s kinda like wearing ideological beer goggles.

    So, if we get it all back in the next 2 years…will we get some recognition from conservatives and libertarians that doing this was better than letting our banking system collapse and driving us into a second Great Depression?

    No, because that’s demanding a negative proof and asserting an undemonstrable claim as the benchmark. A lesser intervention would have done the trick as well, and there’s no solid evidence that we were heading into a “Second Great Depression.” Hysteria and partisan hyperbole are not valid substitutes for evidence. We would have had a sharper system shock without TARP, but it would have been a shorter-lived one. (Personally I think TARP as originally written was justified — but it wasn’t implemented as written. Like All Things Government, it grew.) And the simple fact is that we WON’T “get it all back.” Not in two years, perhaps not in twenty.

    Nor does a repayment of 13% of principal on one part of the total come remotely close to a profit, though it does beat out a total default. In nationalizing GM after the initial bailout the rest of the “loan” was converted into common stock. For GM in particular any TARP “profit” will come from the eventual sale of that common stock, if and when, and just digging a little deeper into the article:

    GM officials say the company’s public stock offering will take place when the markets and the company are ready. They will not predict how much of the remaining government debt will be repaid from the stock offering, but said it likely will take years for the governments to divest themselves fully.

    Also as I’ve previously noted about TARP, the cheerleading once again fails to mention the hundreds of billions of dollars in bad-asset guarantees, a tab we won’t know the extent of until all those assets have actually been sold and losses realized against the guarantees. That loss portion will not go “on the books” until the liability as manifested by the sale of the assets determines how much of the guarantees must be paid out. On the banking side alone, we issued $425 billion in bad-asset guarantees, more than the actual cash portion of TARP expended. And we won’t get remotely $425 billion back on those (they’re BAD assets, after all) so the question is, what is the X in $425B – Actual Recovery Amount = X? ‘Cause X belongs on the debit side of the sheet, and we won’t know what it is for years.

    That’s also ignoring the shifting of many bad real-estate assets into Fannie and Freddie, thereby taking them off of the federal books by misdirection without making them actually go away. The Treasury issued Fannie and Freddie an extra $800 BILLION in drawing rights to cover potential losses from their current assets after the shifting was done. So mow much of that is from shifted TARP assets? We don’t know — they’re hiding the pea under the shells.

    In the end, we perhaps stopped a major financial meltdown with TARP, but at great future cost. Not just in money and gov’t debt, but in job growth and future economic growth and in future inflation. Other nations had similar problems with the same sources — everything really does tie together. It is no coincidence that those nations which used much less extensive bailout programs are now showing much stronger recoveries than the jobless bottom-scraping we’re seeing here. TANSTAAFL.

    And we’ve created a massive slush fund of re-paid TARP money that the current majority seems to have no intention of actually returning to the Treasury against the debt that created it, but prefers to turn into expanded spending. Good luck figuring out the tab on that, but it’s spending that would have had to fight its way into being if the TARP bill hadn’t been abused to create that money pool in the first place.

    And it gets even better worse. TARP Inspector General Neil Barofsky, echoing his Congressional testimony on Tuesday:

    “I think the one thing that a lot of people overlook with this is where they got the money to pay back the loan. And it isn’t from earnings. … It’s actually from another pool of TARP money that they’ve already received,” [Barofsky] said Wednesday. “I don’t think we should exaggerate it too much. Remember that the source of this money is just other TARP money.”

    They used TARP money to pay down their TARP loan. That’s like paying your credit card with your cash advances from your credit card.

  • Justin Gardner

    Tully, yet again you’re all over the place. Throw insults at me if you like, but it seems like you’ve got some blinders on of your own.

    First, you claim I’m asking for negative proof and then you claim that a lesser intervention would have done the trick? So how exactly are we suppose to prove that? I’m talking specifically to those who said we’d never see this money again and we should instead let our banking and manufacturing sectors fail. If that group contains you, so be it.

    As far as sending us into a second great depression, credit was frozen world wide. And since you agree with the TARP, in theory, you’re also acknowledging that TARP was needed. And then you say that we did this at greater future cost? Well, we’ll see, right? So far no signs of the massive inflation we were warned about and our economy is gaining jobs. So what if we’re not gaining as fast as compared to other countries. We’re bigger and our crisis was systemic and homegrown. So, pardon us if it takes longer.

    I contend that we would have been far worse off, both in the short term AND the long term, if we would have gone the route suggested by most conservative and libertarian economists. Because we would have crashed the ENTIRE SYSTEM. And every single country would have banded against us at that point because we didn’t do something to stop the fall. And our credit rating would have dropped into the basement and all of those countries who hold our debt would have come calling.

    Do know I’m digging into the Barofsky story more, but what that sounds like to me is they’re taking from the money they received when the US bought their stock. So once they offer their pool of stock to the public later on in the year, that should make it even and we should get interest back as a result. So your simplistic analogy doesn’t hold water. If they needed that money to run their business, they never would have used it to pay down their debt. Just the fact that they had money to pay down their debt means they’re now in a stable enough financial position to do it.

  • Nick Benjamin

    I don’t pretend to like the banking bailout. Unfortunately something needed to be done, and the only guy capable of action said he needed $750 Billion to bail them out.

    But it’s impossible for me to see how not bailing the auto companies out would have helped anybody. Their shareholders got wiped out. There are no businessman anywhere who think that wiping your shareholders out is ethical, or acceptable. Which eliminates the moral hazard argument. As Tully pointed out wiping them out would have destroyed the UAW pension funds, which would have flooded the labor market with millions of former retirees.

    Moreover they would have been in Chapter 7 bankruptcy. That’s millions more unemployed, their suppliers would go under (probably under Chapter 7 as well, they hadn’t been paid for months, and as Tully pointed out in the other thread they’d be last in line for payment under Chapter 7 rules), their dealers die, etc.

    It’s very easy to Monday-morning quarterback this stuff. But I have not seen any alternative plan that would have worked.

  • Tully

    No, it wouldn’t have wiped out the union pension funds, Nick, just speeded up their crunch. They’re in the same lousy situation today that they would have been in had GM folded, but the taxpayer guarantors (us!) are now worse off, as the GM deal allows them to grow their unfunded obligations and the union has ownership power to expand the problem. See this week’s GAO report. Depressing. Another $15 or $20 billion we’re on the hook for.

    Justin, calling ignorance and cheerleading just that when that’s what I honestly see is not being insulting. Truth is not a slander. Nor does accusing me of holding different positions than what I actually said impress me much, it merely indicates that you didn’t read very closely. Since I never said we should let everything crash, please toss that straw man at someone else. I said I was supportive of the original TARP … which called for short-term bridge loans in critical industries, not massive buy-in equity stakes and nationalization and pseudo-nationalization and de facto government control of the auto and finance industries, which is what the admin has turned TARP into.

    I also get a giggle out of you saying that the whole world woulda crashed, yet our own problems are homegrown and therefore the fact that other nations that DID go the short-term bridge-loan route can’t be used as examples on how we could’ve done it better. Heh. If our problems were homegrown, we couldn’t crash the world. Yes, the relevant evidence suggests we could’ve done this cheaper and better. We could have done it cheaper and better just following the original billinstead of perverting it.

    So once they offer their pool of stock to the public later on in the year, that should make it even and we should get interest back as a result.

    ROFLMAO. The GAO disagrees with you, as do GM execs. Yes, I actually read their reports before ranting in public, not just spout back (with added optimistic cheerleading spin) whatever some ill-informed news hack pushes out onto the net that fits my pre-disposed hopes. Here’s a direct and relevant quote from the NV09 report on the very question:

    Regardless of the option pursued, however, Treasury is unlikely to recover the entirety of its investment in Chrysler or GM, given that the companies’ values would have to grow substantially above what they have been in the past.

    And re-read the quote from GM officials themselves upthread. Tell me where you find “later on in the year” in either of those. You can’t. It isn’t there. We are talking YEARS down the road, IF AND WHEN, before any talk of “profit” is appropriate. But you keep swinging that bat anyway. Here, let me depress you some more. Here’s the GAO search page on TARP. Happy homework, read ’em and weep. Always best to start with primary sources, no? You’d think I was the only person who can find them.

    Bottom line: GM is not now and is unlikely in the immediate future to be in a profit position, and until they are capable of survivability without the backing of Big Daddy Washington, their stock will be worth diddly. Which is why they haven’t issued any onto the markets, and remain a closed union/govt-owned nationalized company.

    We can also leave aside for now the $6B+ Treasury has already written off in “loans” to the “old ” GM and Chrysler — though that belongs on the debit side of the TARP sheet as well. What the new GM did was get a large bridge loan. So far under TARP, so good. Then the government (with heavy union urging) decided to turn that into mostly equity, effectively nationalizing the company and giving a big chunk of it to the union. That was NOT what the original TARP bill authorized. (Yes, there are some similarities to what the admin did in the financial industry there.) Then GM gave the government some money that the gov’t had given GM, and got it credited as payback “in full” of that protion of the loans not already converted into equity …

    Inside intel is that GM only paid the money to better qualify for $10B in grants for “green” tooling in their factories. In short, GM borrowed money from the govt to give back to the govt to enable it to get free money from the govt.

    Employment remains flat, no matter what you believe. Wages continue to slump. Inflation is indeed starting to make itself known, and will accelerate when consumer demand picks up (the bad comes with the good).

    Could be worse. We seem to be bottomed out for the moment, which beats hell out of free-fall. But there does not seem to be any miracle recovery waiting in the wings, as you seem to think. We’re looking at a long recovery, perhaps years.

  • Larry

    I wonder what Ayn Rand would say about government “helping” big business. She probably would approve and tell the companies to `stiff” the government because its too big already. But, Ayn, isn’t capitalism supposed to take care of it’s own problems, as in going out of business and more virile companies buying their assets and stepping up to the plate (sorry about the baseball analogy)? Isn’t that what capitalism is all about? But regulated capitalism doesn’t work well because, duh! its regulated by the companies themselves and their interests dominate. Oh well, what’s a real conservative going to do? Get rich any way you can. Well, we had a good run.

  • juries

    Being out of loans is an hearsay, the government are supporting businesses but not proven that one has been freed from loans. Yeah right! everybody is concern on how to get rich.