Thieves at GM-Repaying Taxpayers With Their Own Cash
AS we inch closer to a clearer understanding of the products and
practices that unleashed the credit crisis of 2008, it’s becoming
apparent that those seeking the whole truth are still outnumbered by
those aiming to obscure it. This is the case not only on Wall Street but
also in Washington.
Truth seekers the nation over, therefore, are indebted to Senator
Charles E. Grassley, Republican of Iowa, who in recent days uncovered
what he called a government-enabled “TARP money shuffle.” It relates to
General Motors, which on April 21 paid the balance of its $6.7 billion
loan under the Troubled Asset Relief Program.
G.M. trumpeted its escape from the program as evidence that it had
turned the corner in its operations. “G.M. is able to repay the
taxpayers in full, with interest, ahead of schedule, because more
customers are buying vehicles like the Chevrolet Malibu and Buick
LaCrosse,” boasted Edward E. Whitacre Jr., its chief executive.
G.M. also crowed about its loan repayment in a national television ad
and the United States Treasury also marked the moment with a press
release: “We are encouraged that G.M. has repaid its debt well ahead of
schedule and confident that the company is on a strong path to
viability,” said Timothy F. Geithner, the Treasury secretary.
Taxpayers are naturally eager for news about bailout repayments. But
what neither G.M. nor the Treasury disclosed was that the company simply
used other funds held by the Treasury to pay off its original loan.
Neil M. Barofsky, the inspector general overseeing the troubled asset
program, revealed this detail when he spoke before the Senate Finance
Committee on April 20.
“So it’s good news in that they’re reducing their debt,” Mr. Barofsky
said of G.M. But he went on to note that G.M. was using other taxpayer
money to make the loan repayment, according to the transcript of his
Armed with this information, Mr. Grassley fired off a letter to Mr.
Geithner on April 22, asking for details of the transaction. “I am
concerned ... that this announcement is not what it seems,” he wrote.
“In fact, it appears to be nothing more than an elaborate TARP money
Mr. Grassley heard back from the Treasury last Tuesday. Herbert M.
Allison Jr., assistant secretary for financial stability, confirmed that
the money G.M. used to repay its bailout loan had come from a
taxpayer-financed escrow account held for the automaker at the Treasury.
Emphasizing that the cash in the account was “the property of G.M.,” Mr.
Allison said that the department had approved the company’s use of the
money to retire the original debt because it was “consistent with
Treasury’s goal of recovering funds for the taxpayer and exiting TARP
investments as soon as practicable.”
It’s certainly understandable that G.M. would want to spin its repayment
as proof of improving operations. But Mr. Grassley said he was troubled
that the Treasury went along with the public relations campaign and
didn’t spell out how the loan was retired.
“The public would know nothing about the TARP escrow money being the
source of the supposed repayment from simply watching G.M.’s TV
commercials or reading Treasury’s press release,” Mr. Grassley said in a
speech on the Senate floor last Wednesday, saying that “many billions”
of federal dollars remained invested in G.M.
“Much of it will never be repaid,” Mr. Grassley added. “The
Congressional Budget Office estimates that taxpayers will lose around
$30 billion on G.M.”
(Taxpayers still own $2.1 billion in preferred stock of G.M. and almost
61 percent of its common equity.)
Greg Martin, a G.M. spokesman, said the company had made no
misrepresentations about its repayment. “The bottom line is, our strong
business performance has put us in the position that we don’t need these
funds,” he said, referring to the cash in the escrow account. “G.M. is
performing much better than anyone expected and that does represent a
significant milestone for the company.”
And Ron Bloom, senior adviser to Mr. Geithner, bristled at Mr.
Grassley’s criticism. “The Treasury Department has tried to be as
straight as humanly possible,” he said in an interview. “We have never
not been clear about exactly what we paid, exactly the terms of the
investment. I’m finding it hard to find anyone obfuscating about this.”
Of course, there is much joy in Mudville when a recipient of government
aid repays its obligations. And it is also natural that the
administration is keenly interested in reassuring taxpayers that losses
on their bailout billions will be smaller than expected. Still,
employing spin and selective disclosure is no way to raise taxpayers’
trust in our nation’s leadership.
In an interview, Mr. Grassley said the Treasury had stopped “denying”
that G.M. used federal funds to repay its TARP loan, but the fact that
Treasury hadn’t been upfront about it still troubled him.
“It emphasizes how misleading Treasury was and how misleading G.M. is as
well,” said Mr. Grassley. “I hope Treasury learns its lesson, and that
is: Tell it like it is, and if you tell it like it is you don’t get egg
on your face.”
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