GM's Misleading Repayment Claim

http://www.futureofcapitalism.com/2010/05/gm-tarp-repayment

ReasonTV has a short video explaining a point we've been harping on here for some time -- that it's utterly misleading for General Motors and Treasury Secretary Geithner to claim that GM's government bailout has been "repaid in full." The Washington Examiner also has an editorial today on the point. The Reason video moves the ball ahead by pointing out that, even while claiming it has "repaid in full," GM has applied for a $10 billion government loan to retool its production line to make more fuel-efficient cars. It's a bit like a homeowner refinancing his second mortage, except that when a homeowner refinances a mortgage, usually he goes for a lower interest rate.

Yet a press release issued by Senator Grassley, a Republican of Iowa, says GM paid back the federal loan at a 7% rate while leaving unpaid a union loan at a 9% rate:

The GM commercial also did not mention that GM could have used the TARP escrow funds to repay a $2.5 billion, nine-percent loan it received from its union health plan as part of the bankruptcy process. The union loan runs until 2017. The TARP loan was at seven percent and ran until 2015. What sort of money manager would advise you to pay off a lower interest loan before a higher interest loan?

Mr. Grassley goes on to point out that the $10 billion Department of Energy loan would carry a 5% rate. Looks like the taxpayers got a worse deal from GM than the union did.

by Ira Stoll  |  May 3, 2010 at 9:11 am Related Topics:  Auto Industry, Energy, Non-Profits, Press, Timothy Geithner receive the latest by email: subscribe to the free futureofcapitalism.com mailing list