The further to the left or the right you move, the more your lens on life distorts.

Tuesday, April 27, 2010

Pay Back

Anyone who watches even a little U.S. television has seen the recent GM add. The CEO of the partially taxpayer-owned automotive company, Ed Whitacre, walks jauntily down an assembly line speaking directly to the camera. He tells the viewer that GM has paid back its loans to the government "in full, with interest, five years ahead of the original schedule."

Really? Let me pose a thought experiment. You owe money to a friend—a lot of money—that you borrowed to save a failing business. You promise to pay it back, but the business model is poor, overhead expenses are enormous, and you’re not even close to profitable. So you ask the same friend to loan you more money so you can pay back the original loan. Have you repaid the original loan?

I doubt the friend would think so.

That’s what GM has done, and they’re now misleading U.S. taxpayers with cheesy commercials that are outrageously misleading. The Denver Post comments:
The assertion is based on the fact that GM used funds from a line of credit offered to it under TARP to pay off a $5.8 billion loan from the U.S. and Canadian governments. In other words, GM paid off a fraction of the tens of billions of dollars taxpayers have invested in the company from another taxpayer-funded account.

Meanwhile, the company continues to lose money, though it has shown promising signs of late in increased sales.

Yes, Whitacre acknowledges in his op-ed [in the Wall Street Journal] that GM still needs to pay back the money invested in it by the U.S. and Canadian governments to help the company emerge from bankruptcy. But he fails to remind readers of the delicate fact that that investment is worth $50 billion.

Over the past 24 months, under Presidents Bush and Obama, the taxpayers have been asked to bail out the “too-big-to-fail” crowd. Interestingly, we take all the risk, and will not share in any of the profits, should they materialize. It’s bad policy and worse, it tells big business that it can act irresponsibly over many decades without any worry about paying the ultimate price—bankruptcy and/or dissolution. Not a problem—we’ve got their backs.

The least we might expect is honesty, but then again, that’s a commodity in very short supply among the Washingtom crowd and their “too-big-to-fail” buddies.