Thursday, April 29, 2010

GM Declares Success, Pays Back Government Loan With Government Money

I have seen some gloating in the previous week by people who believe GM's "early" loan payback is proof that government bailouts work, and that concerns from enraged citizens who are being taxed to bankroll GM's ineptitude are unfounded. It's time to set the record straight on this point.

As noted in the article, the government bailed out GM to the tune of $49.5 billion. However, of that amount, only $6.7 billion was a pure loan (the rest was the government buying equity stake in the company). When GM says it paid back its loan, it is only talking about the $6.7 billion, not the full amount.

"But wait!" I hear you say, "GM is still posting losses! How did they get the cash to pay back even the $6.7 billion loan?" That's a good question, and it has an easy answer: They took the cash from their government-created escrow account. In other words, they used government money to pay back their government loan. Hardly a ringing success story, though you won't see it mentioned in all the TV spots and political campaigning.

(Furthermore, if Shikha Dalmia's predictions are correct, they may have only done this to be in a better position to secure even more government money.)

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