Joe, whose business has gone bad, borrows $100 from Mike. The next day he borrows another $100. Some months later, he pays Mike $100 and says: “Business has picked up. I really needed that $100.”
On April 21, the Wall Street Journal published an op ed by Ed Whitacre, CEO of General Motors, claiming GM had paid back the money it had borrowed from the government – plus interest. GM ads boasted of their rapid repayment of the company’s TARP loan debts. (The GM Bailout: Paid Back in Full)
“Today, General Motors is announcing that it has made a payment of $5.8 billion to the U.S. Treasury and Export Development Canada,” wrote Whitacre. “We’re paying back – in full, with interest, years ahead of schedule – loans made to help fund the new GM.”
Wow, I said to no one, “I can’t believe this.” GM paying back loans, as the ad says, “less than a year after emerging from bankruptcy.”
Even President Obama agreed. “Many believed this was a fool’s errand. Many feared we would be throwing good money after bad: that taxpayers would lose most of their investment and that these companies would soon fail regardless,” said Obama. (Presidential address, May 1)
Maybe what’s good for General Motors really is good for the country, I thought for a mili-second, referring to the apocryphal statement issued by GM President Charles E. Wilson in 1953. After all, Whitacre reassured us that “the industry is recovering at a pace few thought possible.” (Wilson actually said: “I thought what was good for the country was good for General Motors and vice versa.”)
Wait! Did this mean Americans are back to their old habit, buying cars in large numbers? Whitacre insisted the pay back “is a sign that our plan for building a new GM is working.” A crisis emerging from making lousy, gas guzzling cars that only fools and government agencies bought, GM had turned around and taken “an important step toward eventually reducing the amount of equity the governments of the U.S., Canada and Ontario hold in our company. Combined, these governments hold a majority of GM’s equity, and we want citizens to know how their governments’ money is being put to work.”
Indeed, Whitacre concluded, “You can feel a renewed energy and commitment at GM. Our new vehicles are generating sales, and these sales are allowing us to make investments and create jobs.”
Treasury Secretary Tim Geithner also supported GM’s claims. “We are encouraged that GM has repaid its debt well ahead of schedule and confident that the company is on a strong path to viability.” He mentioned nothing of the escrow account.
Then, Republican Senator Chuck Grassley (IA) pointed out what everyone should have known. “Whitacre was just shuffling TARP (Trouble Asset Relief Program) money from one account to another.” (NYT, May 2)
Indeed, Treasury knew of this unpublicized account from which GM drew the funds to make the payment. GM didn’t use the profits from sales of Chevys and Buicks, but, according to assistant secretary for financial stability Herbert M. Allison, Jr., “the money GM used to repay its bailout loan had come from a tax-payer financed escrow account held for the automaker at the Treasury.” (Morgenstern, NYT, May 2)
Grassley laid out the problem. “The public would know nothing of the Tarp escrow being the source of the supposed repayment from simply watching GM’s TV commercials or reading Treasury’s press release.”
Above and beyond the spin used by GM and Treasury to convince taxpayers that GM had used its own profits to repay a public loan, the larger questions remain, ones not raised since the famous equation of GM’s interest with those of America.
How can auto and truck sales be good for the country at a time of history when the greenhouse gas effect threatens the future of the world? The massive bailouts of the auto giants saved some jobs at a terrible economic time. But crisis situations – life or death – often dictate less than healthy solutions.
Beyond getting fooled by GM and Treasury propaganda over loans, we, the public, continue our course of denial about the automobile as a central instrument of the U.S. economy and our daily lives. No matter how many hybrids replace the old gas guzzlers, this country and the world cannot continue to rely on this 20th Century polluting industry to guide our future. And we leave it to government officials and GM executives to run our affairs?
Saul Landau is an Institute for Policy Studies fellow. His films on DVD are available at Round World Productions.