The GM Bailout Payback Magic Trick

If you want to make millions the easy way, this would seem the way to go:

But, if you want to make billions the easy way, I suggest you use the easy GM Bailout Payback Magic Trick:

Step 1: Get a Government Bailout of Taxpayer Money

From Forbes:

Uncle Sam gave GM $49.5 billion last summer in aid to finance its bankruptcy. (If it hadn’t, the company, which couldn’t raise this kind of money from private lenders, would have been forced into liquidation, its assets sold for scrap.) …

Because a loan of such a huge amount would have been politically controversial, the Obama administration handed GM only $6.7 billion as a pure loan. (It asked for only a 7% interest rate–a very sweet deal considering that GM bonds at that time were trading below junk level.) The vast bulk of the bailout money was transferred to GM through the purchase of 60.8% equity stake in the company

STEP 2:  Pay back just the 39.2% of the bailout — the TARP loan (not including interest) by using some of the bailout’s escrowed TARP equity money (the part of the taxpayer bailout that made taxpayers shareholders in GM).

From TARP watchdog Neil Barofsky, Special Treasury Department Inspector General to oversee the Troubled Assets Relief Program:

“It’s good news in that they’re reducing their debt,” Barofsky said of the accelerated GM payments, “but they’re doing it by taking other available TARP money.”

In other words, GM is taking money from the Wall Street Bailout – the TARP money – and using that to pay off their loans ahead of schedule.

“It sounds like it’s kind of like taking money out of one pocket and putting in the other,” said Carper, who got a nod of agreement from Barofsky.

“The way that payment is going to be made is by drawing down on an equity facility of other TARP money.”

STEP 3: Ask the federal government for another bigger loan with a lower interest rate.

More from Forbes:

Sean McAlinden, chief economist at the Ann Arbor-based Center for Automotive Research, points out that the company has applied to the Department of Energy for $10 billion in low (5%) interest loan to retool its plants to meet the government’s tougher new CAFÉ (Corporate Average Fuel Economy) standards. However, giving GM more taxpayer money on top of the existing bailout would have been a political disaster for the Obama administration and a PR debacle for the company. Paying back the small bailout loan makes the new–and bigger–DOE loan much more feasible.

STEP 4:  Make ad touting how you’ve paid back your loan in full and ahead of schedule.  Then run it frequently to ensure everyone knows how successful you’ve been at making money. 

The GM’s ad :

Now wasn’t that an amazing trick? A payback that wasn’t a payback at all, just a loan trade-up. And all with the taxpayer’s money. But of course we didn’t get a bigger stake in GM from it. We didn’t even get a thank you.

And just in case you were wondering if we would see a payback of the rest of the $49.6 billion TARP investment anytime soon?

Forbes Again:

No. That goal has been pushed back, as it turns out.

In order to recover that investment, the government has to sell its equity. It plans to do that only when GM becomes a publicly traded company once again. GM was hoping to turn a profit by the end of 2010 and float an initial public offering this winter. However, GM Chief Financial Officer Chris Liddell, when queried about that timeline a few days ago, demurred. The offering will be made, he said, “when the markets and the company are ready.”

The General Accountability Office, on the other hand, remains deeply pessimistic. It concluded in a December report (which a more recent April report has said nothing to contradict, despite media spin to the contrary) that: “The Treasury is unlikely to recover the entirety of its investment in Chrysler or GM, given that the companies’ values would have to grow substantially more than they have in the past.”

More from TARP watchdog Neil Barofsky.

“When do you think we’ll have really good news from GM?” Carper asked.

“I don’t have a crystal ball on that Senator,” Barofsky replied.

Wow, don’t you just love these bailouts!  Don’t you wish you too could do a GM Bailout Payback Magic Trick?

[Cross posted at No Quarter]


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s