|Safeguarding Bailout Dollar$|
|News Releases - Business & Economy|
|Written by Grassley Press|
|Monday, 10 May 2010 14:03|
Q&A with Senator Chuck Grassley
Oversight of Government Bailout
Friday, May 7, 2010
Q: How exactly is the claim made that General Motors paid back a multi-billion dollar taxpayer-supported government bailout loan “in full, with interest, ahead of schedule, because more customers are buying vehicles.”
A: Here’s what’s happened and, unfortunately, the reality doesn’t match the rhetoric. As part of the government bailout of the automakers, the taxpayers had loaned GM around $20 billion by May 2009. After GM declared bankruptcy in June, the Treasury Department loaned GM another $30 billion. Then, to help GM emerge from bankruptcy, the Treasury Department struck a deal with GM that contained three components -- a $7 billion loan, $2 billion in preferred stock and 61 percent of GM's common stock -- in exchange for the original $50 billion in loans. The deal translated into the taxpayers paying roughly $41 billion for the GM common stock. Today, when GM says it paid its loan "in full," it’s talking only about the newer $7 billion loan, not the original $50 billion in taxpayer loans. And, the repayment money came from a $17 billion escrow account that was created with the $41 billion in tax dollars used to buy GM common stock. The escrow was for expenses, and GM needed permission from the Treasury Department to use the money. The way that GM repaid the newer $7 billion loan was with the TARP money in that escrow account, not earnings.
The taxpayer bailout of GM still stands at around $40 billion. Taxpayers won’t get back that money unless GM’s stock price goes up enough to repay the $40 billion. Will that happen? No one knows, but the nonpartisan Congressional Budget Office estimated in March that, in the end, taxpayers will lose around $30 billion on GM.
Another question is why the Treasury Department allowed GM to repay the $7 billion, seven-percent loan out of escrow and gave permission to take the final $6.6 billion out of escrow free and clear, but did not require that a $2.5 billion, nine-percent loan that GM owes to the union health plan be repaid? You’d think the higher interest rate loan would be paid first. And, with $6.6 billion left over in the escrow, GM could have paid both loans. When I asked the Treasury Secretary during a Senate hearing, he didn’t have a good answer.
Q: What can be done about it?
A: I hope one lesson that’s been learned by the Treasury Department is to tell it like it is. Overall, the effort to collect the bailout funds is speculative at best. So far, since coming out of bankruptcy, GM has lost billions. Beyond that, the way the agreement was set up with the Treasury Department, GM now has access to the remaining $6.6 billion in the escrow account without any strings attached. GM said publicly that it didn’t need the escrow money. If that’s the case, then the extra $6.6 billion should be returned to the taxpayers right now. The most important lesson from all of this is that it doesn’t make sense for the federal government to own private businesses.
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