Below The Beltway

Like me, you’ve probably seen this commercial on television over the past several days:

It’s based on the story from last week claiming that General Motors had repaid its loans from the government, a fact prominently touted by White House Press Secretary Robert Gibbs on this Twitter Feed:

BIG NEWS – GM pays back US $6.7 billion used to save jobs – BIGGER NEWS payment was 5 years ahead of schedule http://bit.ly/cynBzD

It sounds like an amazing story, a company that was on the verge of collapse only a year ago has repaid the money the taxpayers gave it to survive.

Well, as the Gershwin song goes, it ain’t necessarily so.

First of all, the amount that was actually repaid is a mere fraction of what G.M. owes the taxpayers:

The amount repaid by GM is less than 13 percent of the $52 billion in federal bailout funds provided to the automaker. The remainder of the bailout was converted into stock, which GM still intends to pay off. Gibbs concedes, “obviously, we’re not out of the woods by any stretch of the imagination.” But he thinks the payback demonstrates that GM is on a path to renewal.

Really ? Even though G.M. recorded a loss of $ 4.3 billion in the first quarter of 2010 ?

That, of course, leads to the question of how exactly G.M. is managing to repay even a small portion of it’s debt to the taxpayers when it continues to suffer huge losses.

The answer is really quite simple — General Motors is using taxpayer money to pay back it’s taxpayer loans:

General Motors will make a big splash in the news today by announcing that the automaker will repay several billion dollars loans from the federal government earlier than expected. But it’s not really coming out of the GM wallet.

The issue came up yesterday at a hearing with the special watchdog on the Wall Street Bailout, Neil Barofsky, who was asked several times about the GM repayment by Sen. Tom Carper (D-DE), who was looking for answers on how much money the feds might make from the controversial Wall Street Bailout.

“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.”

Translated – they are using bailout funds from the feds to pay off their loans.

But wait, it gets even worse that, because its pretty clear that the only reason GM engaged in this particular accounting trick is so that it’s balance sheet would look better for yet another government loan:

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.

In short, GM is using government money to pay back government money to get more government money. And at a 2% lower interest rate at that. This is a nifty scheme to refinance GM’s government debt–not pay it back!

Far from being on the road back to independence, General Motors is headed further down the road that George W. Bush started it on in December 2008.

In fact, I think it’s time GM just officially changed it’s name to Government Motors, because that’s what it is.