GM will begin paying back the $6.7 billion loan it received from the Federal Government by the end of 2009 and could pay of the loan entirely in 2011. The company plans to accomplish this despite a $1.3 billion third-quarter loss. This article reports
Under the plan to pay back the $6.7 billion, the Detroit automaker will make quarterly payments of $1 billion to the U.S. government and $200 million to the Canadian government beginning in late 2009. GM would be on track to pay off the $6.7 billion U.S. debt and a $1.4 billion debt to Canada by the middle of 2011, well ahead of a mid-2015 deadline to repay the two governments.
The person said GM was in a position to make the payments ahead of schedule because the company performed better than expected during the bankruptcy and the company's sales and overall performance since then have been modestly better than expected.
The automaker will draw on about $13 billion that remains deposited in escrow by the government to help make the payments. (emphasis added)
So let me get this straight? GM will pay back part of its $6.7 billion loan from the government by drawing on about $13 billion ($16.4 billion according to this article) which was given to it by the same government which lent the company $6.7 billion?
GM Chairman Ed Whitacre said last week that GM was committed to repaying its government loans.
"Can GM pay back its loans? You bet," Whitacre said during an address at Texas Lutheran University in Seguin, Texas. "I can't tell you when, but it won't be very long."
Well, duh! If my mortgage company simply gave me $500,000 in escrow as a gift, I would have no problems paying off my $150,000 mortgage, either.
This point has not been lost on all congressmen: "What is the logic in repaying government loans with taxpayer dollars?" asked Brooke Buchanan, a spokeswoman for Republican Sen. John McCain.
But at least one person sees a method for this madness:
Brad Coulter, director of O'Keefe and Associates, a financial consulting firm near Detroit, said using government money to pay off the government debt is partly a public relations move. But it also indicates rising confidence at GM, which may feel it won't need all the contingency money, he said.
Who am I to question such an irrefutable assertion by Mr. Coulter? I am but a lowly loser libertarian writing from his one-bedroom condo who was invited by Trevor as a guest blogger. I simply do not have the pedigree as a director of financial consulting firm.
Nevertheless, I do wonder how giving GM $13 billion ($16.4 billion according to this article) as a contingency in case car sales do not pick up to assist in paying off a $6.7 billion loan designed to aid GM which is foundering due to mismanagement and falling car sales is supposed to be a good PR move. I also don't understand how giving GM $13 billion ($16.4 billion according to this article) as a contingency in case car sales do not pick to assist in paying off a $6.7 billion loan designed to aid GM which is foundering due to mismanagement and falling car sales is supposed to indicate rising confidence at GM. If private investors really thought that GM were making a comeback, wouldn't they come to the rescue and bailout GM themselves? If the management at GM really thought that the company was on the verge of making a comeback, wouldn't the company ask for private investment which does not have government restrictions?
But what do I know? I waste my time reading useless books on economic theory like What Has Government Done to Our Money, The Mystery of Banking, Economics in One Lesson, Meltdown, The Case Against the Fed, The Politically Incorrect Guide to Capitalism, and Economic Science and the Austrian Method. These books have compelled me to purchase Man, Economy, and State, Human Action, The Theory of Money and Credit, Socialism. I waste even more time reading articles on Mises.org like Anatomy of a State, The Politics of Obedience-The Discourse on Voluntary Servitude and Our Enemy, the State to gain some insight into political theory. Clearly I am wasting my time with all of these books because one does not have to know sound economic theory or understand politics to become a director of a financial consulting firm.