Thursday, April 22, 2010

Loans and Ownership

GM announced that it is “paying off” its government debt of $8 billion, and is doing so five years ahead of schedule. Obama said something the other day to the effect of, “Ha ha, I told you so. We have our money back. This is a good deal for the taxpayers.”

Well, no; we actually lent GM some $52 billion in that infamous bailout.

So what happened to the other $44 billion you ask? It’s called bankruptcy. It’s complicated, but the GM we lent the money to is sort of an empty holding company selling off junk that isn’t worth anything, and the GM that paid back $8 billion is a new company with the same name. The missing $44 billion was converted to ownership (stock) in the new GM.

One thing the new GM had to keep was the union pensions, and those are underfunded by some $27 billion. At least $12 billion will have to be put into them in about four years or so, a problem that the new GM is ignoring in the hopes that it will go away.

The new GM is also operating at losses nearly as great as the old one was, so instead of our $43 billion loan back, taxpayers get 61% ownership in a money-losing manufacturing company.

And as Paul Harvey used to say, "Now you know the rest of the story."

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