A fairy tale of GM (and its masters)

I wrote here yesterday about GM chairman and chief executive officer Ed Whitacre’s fraudulent Wall Street Journal column. The Washington Times takes up the subject in a reported editorial today. The Times gets comments from Obama administration officials on TARP Inspector General Neil Barofsky’s statement that the funds with which GM paid off its government loan (putting to one side the $50 billioin or so the government has sunk into GM equity and the guarantee it provided to GM’s pension plans) were mostly TARP funds:

General Motors lost $3.4 billion in the fourth quarter of 2009 and is still struggling to reorganize so the company can try to eke out a profit. This grim reality didn’t stop GM from making hay last week for supposedly paying back a $6.7 billion government loan five years ahead of schedule. What was left unsaid was that the automaker used another kitty of taxpayer cash to pay off the earlier government loan. This is an accounting shell game, not progress.
Previously unreleased documents supplied to The Washington Times reveal that GM specifically used funds it received from the Troubled Asset Relief Program to pay off the government loan. According to Neil Barofsky, the special inspector general for TARP, $4.7 billion of $6.7 billion – 70 percent – of what GM paid back came from TARP money the company received. “The one thing a lot of people overlook with this is where they got the money to pay the loan,” Mr. Barofsky told Fox News’ Neil Cavuto on Wednesday. “It isn’t from earnings.” The numbers are based on a quarterly report Mr. Barofsky’s office provided to Congress last week.
Jared Bernstein, chief economist and economic policy adviser to Vice President Joseph R. Biden Jr., disputes the special inspector general’s findings. “That is not correct, I don’t think that is correct,” Mr. Bernstein told The Washington Times. “[General Motors] repaid with funds from their own cash accounts, from their own earnings.” The cash used by GM to pay back the loan “is the property of General Motors, there is no question about that,” he insisted. Some of the money used to pay off the loans may have originated from TARP funds, but “it is really hard to know,” he equivocated, because the funds are mixed together and “it is like trying to put an omelet back together again.”
The Treasury Department’s press office also disagreed with Mr. Barofsky’s characterization that GM paid off one credit line with another credit line. The watchdog, however, won’t budge. When asked how to tell whether the $4.7 billion used to pay off the government loan came from TARP funds and not some other source, a spokesman for the Special Inspector General’s Office explained: “We have a letter from General Motors requesting that they take the money out of escrow and pay the other debt down. And the money in the escrow was clearly TARP funding.” That letter has been released by the Special Inspector General’s Office.
Despite misleadingly rosy propaganda fed to the press, the sad saga of General Motors’ transformation into Government Motors continues. As a ward of the state, GM has to do the bidding of its Washington masters and stay in lock step with the Democrats’ claims about the company’s condition. The truth is that GM’s condition remains poor.
The only reason the company has been able to pay off its government loan is because the Obama administration has given GM more money than it has been able to spend. Hence, proceeds from one loan are sitting around to be used to pay down another loan. That’s hardly evidence that GM has been a good investment. To the contrary, the shell game makes clear that the Obama administration is wasting billions of taxpayer dollars on a carmaker that is careening toward a cliff.

This editorial makes a valuable contribution to the understanding of an important subject. It shows that Whitacre and GM do not stand alone in peddling the tale of GM’s repayment of funds taken from the government.
The Obama administration is invested in the myth of General Motors’ financial success. It stands shoulder to shoulder with Whitacre in the support of his highly misleading column. The editorial is suggestive of the fact that Whitacre’s column was a piece of political theater in the service of the Obama administration. It is a companion piece to the assertion of the Obama administration that taxpayers stand to recoup all the funds bestowed on GM and Chrysler by the Obama administration.
The Obama administration has no interest in helping the American citizens get a handle on the reality of the government takeover of GM (or Chyrsler). GM has apparently not released its first quarter 2010 operating results. In the six months following its emergence from bankruptcy in 2009, GM posted a net loss of $4.3 billion.
Commenting on 2009 post-bankruptcy operating results, GM chief financial officer Chris Liddell recently said in a statement: “As the results for 2009 show, there is still significant work to be done. However, I continue to believe we have a chance of achieving profitability in 2010.” The reality principle evident in Liddell’s statement reflects the statement’s compliance with the antifraud provisions of the securities laws.
By contrast, if Whitacre’s Wall Street Journal column were subject to the securities laws, Whitacre would be guilty of fraud. If the supporting statements of the Obama administration were subject to the securities laws, they would be in the dock before the SEC or answering to a federal judge along with Whitacre for aiding and abetting.
Ed Whitacre’s fairy tale has been brought to you by Government Motors, and by its masters.
UPDATE: Shikha Dalmia has much more detail on the misrepresentations permeating Whitacre’s public relations blitz in this Forbes column.

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