GM, New Math, and You (US & Canada Taxpayers)

[Stereodude]

Here's a little timeline:

• The US gov't loans GM $6.7 billion at 7%
• The Canadian gov't loans GM $1.4 billion at ?%
• US gives GM $49.5 billion to finance it's bankruptcy in exchange for 60.8% equity of the company
• Canada gives GM $8.1 billion to finance it's bankruptcy in exchange for 11.7% equity in the company
• $13.4 Billion of the money was put into an escrow account as "working capital"
• GM pays back the $6.7 billion to the US gov't and $1.4 billion to the Canadian gov't using some of the $13.4 billion from the escrow account
• GM claims it has paid back the bailout loans "in full, with interest, years ahead of schedule."
• GM applies for $10 billion in loans from the US Department of Energy at 5% interest to retool it's plants to meet the new CAFE standards.
• GM pushes back repayment of the remaining "investment" made by the US & Canada

What a ponzi scheme... They've basically just refinanced their debt at a lower interest rate and still aren't making money, but they know how to play the media like a Stradivarius.

 

[Chu Gai]

Have you driven a Ford lately?

 

[mtrycrafts]

Here's a little timeline:

• The US gov't loans GM $6.7 billion at 7%
• The Canadian gov't loans GM $1.4 billion at ?%
• US gives GM $49.5 billion to finance it's bankruptcy in exchange for 60.8% equity of the company
• Canada gives GM $8.1 billion to finance it's bankruptcy in exchange for 11.7% equity in the company
• $13.4 Billion of the money was put into an escrow account as "working capital"
• GM pays back the $6.7 billion to the US gov't and $1.4 billion to the Canadian gov't using some of the $13.4 billion from the escrow account
• GM claims it has paid back the bailout loans "in full, with interest, years ahead of schedule."
• GM applies for $10 billion in loans from the US Department of Energy at 5% interest to retool it's plants to meet the new CAFE standards.
• GM pushes back repayment of the remaining "investment" made by the US & Canada

What a ponzi scheme... They've basically just refinanced their debt at a lower interest rate and still aren't making money, but they know how to play the media like a Stradivarius.

Boy, that is interesting. Most of the public would not dig this stuff up. What a bunch of dirt bags they are.

 

[bhodge]

Dont get me wrong I don't think any of this is "right" but we have no one to blame but ourselves. This isn't the only example, but its probably the biggest example that doesn't affect you so you are outraged. This is similar to what the average consumer does with their credit card debit, they shift and move it around in hopes of getting lower rates (and most of the time all it does is get them in trouble).

This is no different than the housing market, how many home owners bought homes they couldn't afford and have since been bailed out by government assistance and re-fis? The home owner got one loan, higher rate then couldn't afford it and now has a lower rate and tax incentives to help them.

The problem is people are not responsible and greedy (by people i'm not point my finger at you, I am generalizing). When the average person is in debt thats more because of the decisions they have made (no one forced them to buy that new car, house, clothes, shoes, etc.) rather than a bank, auto maker, or any business. They certainly didnt help by making it easier on them to do so, but no one forced them to do it.

Its amazing to me how many people think they "have" to have a cell phone, cable tv, internet, NEW car, etc. When they complain, I have no sympathy for them when I see the possessions they have.

Its more frustrating to me to watch individuals get bailed out after bad decisions and be better off for it, when I make sacrifices and sound judgement and get nothing for it. At least with the major businesses by bailing them out they are helping a large group of people (who may or may not be responsible).

 

[jeffsg4mac]

I guess this is all part of that "change we can believe in"

 

[Stereodude]

Have you driven a Ford lately?

If I were buying a new car they would the the only one of the "Big 3" I would consider.

 

[Stereodude]

Dont get me wrong I don't think any of this is "right" but we have no one to blame but ourselves. This isn't the only example, but its probably the biggest example that doesn't affect you so you are outraged. This is similar to what the average consumer does with their credit card debit, they shift and move it around in hopes of getting lower rates (and most of the time all it does is get them in trouble).

Well, I'm not paying for consumers playing shell games with their credit cards with my tax dollars. I'm paying for this debacle with my taxes dollars and so will the next couple of generations.

GM repaid borrowed gov't money with given gov't money so they could borrow more gov't money at a lower interest rate. Sign me up!

 

[ArthurPE]

using round numbers...
government buys 60% of GM (net worth is negative, they paid ~$10 per share, from a high of >$70 in 2000 and the current $0.75) for 50 bil

they 'pay'
-13 bil in cash, ie the escrow (operating capital) account
-credit line of (50 - 13 bil escrow) ~ 37 bil in government 'backing'
-and they loan them 7 bil at 7%...
so the gov got 60% in stock (the worth is arguable) for 13 bil cash (of which 7 was used for the loan) and a 7 bil loan, repayed with interest...so the gov is 'out' only 13 bil at this point and has 60% in stock...but the 13 bil (or 13 - 7 ~6 bil balance) is not the govs...

the 'escrow' is GM's at this point, the gov owns the stock...
it's an entirely different question whether gov should be in the market...

so yes, they did pay the loan back with $$ that originally came from the gov, but it is NOT the govs now, the stock is, the escrow $$$ is GM's...

no more than anyone paying their mortgage with 'the companies' money, it may have come from the company, but it's yours now...you gave them labor/services in an exchange...GM gave the gov stock for the 13 bil (and the loan) and the credit backing...

the flip side, if GM can turn this around the gov stands to make a fortune...
if the stock only goes to $20/share, net profit is 50 bil...but they will proably sell incrementally over time...but at 75 cents a share, it's going to be a while...

the fact that they felt they could pay the loan off with operating capital is a good thing, that means they have become cash positive and accumulated more reserves, a 'cushion', so they could afford to deplete reserves by making the 7 bil loan repayment...

only time will tell if this was a 'good' thing, and for which parties...it's too early now
so far GM has used only 6 bil (13 -7) of the 57 available to them (37 credit/untapped + 13 escrow/6 bil balance + 7 loan/repaid)
the gov is out 13 bil - the interest on 7 bil, and owns 60% of GM

 

[Stereodude]

the flip side, if GM can turn this around the gov stands to make a fortune...

You mean like the Postal Service, Amtrak, Fannie Mae, and Freddie Mac?

 

[ArthurPE]

still with me?
recap
the gov owns 60% of GM purchased at $10/share
net cost 13 bil (6 remains in escrow)
7 bil if the gov reclaims the 6 bil in escrow, not a good time to do so, they paid $10 and would have to sell it back a $0.75/share, big loss, must wait...
6 bil was then ~ 6/50 x 60% ~ 7% of GM
now 10/0.75 x 6/50 x 60% ~ 96% of GM

in theory GM could buy back all 60% for 60/96 x 6 ~ 3.75 bil...
return 3.75 bil of escrow for the 60%, having reaped 9.25 bil (7 loan + 2.5 escrow balance) in the exchange...and got all their stock back...gov must wait it out...

the good news, lol
if GM can turn a profit of ~3% on 150 bil (?) in rev within 3 years or so ~5 bil, the gov gets 60% of it or 3 bil...on a 13 bil investment over 3 years...
not bad ~ 7.5% annual...recoup it all in 7-10 years...and still own the stock, if profit goes up, term goes down...if they make a profit, stock value goes up, so they can make some on the tail end when it's sold too...

this may be a brilliant move on the govs part, time will tell

 

[ArthurPE]

You mean like the Postal Service, Amtrak, Fannie Mae, and Freddie Mac?

since inception the gov has made money or broken even on every one of those (except possibly Amtrak, I'll check), they are taking losses now on the mortgages...those are quasi gov agencies, and are not configured, nor allowed, to make a profit, they are mandated to provide a service and be self-supporting...

 

[bhodge]

Well, I'm not paying for consumers playing shell games with their credit cards with my tax dollars. I'm paying for this debacle with my taxes dollars and so will the next couple of generations.

GM repaid borrowed gov't money with given gov't money so they could borrow more gov't money at a lower interest rate. Sign me up!

Well, thats kind of my point, you should be. This is why we are in the economic state we are in which made the gov do things with tax dollars you aren't happy with. The economy collapsed because there was too much debt that could not be repaid/accounted for but it got so out of hand that now its just not individuals losing their shirts, its the businesses that are the backbone of the economy.

I was just pointing out that what GM is doing isn't anything new, its just in the press and a lot more money than what joe consumer is doing. If your gripe is with how the tax dollars are spent on thats a different point.

But as ArthurPE pointed out, the gov bought GM stock, they didnt just give them more money and we should debate if the gov should be in private businesses.

So I guess the real question is are you going to buy a GM vehicle to help the government make a profit on the investment?

 

[ArthurPE]

the gov has sustained the defense industry since the 50's, it's >1/2 the budget...$500 toilet seats, helo/planes that crash, planes that don't fly...research on BS projects...untold trillions + the associated debt...

much of the 'aid' we give the world (80% or so to Israel & Egypt) is military
the gov buys weapons at inflated prices and gives them away...

GM is no different, it's just a different industry...
and probably employs many more per 'welfare' dollar than defense...

Every gun that is made, every warship launched, every rocket fired, signifies in the final sense a theft from those who hunger and are not fed, those who are cold and are not clothed.

In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military industrial complex. The potential for the disastrous rise of misplaced power exists and will persist.
We must never let the weight of this combination endanger our liberties or democratic processes. We should take nothing for granted. Only an alert and knowledgeable citizenry can compel the proper meshing of the huge industrial and military machinery of defense with our peaceful methods and goals, so that security and liberty may prosper together.

 

[Stereodude]

the gov has sustained the defense industry since the 50's, it's >1/2 the budget...$500 toilet seats, helo/planes that crash, planes that don't fly...research on BS projects...untold trillions + the associated debt...

Having worked for a defense contractor I can assure you the gov't doesn't pay $500 for toilet seats or anything like that. It's misleading accounting. If you divide all the engineering cost into the small number of items purchased + the purchase price you will get those sorts of numbers, but there's no company selling the gov't standard toilet seats for $500.

 

[Stereodude]

So I guess the real question is are you going to buy a GM vehicle to help the government make a profit on the investment?

Absolutely not. Actually, I'm going to avoid them because of the gov't involvement.

 

[ArthurPE]

yes, I am sure the gov gets their monies worth from their:
employees
healthcare $
defense $
construction $
contractor $
etc.

this is one of 'those' threads...
one associated group is smarter than the other, always 'right', and vice versa:
religion (the one 'true' god, chosen people, etc.)
politics (more patriotic, better ideas, more in line with the Constitution)
geographic location (east vs west, urban vs rural, north vs south, US vs any other country of earth)
profession

they never go anywhere, nothing is ever learned or new insight revealed, and they all end up the same...pointless, becasue no one ever compromises or sees the other guys perspective (see above: always right)

when in reality it's a zero sum game...lol

The Pentagon and Central Intelligence Agency channeled some $11 million to psychics who might provide special insights about various foreign threats.

Last year, the Pentagon announced it would spend $5.1 million to build a new 18-hole golf course at Andrews Air Force Base in suburban Maryland, which already has two. Golf Digest reported there are 19 military golf courses around Washington, D.C.

A contractor sold $27 electronic relays to the government’s Naval Strategic Petroleum Reserve for between $484 and $521 apiece

 

[Stereodude]

It's a good thing you're here to derail this thread with your tinfoil hat nonsense.

 

[ArthurPE]

It's a good thing you're here to derail this thread!

you made a mis-statement
the money used to repay the loan was GM's, NOT the govs
it was payment for the stock, not 'given' to them...

again, when all is said and done the gov should reap profit on this transaction/investment, at least break even...whether they should be in the market in the first place, a different question...

it is related:
if the government can subsidize the defense industry, why not GM?
it's arguable which has the better return for the government or the people...

they spent 7 bil, that's all, 6 bil is still there, they have 60% of GM for that 7 bil (13 counting unspent funds)...
7 bil <2.5 weeks in Iraq alone (not including the 'Stan), btw it's been 370 weeks so far...and waste/missing in Iraq is in excess of 50 bil ~5% and those tallies do not 'count' the most important commodities...human lives (US ~ 4400, civies ~ x00,000)

as opposed to 0.6% of Iraq spending to save a company and many jobs (and no one dies in the process), with a good chance of making money on it!
sounds reasonable to me...

U.S. SPENDING IN IRAQ
Spent & Approved War-Spending - About $900 billion of US taxpayers' funds spent or approved for spending through Sept 2010.
U.S. 2008 Monthly Spending in Iraq - $12 billion

 

[Stereodude]

you made a mis-statement
the money used to repay the loan was GM's, NOT the govs
it was payment for the stock, not 'given' to them...

again, when all is said and done the gov should reap profit on this transaction/investment, at least break even...whether they should be in the market in the first place, a different question...

I didn't make a misstatement. The gov't gave the car companies the money. Sure, they got equity, but big deal... It's basically worthless. Neither company has a positive outlook.

Oddly enough, the CBO doesn't agree with you. The CBO and the OMB estimate the gov't will lose between $31-34 billion on the TARP money given to the car companies. link

 

[MidnightSensi]

I was watching the news about some of this and some of the terms went over my head.

What's a credit line and when does a bank pull a credit line?

They were talking about another company, but similar story to GM. Credit lines don't make much sense to me. If the bank takes the credit line away when a company needs it, what the heck is the point of a credit line other than month to month for cashflow?

I hate that we are in a financial crisis and I don't really understand any of the jazz other than we are ****ed.