Saturday, April 24, 2010

I just want to say a couple of things right now:

First, Screw Mattel:
So let’s get this straight. Mattel buys millions of items from China that violate American product-safety laws and standards. Congress reacts by punishing the entire industry, especially those small businesses that can’t afford independent testing, especially on products that don’t really need it. Thrift stores can’t resell merchandise without testing, making their business model impossible and threatening the charities that rely on those sales. Meanwhile, the economy of scale means that this law gives Mattel a competitive advantage from their own malfeasance — and they get the waiver on independent testing?
Along with the brain-dead and/or corrupt fools involved in both the law and the waiver.

Second, Screw GM and their "We paid it back!" lie:
Uncle Sam gave GM $49.5 billion last summer in aid to finance its bankruptcy. (If it hadn't, the company, which couldn't raise this kind of money from private lenders, would have been forced into liquidation, its assets sold for scrap.) So when Mr. Whitacre publishes a column with the headline, "The GM Bailout: Paid Back in Full," most ordinary mortals unfamiliar with bailout minutia would assume that he is alluding to the entire $49.5 billion. That, however, is far from the case.

Because a loan of such a huge amount would have been politically controversial, the Obama administration handed GM only $6.7 billion as a pure loan. (It asked for only a 7% interest rate--a very sweet deal considering that GM bonds at that time were trading below junk level.) The vast bulk of the bailout money was transferred to GM through the purchase of 60.8% equity stake in the company--arguably an even worse deal for taxpayers than the loan, given that the equity position requires them to bear the risk of the investment without any guaranteed return. (The Canadian government likewise gave GM $1.4 billion as a pure loan, and another $8.1 billion for an 11.7% equity stake. The U.S. and Canadian government together own 72.5% of the company.)

But when Mr. Whitacre says GM has paid back the bailout money in full, he means not the entire $49.5 billion--the loan and the equity. In fact, he avoids all mention of that figure in his column. He means only the $6.7 billion loan amount.

But wait! Even that's not the full story given that GM, which has not yet broken even, much less turned a profit, can't pay even this puny amount from its own earnings.

So how is it paying it?

As it turns out, the Obama administration put $13.4 billion of the aid money as "working capital" in an escrow account when the company was in bankruptcy. The company is using this escrow money--government money--to pay back the government loan


TXGunGeek said...

In doing spring cleaning and digging through old stuff in storage we came across kids toys still in their boxes and put them in with other stuff to take to the local charity. They wouldn't even take them and throw them away. We had to leave with them and were warned not to try to sell them privately.
Whiskey Tango Foxtrotting Foxtrot Over?

RKL said...

When I saw that the other day, I thought to myself, GM took well over 50 billion and now they are claiming that when they pay back less than 10 and their in the clear? Sure enough as you say it's all a sham.