General Motors is now planning to repay the $8 billion it owes to the U.S. and Canadian governments before the end of June.That sounds like good news. And in a way it is. But in the grand scheme of the nearly $50 billion the U.S. government has poured into General Motors -- most of which was converted into equity -- it's not much.
And here's the problem: as long as the debt was outstanding -- and accruing interest -- the U.S. government could count on getting some money from GM off the top. Now, the U.S. will become just another (albeit large) shareholder in GM -- and will have no way of extracting any cash from the company unless the stock does well and the U.S. can sell it. That is unlikely to happen without taxpayers realizing a large loss on the "investment."
The real question is why, if GM was able to repay the loan so quickly, we converted so much of our debt into equity. There is far more risk to taxpayers with an equity stake and, given the very low likelihood of the new GM ever achieving a market cap high enough to make us whole on the equity, it looks like we left a lot of money on the table with the equity conversion.
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Reader Comments (Page 1 of 1)
3-11-2010 @ 4:51PM
MyKisa said...
.....seems most of us Americans were correct about this shady deal.....
3-12-2010 @ 10:40AM
mapoftazifosho said...
There was a LOT of possibility for complete disaster and a HUGE hit to consumer confidence if GM had liquidated...
Not to mention the billions it would've cost taxpayers if the above scenario had come to fruition. The state of MI would have gone bankrupt from the unemployment costs.
While I don't enjoy rewarding bad behavior...IE: Automakers and Banks
I'm glad we were able to prevent a total collapse of our economy...
3-13-2010 @ 10:48PM
welrdelr said...
Mapoftftazifosho said, that GM didn't liquidate ... WELL GM did liquidate the General Motors Corporation is now known as Motor Liquidators ( MTLQQ on the DJIA) The stock holders of the old GM Corp ate the bullet in the twelve months prior to liquidation they lost about 17 billion and President Obama and his crew gave new General Motors Company LLC about 50 billion dollars which we will never see again. Keep our government out of our businesses... Everyone can not work for the government ... there would be no one to pay taxes.... When the Feds take over the everyone will be singing mmm ohhh B O ......mmm Ohhhh change.....mmm ohh B O please change mm Ohhh Barack Obama....Please Change.... dumb huh? lol
4-20-2010 @ 8:43AM
tami said...
I agree with mapoftazifosho. People always look for reason to critisize. This is a step in the right direction.