Quote:
Originally Posted by Unfair
That doesn't even have to do with what I said I will just quote instead of trying to explain it myself...this is not a "I didn't use all of the loan case" this is a "I used other peoples money to pay you and still owe the same amount to those people case"
"The bottom line seems to be that the TARP loans were 'repaid' with other TARP funds in a Treasury escrow account. The TARP loans were not repaid from money GM is earning selling cars, as GM and the administration have claimed in their speeches, press releases and television commercials,"
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A lot of people are missing the point.
GM isn't reaching into government funds to pay government funds anymore. GM is reaching into funds in its own bank to pay the government. This money has already been transferred from the US Treasury to GM. GM has full control of how to use that money. Since GM is doing well enough to leave that money alone, it makes no sense to wait to pay it back.
This is no different than paying off a car loan early using money from home equity or another loan that comes from the same bank. You have the money in your account given to you from the bank. There is no reason to hold off on using it to pay the loan.
GM took this one step further. GM has paid the
interest, too. While we like to pay loans off early to avoid the interest, GM has paid back the interest as if it had paid on time but has chosen to make that payment
5 years early. If you did this, your bank would be incredibly happy with you.
The taxpayers are the US government's bank. Somehow, some taxpayers are not happy with receiving more money in interest than the actual payoff of the loan. It simply doesn't make sense. The government has received the money early in full with interest. The only explanation is that the taxpayers are not as educated about finances as bankers, and that lack of education shows in these complaints.
Furthermore, GM has never claimed to pay the full bailout. GM has only claimed to have paid the full loan. The elected US government has decided to make the GM bailout a 2-part financial investment. In the first part is a loan. GM has completely paid
this amount as of Tuesday night. The second part of this bailout is an investment in the company. Before I get into this part of the bailout, I will point out that the Treasury is made up or experts and financial leaders who know what they are doing. Unlike some nearly functionless departments and bureaus of the government, the Treasury has high standards of excellence and does things in the most methodical way possible. Everything has a purpose, and that purpose is to make the most of revenue. What this department has decided to do is consider whether stock or interest is going to bring back more money for the government. Think of it like comparing the interest rate on your savings account to investing in the stock market. There's a much bigger return on a
successful—must be
successful—
stock than there is in your savings account.
Unlike all of us on Camaro5 who
think we know how to run a gargantuan business, the US government has some experience by administering the largest infrastructure in the world. With this experience, the US government has taken its substantial investment and turned that into a majority stake in GM. This means that the government can do
whatever it wants to make GM successful. So far,
despite complaints to the contrary, this has not led to any changes to GM's product line. Why is this the case? That's a great question to pose. Perhaps the answer is that GM
already had an amazing product line that the government and perhaps the rest of the industry saw as profitable. Remember, this department of the government is made up of business leaders and accountants,
experts in the field of finance and business. Because GM already had the product to be profitable, all the government wanted to do is reorganize the business to be sleek and profitable and get out with more money. That sounds easy enough. How will it happen? This is also a great question. The experts in our government have decided that going public will give the government and GM alike tons of money. With this product line and stocks sold at a discount, people will leap on the opportunity to buy stock, causing a high demand for the stock. High demand will cause the stock price to spike, leading to a high return on the stock that the government sells.
Here's how it works. The first shares will sell at a discount. Buyers will come out in flocks to buy this cheap stock. Speculators will bet that the stock price rises. The market will of course agree because GM is in better shape than it was 2 years ago as far as finances and new products. The following shares will have an increasing price due to the high demand. As these stocks run out, the government will slowly sell off its stock at the highest available price buyers are willing to pay.
How does this profit the government? A loan will have an interest rate. The interest rate is set. The price of stocks is not set. A loan has limitations that a stock does not have. The difference is in the risk. A stock is risky only because it might not sell, thus failing to bring in the dough. For the government, however, stock is a lot less risky because the government is in charge. By being in charge, the government can make decisions that keep GM profitable, including decisions to reorganize the company. For the rest of us, stocks are much more risky because we buy them as an investment only, not an opportunity to remake a company. Moreover, the government has more money than anyone else, so the company bears less risk because its primary shareholder will not go bankrupt.
If you still think this was a bad idea, then you missed the point that this is considered the best route by some of America's best and brightest accounting experts. I hope this cleared up the process.