After General Motors repaid its government loans to the U.S. and Canadian governments last week, Republican Senator Charles Grassley of Iowa criticized GM for repaying government loans with government money. The U.S. Treasury, however, has no qualms with how GM repaid its loans.
Herbert Allison, the Treasury’s assistant secretary for financial stability, said in a letter to Senator Grassley that GM properly used escrowed funds — created with government loans — to repay its debt last week. GM’s use of the funds was administered by the U.S. Treasury itself. Once GM and the Treasury determined that the cash wasn’t needed for “extraordinary” expenses, GM used it to repay both the U.S. and Canadian governments.
Last week, Senator Grassley openly criticized GM, and wrote a letter to Treasury Secretary Timothy Geithner insisting that GM had merely shuffled government funds around. In his letter, Grassley said GM’s repayment “appears to be nothing more than an elaborate TARP (Troubled Asset Relief Program) money shuffle.” Grassley alleged that the escrow account GM used to repay the loans was held at the Treasury.
A Treasury spokesperson last week said that Grassley was incorrect and that GM held the escrow account, not the Treasury. Allison’s written response to Grassley echoed the points made by the spokesperson, once again confirming that GM held the escrow account.
While GM was in control of the escrow account, the money in the account did not come from the company. The escrow account was created by the Treasury and filled with TARP funds to give GM a backup fund in case of “extraordinary expenses” that might arise as it climbs out of bankruptcy. As no such expense has come up, the Treasury allowed GM to instead use the money to pay off its outstanding loans from the U.S. and Canadian governments. While the usage of the funds was legal and proper, Senator Grassley’s point still remains. GM’s government loans were repaid with government money from a different account, not from the automaker’s own pocket. The escrow account is to be terminated in June with leftover funds returning to the government. GM does not have to repay any funds it takes from the escrow account.
Although GM has repaid its government loans and no longer owes money to the U.S. Treasury, the U.S. government still owns a 61 percent stake in GM. The government’s current stake in the automaker is reportedly worth around $2.1 billion, an investment it plans to recoup once GM launches an initial public offering.