Economic analysis of recent articles from multiple sources

General Motors to Reimburse Its TARP Money

As the 2008 economic crisis unfolded, the American automobile industry was severely impacted. Combined with an international context of changing consumer demands and foreign competition better able to serve the emergent requirements, the American automobile industry was in dire need of a massive capital injection. As Ford had previously contracted loans and did not need the government bailout, General Motors became a major recipient of TARP funds (Troubled Assets Relief Program). As of the second trimester of 2010 however, the media began to report that the organization was beginning to reimburse the loan. But the means in which the company repaid the debt were of more interest than the actual reimbursement.

Ed Morrissey at Hot Air was highly circumspect and questioned the means in which the company has managed to reimburse its loans. He argues that General Motors has simply used a financial artifice and has replaced one debt with another. He does not believe that anything has changed in the capital structure and levels of organizational debt at GM. He in fact argues that General Motors has accessed other available TARP funds and has used them to reimburse the initial loan. In this context then, the financial stability of GM remains unchanged and its strength does as well.

The same approach is taken by Nick Gillespie at Big Government. According to the editor, the company's much praised and promoted ability to fully and ahead of schedule reimburse its loan is unreal. Gillespie explains that the government has granted General Motors TARP funds in the total amount of $50 billion, out of which nearly $7 billion were an effective loan, and the rest was used as running capital. When they say they have reimbursed their loan, they refer to the almost $7 billion ($6.7 billion to be more precise), not the entire sum of $50 billion. And furthermore, they paid the loan from the running capital money that came from TARP.

Finally, the editors at Consumerism Commentary take a somewhat different approach. While they still mention the financial artifice used by the company to repay the loan with other TARP money, they look at the issue from an accounting standpoint and explain the logics of the move.

Each of the three authors inserts himself in the story line and concludes his work with his own interpretation. Ed Morrissey for instance argues that the massive usage of governmental funds forces GM to increase the transparency of its dealings, which is in fact a positive aspect. Gillespie on the other hand is more sarcastic and, for consumer safety, states his hope that the engineers and technicians are better trained in mathematics than the CEO. The editors at Consumerism Commentary state that the severity of the solution found by General Motors is not that dramatic as argued by others. "It does look bad if a company appears to use TARP funds to pay off a government loan, particularly when the CEO boasts about it publicly, but it's not a major issue. GM is in a better position now, and although this loan is only a small portion of the funds received from the government, this is at least a move in the right direction" (Consumerism Commentary, 2010).