November 25, 2009

Under the Government's Wing

Hey, Why Don't You Just Pay Yourselves?

Justin Katz

Didn't want to let this slip away:

In what it called a sign of progress, GM also pledged to start paying back $6.7 billion in U.S. loans. But the money will come from a contingency account full of government cash, leading critics to question just how healthy the automaker really is.

Welcome to government self-financing of its market wings, where debtors pay their loans by taking money from the lender. If the public companies can't compete, well then, they'll just make other companies' customers pay for it in taxes.

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It is not uncommon in commercial lending to borrow the money to pay the interest. This may, or may not, be wise. That depends on the term of the loan.

Posted by: Warrington Faust at November 26, 2009 9:07 AM

I'm not sure that's what's happening, here. Is the "contingency fund" from which GM drew the money a loan program? The article reads as if GM has repaid a loan with given money.

Posted by: Justin Katz at November 26, 2009 9:13 AM
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