General Motors’ false advertising that it has paid back its bailout money “in full” has prompted harsh criticism. Yesterday, Competitive Enterprise Institute Attorneys Hans Bader and Sam Kazman filed a complaint asking the Federal Trade Commission to investigate these claims, noting that “GM has only repaid a fraction of those funds—barely ten percent, and “moreover, GM apparently repaid its loan by using other federal funds [emphasis in original]”
Criticizing both GM and the Obama administration for trumpeting the “in full” claim, New York Times liberal business columnist Gretchen Morgenson proclaimed, “Employing spin and selective disclosure is no way to raise taxpayers’ trust in our nation’s leadership.”
Now, the correct focus on spin and selective disclosure in GM’s claims should extend to an advertising campaign for another recipient of bailout funds — an entity directly affiliated with GM. At around the same time the government was doling out money to the auto companies, it gave $17.2 billion to General Motors Acceptance Corporation, the financing arm for GM dealers and consumer that over the decades had extended itself into home mortgages and other commercial credit.
GMAC has come to the government three separate times to feed at the TARP trough, and it may not be done yet. Nina Rosenwald, editor-in-chief of the savvy opinion site HudsonNY.org, calls the firm a “serial bailout sweetheart.” In March, the Congressional Oversight Panel on TARP, which has a majority of members appointed by congressional Democrats, blasted that bailout as “baffling” in a report. “A company that apparently posed no systemic risk to the financial system, that did not seem to be too big to fail, too interconnected to fail, or indeed, of any systemic significance, was assisted to the extent of a total of $17.2 billion of taxpayers’ money and became one of the five largest wards of state,” the panel stated.
The Federal Reserve also made the unprecedented move of granting GMAC the status of a bank holding company able to access the Fed’s coveted discount window and other facilities. It is unprecedented for a bank affiliated with a non-financial company — and GM still owns 49 percent of GMAC — to have this access to Fed support.
So why the lack of outrage and attention to GMAC? Perhaps because the firm cleverly but deceptively changed its name for a large part of its operations. Much of GMAC is now Ally Bank.
You know Ally Bank. It has the commercials with cute kids to illustrate the supposed bad practices of the Ally (GMAC’s) competitors. “Even kids know its wrong to hide behind fine print,” one of the commercials states.
Yet the whole basis of the commercials is to hide the “fine print” that Ally (GMAC) has received massive bailouts from our tax dollars. And the kids in the commercials and other American kids are going to be stuck with a huge tab for the bank’s subsidies. These commercials may not have legally actionable false claims, as we contend GM’s do, but certainly many of the bank’s customers would reconsider if they were aware of its troubled past and government largesse.
The worst part is that Ally (GMAC) is using money from these very bailouts to stamp out competition from its unsubsidized rivals. As Rosenwald puts it:
“GMAC, it seems, would like to attract customers to transfer their accounts over to Ally from unsubsidized private banks, by offering better terms and interest rates – using your money in the process. This, of course, stacks the deck in competing for customers and financing against private banks and other car companies that do not have the benefit of government subsidies or guarantees — even though GMAC made terrible loans, and the private companies may have done everything right.”
The Congressional Oversight Panel echoes these concerns about the effect of the Ally (GMAC) distorting and possibly reducing competition as well as well the viability of GMAC. “Many questions remain unanswered with respect to Ally Bank,” the report states. “How much, if any, of the projected $10 billion loss of TARP funds allocated to GMAC is attributable to Ally Bank and its payment of above-market rates of interest? If the answer is one dollar or more, why has Treasury committed the taxpayers to subsidize these rates?”