Sunday, June 5, 2011

Obama Administration knew for weeks that GM would make fraudulent claims

If this were any other company, the purveyors of the false information, given for the purpose of propping up the stock price, would be in jail. This should be investigated by the SEC and, both the GM management, and the government officials that participated should be indicted. Are they above the law?

Documents just released by the U.S. Treasury Department in response to a Freedom of Information Act request make this clear. They show that General Motors and the Obama Administration coordinated PR strategy regarding GM’s much-criticized ad campaign in 2010, in which the car maker misleadingly claimed to have repaid what it received from taxpayers. In those ads, GM’s CEO at the time, Ed Whitacre, boasted that GM repaid its government bailout loan “in full, with interest, five years ahead of schedule.”

In May 2010, the Competitive Enterprise Institute (CEI) filed a deceptive advertising complaint with the FTC, and GM shortly thereafter stopped running the ads. CEI also filed a Freedom of Information request with Treasury for documents on the ad campaign. Those documents were finally released late last month, after a year of delay – far beyond the 20-day legal deadline for responding to FOIA requests.

“One year ago, the US Treasury Department aided General Motors in its fraudulent claim that it fully repaid its government loans,” said Sam Kazman, CEI’s General Counsel. “The detailed nature of their cooperation is demonstrated in the documents that the Department has finally produced, 12 long months after our original request. Now, the Treasury Department is re-enacting this smoke-and-mirrors routine on behalf of Chrysler,” he said.

The documents produced as a result of CEI’s FOIA request show GM coordinating PR strategy with the Obama Administration more than three weeks before launching the campaign. The Treasury Department sent some of those documents to the White House at least two weeks before the launch. The Treasury Department dragged its feet in responding to CEI’s FOIA request until after GM and Chrysler’s profits temporarily spiked, leading to the Administration’s current flurry of activity touting the alleged “success” of the auto bailout. For example, Treasury Secretary Timothy Geithner wrote a Washington Post Op-Ed on June 1, 2011 with a similarly misleading statement that Chrysler had repaid its government loans. On June 3, President Obama is scheduled to give a speech in Toledo, Ohio defending the auto bailout.

The Treasury Department’s role in facilitating GM’s deception may be far greater than the documents reveal, because the Treasury Department withheld some of the documents covered by the FOIA request, including portions of documents shedding light on White House involvement. For example, a blacked out item in the Treasury document release is a March 30 email from Brian Deese in the Executive Office regarding GM’s upcoming campaign. The only item left visible was the opening phrase, “Hi guys.” (See pp. 58-59)

The Treasury Department waited until after the automakers’ finances had temporarily improved to produce the documents. GM’s finances have been temporarily propped up by the Japanese earthquake and tsunami that ravaged Toyota, and by earlier erroneous claims that Toyota’s automobiles were unsafe. Its profits have also been artificially puffed up by massive deferral of billions of dollars in growing UAW pension obligations.

As Mickey Kaus noted at Daily Caller, “Sales and prices are up recently in part only because competing Japanese car suppliers have been crippled by the earthquake and tsunami. GM’s stock fell today and is still below the initial IPO price.”

Before that, GM’s finances were temporarily buoyed by bad PR regarding Toyota’s alleged safety defects in its cars, which turned out to be largely bogus. (The Toyota crashes turned out to have been caused by driver error, not manufacturing defects).

GM might never have needed a bailout if it had just received relief from costly regulations such as CAFE rules (which wipe out at least 50,000 jobs) and dealer-franchise laws. That’s so despite GM’s self-inflicted wounds from mismanagement, excessive union wages and benefits (worth up to $70 an hour), and rigid union work rules.

The Obama administration left those wasteful work rules and excessive benefits largely intact, and gave the United Auto Workers Union (UAW) a big chunk of General Motors’ stock, even though the UAW helped bankrupt the company, and the company has value today largely because the federal government pumped billions of taxpayer dollars into the company (and engineered the wiping out of General Motors’ bondholders, some of whom were non-union employees who had invested their life savings in the company).

Washington Examiner political commentator Michael Barone called the Obama administration’s treatment of Chrysler and GM bondholders “gangster government.” Law professor and bankruptcy expert Todd Zywicki called it an attack on “the rule of law.”

John Berlau, who studies financial markets, had a grim assessment of the GM bailout, saying that the discriminatory way that the administration handled the bailout set a negative precedent that made investment in American companies riskier, thus reducing investment (and new jobs).

Read full Examiner article here.

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