Balance transfers do not qualify for "paying off" a loan

General Motors Corp. is apparently so flush with cash that they can take out a full-court press of an advertising campaign to announce to the public that they have now completely paid off their TARP loans – with interest and 5 years ahead of “schedule.” Sounds great, eh? Well, not so fast, there, partner. Let me ask you this personal finance question:

If you had a maxed-out credit card and used another one of your credit cards to reduce that card’s balance to zero, have you paid off your debt?

I think most of us would agree that the answer is “no.” What you’ve done is a balance transfer, a move of that debt from 1 creditor to another. Now, imagine for a moment that both cards were issued by the same financial institution, just for example let’s say American Express. (Yeah, I know, AmEx isn’t usually a “credit” card, but go with me on this one.) If you owed AmEx $20,000 on 1 card and you executed this maneuver to transfer that balance from 1 AmEx to another, can you say you’ve paid off your debt to AmEx? Of course not.

That is, however, what GM appears to have done. According to reports, GM used TARP funds from 1 pool of money to “pay off” TARP loans issued from a different pool. We, the taxpayers, are still owed billions from GM but they’re high-fiving themselves saying they’ve paid off their debt. That might be what’s going to land them in trouble:

The TV spot may land GM in hot water with the Federal Trade Commission over its truth-in-advertising laws, which prohibit ads that are “likely to mislead consumers.”

“We have repaid our government loans in full — with interest — five years ahead of the original schedule,” says Ed Whitacre, chairman and CEO of General Motors Company, asking Americans to give the bankrupt company another look.

But a top Senate Republican has accused GM of misleading taxpayers about the loan repayment, saying the struggling auto giant was able to repay a $6.7 billion bailout loan only by using other bailout funds in a special escrow account.

Iowa Sen. Chuck Grassley’s charge was backed up by the inspector general for the bailout — also known as the Trouble Asset Relief Program, or TARP. Watchdog Neil Barofsky told Fox News, as well as the Senate Finance Committee, that General Motors used bailout money to pay back the federal government.

It’s one thing to attempt this kind of shell game with taxpayer funds, it’s another thing entirely to brag about it. Broadcast bragging, no less. Whitacre’s ad shows him saying, “A lot of Americans didn’t agree with giving GM a second chance,” and that those people should now give GM a second look. Well, I was one of those people who said as much and their attempt at subterfuge over their “repayment” isn’t making me feel too inclined to give them so much as the time of day.

I have no reason whatsoever to doubt the TARP watchdog agency in their assessment of what GM has done and their attempt at snaking this past the American people tells you everything you need to know about their management’s trustworthiness. It’s as near zero as it gets. GM should consider itself hugely lucky they got what they’ve already been given and should not be eligible for a dime more until their entire debt is paid off and the government’s stake in their company is sold off to the private sector.

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