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The Coming Municipal Bond Crisis

The following segment was on CBS’s 60 minutes last night and discusses the likelihood of a state and local funding crisis, which Meredith Whitney predicts will begin in the next 12 months. The municipal bond market is one of the most opaque in the investing world and is subject to strong political machinations. Ms. Whitney nailed it with Citibank and at Meritas Advisors, we think that her detailed analysis of this market warrants serious attention.

General Motors: Shame on you Ed Whitacre

Last night I watched the CEO of General Motors lie to the American people in a commercial that absolutely typifies the culture in Washington DC.  He stated that GM has repaid the TARP loan, “in full, with interest, five years ahead of schedule.”  Well now that sounds wonderful and aren’t we all just pleased as punch that the money the federal government could ill afford to give to GM was paid back “in full” so quickly?  Sadly, the fund were not paid back at all, and if fact GM is attempting to take even more money from taxpayers.

  • GM was given $49.5 billion by the federal government, $6.7 billion was a 7% loan with the remaining $42.8 billion going into a 60.8% equity stake.  (Canada gaive GM a $1.4 billion loan and “invested” $8.1 billion for an 11.7% equity position.  Together, the U.S. and Canada own a whopping 72.5% of GM!)

 

  • The $6.7 billion was paid back using funds from a government “working capital” escrow account containing $13.4 billion.  GM used a different TARP fund to pay back the original $6.7 billion loan… they just refinanced!

  

  • GM has applied to the Department of Energy for yet another $10 billion 5% interest loan to retool its plants for the CAFÉ standards.

 

Only a few media outlets are reporting this story for the ridiculous lie that it is.  Click here for a great piece by Shikha Dalmia at Forbes. 

For an economy to have a healthy investment climate, investors must be reasonably assured that the information they have been provided is accurate.  The American people own the majority of GM and the CEO of GM has just told one whopper of a lie to his shareholders.  Ed Whitacre, shame on you.  In any reasonable climate you would be fired, but in this world of half truths you are commended for telling people what they want to hear, even though the listeners know it is a lie.  Will this government sponsored deceit induce other CEO’s to lie to their shareholders?  As an investor, I become more and more wary of the accuracy of the information I am provided.  That is not the path to a robust economy.