Moral Hazard Continued at GMAC

From the AZ Republic:

GMAC, the former lending arm of General Motors Co., is in talks with the Treasury Department for a third injection of taxpayer aid, a further sign of the U.S. government's entrenchment in the U.S. auto industry.

The Treasury Department mandated earlier this year that GMAC Financial Services raise an additional $11.5 billion in capital after undergoing a "stress test" along with 18 other banks. While other banks deemed undercapitalized have been able to raise funds from private investors, GMAC has been forced to go back to the government.

Maybe the reason no one but Obama will give GMAC any money is that they know that every time GMAC gets any money, it simply starts shoveling it at every car buyer who walks within shouting distance of a dealership and can fog a mirror.

Immediately after GMAC became eligible for TARP money, GM reduced to zero the interest rate"¦ on certain models. ...

GMAC has begun making loans to borrowers with credit scores as low as 621, a significant relaxation of the 700 minimum score the company adopted just three months ago as it struggled to survive. America's median credit score is 723"¦

GMAC is a giant ponzi scheme to subsidize car sales.  Ponzi schemes last only so long as there is a sucker to keep putting in money.  No private funds are that dumb, but fortunately for GMAC there is the Obama administration.

8 Comments

  1. Captain Obviousness:

    Another irritating thing about GMAC is that their government backing allows their new bank Ally (the one with the commercials where they taunt children) to offer CD's that yield above-market rates because they are trying to raise deposits as much as possible. Prudent, non-government-backed or bailed out, regional banks or credit unions that offer market rates on their CD's lose the deposits to Ally through no fault of their own.

  2. Eric:

    And, fortunately for the Obama administration, there are enough productive, taxpaying citizens left to pay for these ridiculous bailout schemes.

  3. Link:

    We enacted the Bank Holding Company Act to separate banking from commerce. We did this to prevent the formation of big monoliths that funded their industrial businesses out of their bank businesses. We did so with the example of the Japanese zaibatsus specifically in mind -- companies like Mitsubishi and Sumitomo.

    Financial companies like GE Capital and GMAC were "non-bank banks" for BHCA purposes because they didn't take deposits. They relied instead on commercial paper, other public debt offerings and securitization for their funding. Having to raise funds in the public markets without an FDIC deposit guaranty was an important discipline.

    Now that GMAC has been magically allowed to be a bank holding company -- and to fund itself with FDIC insured deposits -- the UAW and Obama have their very own zaibatsu. It's good to be king.

  4. MJ:

    Ugh...the taxpayers get another expensive lessons in the importance of ignoring sunk costs.

  5. happyjuggler0:

    It is not surprising that GM can't borrow what it needs/wants in the private sector. Obama stole from the bondholders and gave to the unions.

    Fool me once, shame on you. Fool me twice, shame on me.

  6. epobirs:

    If the goal at GM were to sell cars, that would almost make sense. And it might even be acceptable if it meant we were getting good cars and supports for them.

    No, the goal here is to launder vast sums of borrowed taxpayers dollars for the enrichment of union bosses and their crony organizations.

  7. Tim:

    One correction. General Motors (the New GM) doesn't own GMAC; and neither does Motors Liquidation (old GM). GM spun GMAC off in 2003; and it was eventually acquired by Cerberus -- before they bought Chrysler. It's automotive finance arm acted as GM's and Chrysler's for a while; but GM actually pushed customers away from GMAC financing near the end there....

    But, ultimately; there's no connection between Ally (nee GMAC), and any of the car companies.

  8. Link:

    Just like there's no connection between the Fannie/Freddie and the Fed.