From Iain Murray:
The news has just broken that the Federal Reserve is requiring GMAC to raise $13 billion in new funding. Given the way its previous creditors were treated, just who do they think will lend to them?
Gosh, it’s almost as though they want to take over the economy.
This will be a great segue into bankruptcy court. Or maybe government can throw even more money at GM and get an even larger share of a failed company.
GMAC isn’t GM. GMAC is the Subprime mortgage and Home Equity Line of Credit machine that used to finance GM.
GMAC would take out cheap loans from Wall Street, let people with lousy credit and Incomes buy expensive cars using Home Equity Loans, Second Mortgages and weirdo Option ARM mortgages on their homes. GMAC would then impute earnings and show tremendous profits. This worked until GMAC ran out of cash.
It’s Enron, redux.
Surely you meant “Freddie and Fanny Redux.”
GMAC is 49% owned by GM. They sold a majority stake to an independent group of investors (that’s mostly a quote).
http://www.sec.gov/Archives/edgar/data/40730/000119312509045144/d10k.htm
Enron was very different. Enron was actually doing illegal things, like setting up dummy companies and mis-reporting expenses as assets and things. GMAC might be doing unwise things, and possibly silly things, but it was doing them openly and honestly and with the approval of its customers and creditors.
I’m not sure it’s Freddie and Fanny, either. No one was forcing GMAC to do silly things. The government was forcing Freddie and Fanny to. Sadly, GMAC isn’t anybody redux, it’s just another credit organization that borrowed at the market rate, and the market rate of credit was lower than it should have been.
Oh, I missed something. GMAC didn’t finance GM; it financed GM’s customers. Did they offer mortgages also? They might have. They were created to offer auto loans to GM customers.
Good point Jack.
There’s no way Obama would try to use presidential influence to capriciously screw the creditors of GMAC out of their money. That tactic is obviously only going to be used once.
Where do I buy bonds?
Financial giants work in mysterious ways. Cerberus Capital paid $7.4 billion to buy 51% of GMAC, and took $5 billion in TARP money after GMAC ran into trouble last year. Cerberus also had an 80% equity stake in Chrysler, which it agreed to forfeit, along with $2 billion in Chrysler debt and the company’s headquarters in Michigan. All Cerberus was to keep was its equity in the financial arm of Chrysler.
Did the administration hold the TARP money over Cerberus’ head to get them to agree to violate the fiduciary interest of its investors, or was the investors’ loss unimportant to Cerberus because of the size of the rest of their holdings? What will make anyone want to invest in any of these huge funds ever again?