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Posts Tagged ‘GMAC’

Will Geithner ‘Walk the Walk?’

Posted by Larry Doyle on November 18th, 2009 9:35 AM |

Do you have any confidence that Washington even knows how to properly address our massive and growing fiscal deficit? Rahm Emanuel, Tim Geithner and others understand that from a political standpoint they need to start talking about deficit control, but will that talk lead to action?

Do you think Congressional leaders, specifically Harry Reid and Nancy Pelosi, have the character and fortitude to ‘tighten the belt?’

The first real test for this crowd is already upon us. How so? The TARP, with a $700 billion commitment, expires on December 31, 2009. Of that $700 billion, $400 billion has actually been spent. Why wasn’t the other $300 billion spent? Well, don’t forget that Obama’s Stimulus Bill totaled $770 billion and assorted other programs implemented by Treasury have run into the trillions. As a result, Geithner did not immediately need to allocate those funds.

The question begs as to what will happen to that $300 billion. While Emanuel and Geithner are starting to ‘talk’ the fiscal discipline ‘talk,’ will they ‘walk the walk?’ (more…)

Keep Bailing: GMAC Needs More of YOUR Money

Posted by Larry Doyle on October 27th, 2009 8:33 PM |

Turning the corner? No more bailouts? You didn’t actually believe the wizards in Washington, did you? Why?

GMAC is back in line for another injection of YOUR money. Recall that GMAC was bailed out initially during the government takeover of GM. GMAC was then spun off in order for Uncle Sam to effectively provide taxpayer funded consumer auto loans and mortgages.

GMAC is not a public entity and thus not currently able to hoodwink investors and raise equity capital. What’s a cash strapped entity to do? Let’s play some more of that ‘bailout bonanza.’ The Wall Street Journal just reported on this developing story and writes, GMAC Asks for Fresh Lifeline:

In a stark reminder of how some battered financial firms remain dependent on government lifelines, GMAC Financial Services Inc. and the Treasury Department are in advanced talks to prop up the lender with its third helping of taxpayer money, people familiar with the matter said.

The U.S. government is likely to inject $2.8 billion to $5.6 billion of capital into the Detroit company, on top of the $12.5 billion that GMAC has received since December 2008, these people said. The latest infusion would come in the form of preferred stock. The government’s 34% stake in the company could increase if existing shares eventually are converted into common equity. (more…)

Save GM? OK . . . Save GMAC? What’s Up With That?

Posted by Larry Doyle on May 12th, 2009 1:57 PM |

Does Uncle Sam really need to take a greater equity stake in auto and housing finance? Doesn’t our exposure to Freddie and Fannie along with our soon to be equity stakes in Chrysler and GM provide us enough exposure? Why does Uncle Sam need to own a non-systemic risk housing and auto finance company?

Our economy has been faced with massive systemic risks within certain companies – Fannie Mae, Freddie Mac, AIG, and Citigroup. Similarly, the Obama administration views our domestic automotive industry as critical to a healthy, vibrant, growing industrial base within the United States. While the futures of these aformentioned industries and companies can be hotly debated, an entity such as GMAC (General Motors Acceptance Corporation) does not present systemic risk.

Who wins with Uncle Sam taking ownership of GMAC? Obviously the employees of GMAC, entities that have outstanding exposure to the company, and consumers who will receive below market financing. Who loses? The competition. Regrettably, the tried and true principle of healthy competition has taken a back seat in our Uncle Sam economy.

Ford Motor won the battle of the Big 3. In this case, though, to the victors do not go the spoils. Ford Motor Company deserves huge praise. Ford recognized the changing business model of the domestic automotive industry in advance, addressed its finances and adapted its business model. Today they are expected to issue 3 million new shares of stock. I hope the sale exceeds expectations and they gain huge market share.

The WSJ highlights the fact that in the brave new world of the Uncle Sam economy, Uncle Sam’s money management enterprise will have major equity stakes in Freddie Mac, Fannie Mae, AIG, Citigroup, and soon GMAC. Get Ready:You Will Own GMAC, Too.

GMAC differs from other companies under the government thumb because it isn’t too big to fail. So the government doesn’t need to save GMAC to safeguard the financial system.

Instead, GMAC must be saved, the argument goes, to revive the auto industry and consumer economy. The details of that approach are strikingly scarce. In fact, nearly everything about GMAC — its mission, board, and future ties to government — is unknown. As Winston Churchill might put it, GMAC is a financial black hole stuffed into a governance black box.

These details matter. The Treasury is in the middle of a plan to turn privately held GMAC into a new über auto-lender, financed with taxpayer dollars and likely falling under taxpayer control. This has the potential to spark unintended consequences across the auto and banking markets, similar to the quasigovernmental meddlings of Fannie and Freddie.

Would this government-sanctioned company have an unfair funding advantage against Ford Motor’s Ford Motor Credit, for instance? Would it be willing to do the politically unpalatable work of cutting credit to certain car dealers? What happens if Congress starts mandating low-cost auto loans?

How many diligent, determined, and patriotic individuals are there in our country today questioning how and why their work ethic and competitiveness have been devalued by Uncle Sam’s entrance into an entity such as GMAC? It is naive to think that the playing field can remain anything close to level in auto and housing finance going forward. How does one compete with Uncle Sam’s ability to finance itself? Where’s Congress on this topic?

Oddly, Congress and the rest of the country seem to have grown numb to the bailouts. Not once has GMAC been discussed substantively in a congressional hearing.

The next time President Obama opines that he wants to promote private enterprise and that he does not want to be in the housing and auto finance businesses, let’s ask him about G-M-A-C!!

LD






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