GMAC is Too Big to Fail? I don’t get why we’re bailing them out….
by Tom on October 28, 2009
in Market Musings, banks
Okay, I don’t see the logic behind this. Let me lay it out:
- GMAC does a lot of car loans.
- They are in big financial trouble. We’ve already given them $13.4 Billion and now they want another $3 to $6 Billion (when you are talking that big of numbers, why not just round them?)
- The supposed argument is that we’re doing it to keep financing available for those who decide they want a new car and big payments (sarcasm inserted there).
- That keeps GM and Chrysler from going belly up.
Now the question that I don’t get is essentially this:
“If we need someone to do car loans, rather than throwing more money at GMAC, why don’t we put in place some mechanisms that would make the rest of the banking industry better able to write car loans?”
The advantage to that would be a spreading out of the risk rather than having it all in one financial institution.
I just don’t get it. We seem to be throwing money after money after money without really thinking about what we’re doing.
Tom Vanderwell
GMAC seeking third round of bailout funds – WSJ – Oct. 28, 2009
NEW YORK (CNNMoney.com) — GMAC Financial Services is seeking a third round of bailout funds from the U.S. Treasury Department, according to a report in the Wall Street Journal.Talks over a fresh lifeline are at an advanced stage and the U.S. government could provide an additional $2.8 billion to $5.6 billion to the lender, the report said, citing people familiar with the matter.
The U.S. has already injected $13.4 billion in the lender since December 2008 and owns a 35.4% stake in the firm, which is the primary lender to customers of General Motors and Chrysler.
If GMAC receives the additional taxpayer money, it would likely be in the form of preferred stock, the Journal said.
Technorati Tags: Too Big To Fail, GMAC, Bank Bailout
I agree Tom, they had a great discussion about this on CNBC just 20 min ago. GM needs it to write car loans; without that arm, there would be less cars being sold. GM is now under the watchful eye of the government, and it is in their best interest to make sure that cars are being sold. One guy on the show said that if you have swam half way to Bermuda, you have to finish the swim…all a mess either way.