Fed Grants GMAC Ability to Seek Bailout Funds
December 25th, 2008I’m not as convinced as these guys in the piece below. This is already a make-it-up-as-you-go kind of show. Why couldn’t Hank and Ben just wave their magic wands and declare that GMAC qualifies as a bank, or whatever other damn thing they want to call it?
—‘Already Bankrupt’ GM Won’t Be Rescued by U.S. Loan
Mmm hmm.
Via: AP:
The Federal Reserve gave an early Christmas present to General Motors’ finance arm, allowing the ailing provider of auto loans to qualify for the government’s $700 billion rescue fund.
The Fed announced late Wednesday that it had approved GMAC Financial Services’ request to become a bank holding company. That designation makes GMAC eligible to receive a portion of the bailout fund and get emergency loans directly from the Fed. The plan also significantly reduces the ownership stakes of GM and Cerberus Capital Management, LP., in GMAC.
Analysts had speculated that without financial help, GMAC would have had to file for bankruptcy protection or shut down, dealing a serious blow to GM’s own chances for survival. The Fed cited “emergency conditions” in justifying its decision.
Before the Fed’s decision, GMAC was facing a crucial deadline Friday to complete a deal with its bondholders that would allow it to exchange debt for equity. GMAC was struggling to convince investors to provide the capital that it desperately needed to win approval to become a bank holding company. The U.S. central bank acted before the debt deal deadline, which GMAC says still stands and will expire on Friday.
The Fed’s move to provide government aid to one of the nation’s biggest suppliers of auto loans was just the latest extension of the federal bailout program, initially designed to shore up ailing banks. As the credit crisis kept ballooning, the program expanded to include insurers, credit card companies, and the automakers themselves. Just last week, President George W. Bush ordered an emergency bailout of the industry, offering $17.4 billion in rescue loans, and citing imminent danger to the national economy.
“To make the auto package complete they had to do something with the financing,” said David Cole, chairman of the Center for Automotive Research. “It’s really tied to the whole survival of the industry.”
“GMAC was basically frozen,” he said. The Fed’s move “has a huge impact on dealers and consumers. … The Fed wanted to avoid a disaster in the automotive sector very, very badly for the cascading factor it would have on the overall economy.”
In a statement, GMAC praised the Fed’s action.
This article doesn’t mention it, but GMAC also owns Ditech, which really took a bath in the sub-prime mortgage meltdown. So this has more to do with bailing out another reckless mortgage lender than helping the auto industry. BTW, GMAC actually has nothing to do with General Motors – it is actually owned by the same private equity company that owns Chrysler.