We're coming after you, Geithner!
Long live the days of government handouts with no strings attached.
GMAC has come crawling back to the government yet again, asking for a third lifeline of taxpayer money. The troubled consumer lender, which has already received $12.5B from the government since December, has asked for another $2.8B to $5.6B of fresh capital in the form of preferred stock. WSJ has the details:
The willingness by Treasury officials to deepen taxpayer exposure to GMAC reflects the troubled company’s importance to the revival of the auto industry. Founded in 1919, GMAC has $181 billion in assets and is a major financier for 15 million borrowers and thousands of General Motors and Chrysler car dealerships in the U.S.
The new capital would help firm up GMAC’s balance sheet and solidify its auto-loan business. GMAC provides the vast majority of wholesale financing for GM dealerships across the country, meaning scores of local distributors would be unable to bring new vehicles onto their lots if GMAC were to collapse.
GMAC begging for more funds is a stark reminder of the bailout rage that swept through the economy in late 2008 and earlier this year. Bloggers, to say the least, are outraged.
“The reason for more dough to GMAC is so GM and Chrysler can continue to finance auto purchases, not as a result of greater than expected losses on its existing portfolio,” Yves Smith writes at naked capitalism. “So this is cash for clunkers under another brand name.”
Others are confused as to why the government continues to bend over backwards bailing out GMAC while fellow lender CIT Group’s (CIT) future also looks bleak. The Mock the Market blog wonders why it’s so imperative that the government backstop cheap financing for the auto industry rather than cheap loans for small businesses.
“How on earth did it become a national priority that everybody needs cheap financing to buy a new car every couple of years?” blog ponders.
Of course one of the main reasons is the government’s invested in Chrysler and GM and has much more at stake regarding the future of the auto industry rather than helping small businesses.
So, will bailout rage make a comeback? Paul’s already said he’s got bailout fatigue. As for me, I’m still incensed about how folks just two months ago were saying the government could actually profit off the TARP.
Yes, some banks have already repaid TARP, but we argued losses from AIG, Fannie Mae (FNM), Freddie Mac (FRE), GM and Chrysler couldn’t be ignored. Well, add GMAC to that list.
The government’s already poured $12.5B into GMAC since December, not including the latest infusion that’s being negotiated. And FDIC will allow GMAC to max out its borrowing capacity under the temporary liquidity guarantee program, Rolfe Winkler writes on a Reuters blog.
Sure, Goldman Sachs (GS), American Express (AXP) and a few others have already bought back their warrants at a small premium. But “all the profits from those warrants wouldn’t add up to the amount we’ve already poured into GMAC, never mind this latest infusion,” Winkler says. “There’s also the small matter of $100 billion+ we’re never getting back from AIG.”
When will Uncle Sam say enough is enough?
From Winkler:
Taxpayers are lending themselves money to buy cars (via GMAC). To buy houses (via Fannie, Freddie and very soon FHA). To buy anything and everything that has to be financed.
My question: When are we actually going to pay for any of it? Also: When we realize we can’t, what’s going to happen to the economy?
