By on January 15, 2010

The TARP bailout of GM finance partner GMAC is being criticized by a congressional oversight panel [full report in PDF format here], reports the Detroit Free Press. The panel alleges that the Treasury

has not yet articulated a specific and convincing reason to support the company… It has never stated that a GMAC failure would result in substantial negative consequences for the national economy. If Treasury has made such a determination, then it should say so publicly.

There are plenty of possible explanations for why GMAC was bailed out. The most obvious is that it was part and parcel of the auto bailout. GM’s dependence on leasing and finance deals as well as the inability of GM dealers to get floorplan financing on the public markets made GMAC a crucial component of any rescue of General Motors and Chrysler. As the report notes

Treasury has stated that if it refused to support GMAC after providing assistance to GM and Chrysler, it would undermine its own investments in the automotive companies.

The tin foil hat crowd might point to Cerberus’s “voluntary” decision to walk away from Chrysler, and say that Cerberus-owned GMAC was bailed out as a quid-pro-quo for that “sacrifice.”

Either way, the report’s section on GMAC concludes:

It does not appear that the support has been made on the merits of the investment, particularly given GMAC’s recent statements that it anticipates reporting fourth quarter 2009 losses of approximately $5 billion…

Moreover, GMAC has received different treatment from all other financial institutions that were subject to the stress tests.  Unlike other institutions, it was subjected to additional stress tests after the initial stress test results were released in May, and unlike other institutions, its capital buffer requirements were revised in light of this second round of tests.  GMAC was the only institution that was allowed to benefit from post-May improvements in its financial position and in related sectors of the economy.  In the face of criticism about the merits of saving GMAC, Treasury owes the public a more detailed and convincing explanation not only of its rationale for providing substantial assistance to GMAC, but also of its rationale for treating GMAC differently than other stress-tested institutions.

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4 Comments on “Congressional Oversight Panel: Why Did We Bail Out GMAC Again?...”


  • avatar
    Steven02

    I believe there were several small banks that also received money and wouldn’t fall into the “result in substantial negative consequences for the national economy” category.
    Either way, I think the Chrysler and GM bailouts would necessitate the financial arm working as well.

  • avatar
    Rod Panhard

    GMAC got a bailout because of all the auto loans and leases. If the consumers who were paying back the loans no longer had lender, then they wouldn’t have had to write those monthly checks. And if they didn’t have to write those checks, then they’d be getting a free ride.
    In situations like this, consumers are NOT allowed to have a free ride. Only bankrupt automobile companies with obsolete products and business plans are allowed to. The government said so.

    • 0 avatar
      Telegraph Road

      No matter what had happened to GMAC, even in bankruptcy or dissolution, it’s certain the loan and lease customers would not have had their payment obligations absolved.  Those receivables are easily sold in bankruptcy.

    • 0 avatar
      lawstud

      There is never a free ride.
      Those debts are securitized and would be auctioned off, for all I know FDIC would do it. For instance, a bank owning my debt went under and it was auctioned off and now bank of america owns it. I still owe the debt even though the bank went under. The car loans and leases similarly wouldn’t disappear in bankruptcy, there would be a new owner of the debt.

      The congressional oversight must be chaired by the right as well as the left since this is a subtle jab at labor. GM and Chrysler represent a huge chunk of the labor union’s members that they were bailed out to protect them. Popular sentiment at the time when banks were getting capital infusions to avoid defaulting and collapsing, why not help labor as well. However labor got more than a capital infusion…


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