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Thread: next shoe drops on US Auto Bailout ...

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    Banned Melonie's Avatar
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    Default next shoe drops on US Auto Bailout ...

    (snip)"GMAC Asks for Fresh Lifeline
    By DAN FITZPATRICK and DAMIAN PALETTA

    Lender in Advanced Talks for Third Slug of Taxpayer Cash -- at Least $2.8 Billion

    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 35.4% stake in the company could increase if existing shares eventually are converted into common equity.

    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.

    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 thousands would be unable to bring new vehicles onto their lots if GMAC were to collapse.

    Federal officials also are moving to shore up GMAC's ability to fund its daily operations, with the Federal Deposit Insurance Corp. telling the company Tuesday the agency will guarantee an additional $2.9 billion in debt, according to people familiar with the discussions. The FDIC guarantee will make it easier for the company to sell debt to investors. The FDIC backed $4.5 billion in GMAC-issued debt earlier this year.

    The FDIC approval came just four days before the expiration of the regulator's program that guarantees debt issued by certain banks. It ended months of tense negotiations between GMAC and regulators. Without a deal, the company would have been forced to further reduce its lending volume. New-car loans by the company tumbled 55% to $5.6 billion in the second quarter from a year earlier.

    As part of the agreement, GMAC agreed to keep interest rates on deposit accounts offered through its banking unit at certain levels, according to people familiar with the situation."(snip)


    In reality, GMAC is probably facing two major problems. The first is rising default rates on auto loans ... with some freshly written 'cash for clunkers' loans already starting to float to the top of the 'septic tank'.

    The second of course is that GMAC has issued, and continues to issue, above market interest rate no penalty CD's via it's ALLY BANK subdivision in an ongoing effort to raise more cash at seemingly any cost. Thus GMAC is returning to the US taxpayers for yet more money with which to continue funding these 'losing propositions'.

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    God/dess Deogol's Avatar
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    Default Re: next shoe drops on US Auto Bailout ...

    Reminds me of the S & L crisis. Those high interest rates back then meant desperation for cash.

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    Banned Melonie's Avatar
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    Default Re: next shoe drops on US Auto Bailout ...

    ^^^ true ... but back during the S & L crisis gov't intervention was miniscule compared to THIS setup. Consider recent events ...

    - the US gov't 'gives' taxpayer money to GMAC, who was technically bankrupt due to non-performing auto dealership loans and auto buyer loans, to allow the continued financing of GM and Chrysler dealerships and car loans

    - the US gov't subsequently 'gives' down payments to 'cash for clunkers' new car buyers, allowing them to obtain new auto loans despite shaky credit

    - GM and Chrysler dealerships continue to default on financing, plus some portion of recent 'cash for clunkers' new car buyers immediately default as well

    - GMAC subsequently goes back to Washington for more taxpayer money to cover these additional losses


    The REAL irony is that even if Washington turns down GMAC's latest request for a 'mere' 5 billion additional dollars to stave off bankruptcy for a few extra months, the US taxpayers are STILL on the hook for these losses. The reason of course is that all of the cash that GMAC subcorporation ALLY BANK has been able to raise via 'above market' CD interest rates is FDIC insured !!!!

    Of course, the FDIC is now technically bankrupt as well ... but they have a line of credit with the US Treasury to cover 100 billion dollars worth of future losses ( at taxpayer expense ).

    ~
    Last edited by Melonie; 10-28-2009 at 01:15 PM.

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    Default Re: next shoe drops on US Auto Bailout ...

    GM didn't want to ask for any more bailout earlier this year. Now they are asking for more using their GMAC as the dark horse. Maybe GMAC needs to be put out to pasture.
    Last edited by threlayer; 10-31-2009 at 05:26 PM.
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