We The People Own GMAC
The Treasury Department today gave GMAC Financial Services another $3.79 billion dollars, bringing the total amount they’ve been given to more than $16 billion and, in effect, giving the government 56% ownership in the company. Who needs a quick loan?
Supposedly, this new money is to help shore GMAC up to make sure they don’t fail because of the prediction that they’re going to lose money on the mortgage part of their business. The money will be used to shore up the automobile loan side of the business, which supposedly is thriving and doing well, just not well enough to overcome the pending losses.
First, I’m somewhat confused. Didn’t the House just pass legislation so this kind of thing didn’t happen again? Does it take time before it goes into effect, or does the Senate have to agree with it before it’s passed (which, based on how the Senate hasn’t worked together on anything this year, seems doubtful)?
Second, since GMAC was supposed to raise the rest of the money on their own and couldn’t get it done, what makes them any different than Citigroup, which had so much trouble selling all the new shares it created to pay off its TARP loan that the Treasury actually had to hold off on selling its own shares of Citi stock because the price dropped so low? By the way, Citigroup did finally pay off the loan, though the Treasury still is holding on to those shares.
Anyway, it looks like GMAC will be trying to sell off that mortgage group, Residential Capital LLC, which lost $2.7 billion through the first three quarters of 2009, following $9.96 billion of losses in 2008 and 2007.
This situation seems to prove that sometimes trying to be something more than what you are isn’t a good thing. GMAC used to be the top automobile lender in the United States, and has tried to branch out into all these other businesses in hopes of becoming a major banking operation. Bad timing and bad choices seems to have undermined them, and this is what they’re left with. Let’s hope they find a buyer for the mortgage group that can sustain itself; we certainly don’t need good money buying a bad operation and failing because of it.