As GM’s “captive finance unit,” as a division in which GM still holds 49 percent, GMAC’s arterial spray of red ink is causing all kinds of “challenges” for The General. For one thing, GMAC has been forced (by its own profligate ways) to raise floorplan costs to beleaguered dealers, driving a large number of said stores to the wall. And that’s just the good news. The bad news for the lender– whose ResCap mortgage unit wrote enough bad paper to Christo Rhode Island– is very bad indeed. “While Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke try to sell the [$700b bailout] package to Congress, Detroit-based GMAC is burning through cash and its bonds have fallen to a record low,” Bloomberg reports. “The biggest drain is GMAC’s Residential Capital LLC home-lending unit, which lost $1.9 billion in the second quarter — 2-1/2 times more than the auto loan unit.” The situation’s so bad, Mortgage Banking Solutions’ David Lykken’s almost been reduced to swearing. “Internally, everyone’s got to be hoping like heck they make it into the bailout program. That is probably the only option they have at this point.” Meanwhile, GMAC is more or less out of the leasing game, and GM can’t depend on them to offer zero percent financing to anyone with a pulse anymore. Hoisted. Petard. Own.
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Doesn’t Cerberus own the other half?
As if the auto divisions weren’t already up the creek, now they have the potential that their 1/2 owned mortgage arms are going to drag them under water.
Very interesting (and absolutely terrifying) that the final straw resulting in C11 for GM and Chrysler could be home mortgages.
Hey, unlike Fannie and Freddie, no one told them to write the paper.
What the hell is a petard, anyways?
Robert,
This sounds very bad. I have a money market account with them…
Should I get out while I can??
Okay, I give up, what’s the “H” word? I’ve already ruled out Happy, Hopeful, and Homosexual.
ktristan :
I know it’s hard to believe, but I’m not a financial adviser. And it’s certainly true that I’ve been wrong about matters financial many times before. But the General trend is easy enough to see.
Cicero :
Heck.
“H-word”, from one urban dictionary, meant “Hell-Yeah”. But TTAC’s take could be completely different.
Paulson and Bernanke have to draw the line for “Moral Hazard” somewhere. We are still, after all, a capitalist society.
“H” word?
What is the “H” word? “Hell”? He is cursing?
“hoist by your own petard”: Injured by the device that you intended to use to injure others.
“A petard is or rather was, as they have long since fallen out of use, a small engine of war used to blow breaches in gates or walls. They were originally metallic and bell-shaped but later cubical wooden boxes. Whatever the shape, the significant feature was that they were full of gunpowder – basically what we would now call a bomb.”
Source: http://www.phrases.org.uk/meanings/hoist%20by%20your%20own%20petard.html
Part of the value that banks give in the loan process is supposed to be diligence on the likely value of the collateral. If the collateral is supposed to be a car made by the guy who owns the bank, how is this going to happen?
GMAC is nothing more than a blatant violation of the KISS principle. GM should have stuck to building cars. It’s what they are supposed to do.
Maybe the bailout should have included a provision requiring an engineering degree for everyone of VP or above?
The idea of being hoisted by your own petard is easier to understand when you know “petard” was derived from words meaning “fart” or “to fart.”
Come to think of it, ass gas is about as valuable as some of that paper sold to the credit markets.
Am I the only one that thinks of Stewie from Family Guy when I hear the term “hoisted by your own petard”? Seems like I’m a true intellectual…
Ha, I actually thought of the Family Guy episode “Petarded”. One of my favorites.
^ If you like Simpsons ripoffs.
Cicero,
I note that the “H” key is very, very close to the “B” key. And I further note that, while the quality of information at this site is mighty fine, the proofreading is somewhat lacking.
We are still, after all, a capitalist society.
Matt how can you tell?
speaking of toxic waste,with the Government offering to take your umm “effluent” in exchange for somewhat better effluent in the shape of treasury bonds – suddenly there is money in effluent and the ResCap handed to the feds to ‘administer”. GM breathes again….. for another month.
The situation’s so bad, Mortgage Banking Solutions’ David Lykken is using the “H” word. “Internally, everyone’s got to be hoping like heck they make it into the bailout program.
Heck. The “H” word is heck. I’m making fun of the fact that he said heck instead of Hell. Anyone talking about such a large crisis– ah, forget it.
Text amended.
“Heck” is where you go if you don’t believe in “gosh”.