Amidst all the noise about “troubled assets” and “toxic debts,” few commentators have noticed that the bailout rescue package before Congress (again) includes provisions for the government to buy-up car loans gone bad. The Wall Street Journal, “In August, tight credit caused General Motors to lose sales of roughly 10,000 to 12,000 vehicles, the car maker said. When extrapolated across the entire U.S. industry, that was the equivalent of 40,000 lost sales, or about $1 billion in revenue.” Thus, the fed’s grand plan to pick-up big dollops of the bad paper so that car dealers can get back to the business of putting people into cars and trucks they can’t afford by writing more bad paper. Personally, I think people should only buy the vehicle they can pay cash for, but if the world agreed with me then the automotive market would probably crash and burn. Americans wouldn’t even accept a China-style system, where buyers have to put down 40 percent of a vehicle purchase price in cash. Regardless, if the bailout package passes this week, you can bet The Big 2.8 will be looking to push that money straight into its dealers’ hands.
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How do you know a GM representative is lying? His or her lips are moving. Let me fix their quotation:
“In August, tight credit proper credit risk underwriting caused General Motors to lose sales of roughly 10,000 to 12,000 vehicles, the car maker said. When extrapolated across the entire U.S. industry, that was the equivalent of 40,000 lost sales, or about $1 billion in revenue.”
The elephant in the room is that people can’t afford the crap they have now, let alone to buy more. If I’m GMAC and I’m drowning because I made house or car loans to people who can’t pay and the feds pull my soaking ass out, am I going to make more bad loans? No. I’m going to hang on to the damn money, or maybe pay it to my top execs for their skills in pulling off the bailout scam. Whatever I do, no way am I going to loan those irresponsible idiots money again and get my GMAC butt back in the hole again. So this bailout is a bailout that won’t do squat to help GM sell more cars.
Responsible taxpayers who bought only what they could afford will pay for the ninja loans (no income, no job, no assets) while bankers who collected hefty fees packaging mortgages and loans as collateralized debt obligations float away on golden parachutes.
Considering the current market caps of GM and Ford, we’d save ourselves a lot of money if we just go all-out commie and have the government BUY OUT the Detroit-3.
Best of all they’d now be performing about to expectations for a government agency.
The problem was caused by too much easy credit; so the solution is obviously lots more easy credit, right?
J.H. – “Personally, I think people should only buy the vehicle they can pay cash for” – Words to live your life by folks. I’ve never paid anything but cash for a car (or anything else), the look of shock and horror on the salespersons face alone makes all the scrimping and saving worth it.
re: “…the solution is obviously lots more easy credit…”
Aegea / October 1st, 2008 at 2:49 pm
our economy and the people who try to somehow function within it are in for a world of hurt. there will not be anymore easy credit for the foreseeable future – and much like sarah palin, i can see all the way to russia.
how it all unfolds from here: [1] our glorious government gets completely suckered into funding paulson’s billion-dollar ‘no-banker-left-behind’ bailout scheme. [2] the financial markets are restored to some level of solvency and the taxpayers left penniless. [3] the general economy tanks. [4] taxpayers seek loans to survive but learn from the very same banks just bailed out that they, the taxpayers, are now no longer credit-worthy, cuz they’re carrying too much debt. [5] the end.
and it ain’t a happy ending – not at all.
@philipwitak
Yes, well, I wasn’t actually *serious*, you know … I think your scenario is reasonably accurate. Unfortunately, the alternative seems to be [1] No banker bailout. [2] Credit gets very expensive, if you can get it at all [3] Slowdown in economic activity, recession turns into depression. [4] Markets eventually clear, slow growth resumes [5] In ten years or so we are back to where we were before these bubbles started, say 1990.
No easy way out that I can see.
re: “…the alternative…No easy way out that I can see.”
Aegea / October 1st, 2008 at 6:06 pm
the truth of the matter is that there was, and still is, plenty of money in the private sector, sitting on the sidelines, waiting, waiting, waiting and many of those controlling it would love to get a decent piece of the bailout action.
but from wall street’s point of view, the problem with that is those guys would also demand something of real value in exchange, for all the risk they would be assuming – see: warren buffet – and they tend to drive a pretty hard bargain. and the wall-streeters, still as greedy as ever, simply don’t want to give it to them when they know they can get all the cash they need from the disconbobulated taxpayers for next to nothing – with only a little help from their friends in the government.
they get fixed. we get fu*ked.