CNNMoney is reporting that the U.S. Treasury will “invest” $5b in formerly bankruptcy-bound lender GMAC. In return, “GMAC will issue warrants to Treasury in the form of additional preferred equity in an amount equal to 5% of the preferred stock purchase that will pay a 9% dividend if exercised.” Presumably, the treasury provided your tax money after GMAC failed to convince enough of its bondholders to swap debt-for-equity to qualify for bank status (under the Fed’s “emergency powers”). Now that the Treasury has stepped in, GMAC can make the morph and hoover $6b plus from the Troubled Asset Relief Program and $17.5b in federally guaranteed debt. Folks, that little package right there comes to $28.8b. Oh wait; the Treasury has decided to “lend an additional $1 billion to GM so it could invest in GMAC as the financing company reorganizes.” So if you add GM’s $14.4b, Chrysler’s $4b, GMAC’s $28.8 and the Department of Energy’s $25b retooling loans, you end up with a $72.2b Detroit bailout “plan.” Way hey! GMAC press release after the jump.
NEW YORK, Dec. 29 /PRNewswire/ — GMAC Financial Services today announced that it has sold $5.0 billion of GMAC’s preferred membership interests and warrants to the U.S. Department of the Treasury as a participant in the Troubled Assets Relief Program established under the Emergency Economic Stabilization Act of 2008. The sale was completed today.
GMAC also announced that General Motors Corp. (GM) and an affiliate of Cerberus Capital Management contributed to GMAC the $750 million subordinated participations in the $3.5 billion senior secured credit facility, as amended, between GMAC and Residential Capital, LLC in exchange for new common equity of GMAC. In addition, GMAC announced that GM and an affiliate of Cerberus Capital Management entered into agreements to purchase $1.25 billion of new common equity. The U.S. Treasury and GM intend to enter into an agreement for the Treasury to fund GM’s share of the new common equity.
GMAC also announced that the conditions to its previously announced separate private exchange offers and cash tender offers have been satisfied and that GMAC has accepted all of the validly tendered GMAC old notes and ResCap old notes. The GMAC offers and the ResCap offers are expected to settle promptly.
GMAC received approval of its bank holding company application from the U.S. Federal Reserve Board on Dec. 24, 2008. As a bank holding company, GMAC has improved access to funding to provide financing to consumers and businesses. In particular, the company intends to act quickly to resume automotive lending to a broader spectrum of customers to support the availability of credit to consumers and businesses for the purchase of automobiles.
This has now passed the point of bat shit crazy. It’s now reached f***ing insanity.
Since this is an auto website…please allow me to quote Henry Ford:
“It is well that the people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.”
Sucktastic in principle as this might be, now is not the time to let GM burn to the ground. If this were a year ago, or perhaps a year from now, I’d say let them die.
Right now, with the economy as it is, it’s probably a safe bet to float them the money until we, collectively, can afford to let them sink or swim of their own accord.
psarhjinian :
it’s probably a safe bet to float them the money until we, collectively, can afford to let them sink or swim of their own accord.
Probably? You want to bet $72.2b of MY money on these companies?
Principle is not something you abandon when times are bad. Exactly the opposite.
The mind reels.
I must admit, since I live in Michigan, I kinda want the automakers to be propped up, because when GM and Chrysler go down, it will be Armageddon here.
Well, at least until fall 2010, which is when I will be leaving the state. Then I won’t give a shit anymore and will definitely want them to fail.
Sorry for the long post.. but this makes perfect sense to me.. I spent a lost decade living in Detroit working with/for GM… Moved on and now I think more about economics vs. cars…
So here is why this makes all the sense in the world to me:
Here is my theory..
– Assuming Bernanke / Paulson don’t start every morning eating loads of stupid pills, they must have a “big picture” goal and their various actions over the last 18 months must bring them closer and closer to their goal.
– So then we need to trace the actions back to a likely goal… There are only a few ways for an organization to get out of crushing debt.
– Bankruptcy.. Screw you all, I’m not paying.. come and get it..
– Live below your means and pay it back nickle by nickle
– Or if you are so blessed that the debt is based in a unit that you control the value of… well just devalue the unit. You owe $250K and only make $50K a year? devalue by 300% and now you make $150K a year and $250K isn’t so hard to pay off.
So I don’t think they (they being the countries that we owe money to since they are really in control) will pick bankruptcy. Plus bankrupting the WORLD’s reserve currency is not such a good thing for anyone.
Live below our means? No way… The government derives power from the ability to spend money and raise an army. No way congress or the president will choose to reduce their own power. No f’in way…
So we are left with devalue to dollar. To do this the Fed Reserve has to create enough new money.. Maybe 3X what is out there so that all of debts go thru a massive cram down.
Easy for GM to pay off it’s debts if a Corvette sells for $150K. And you can afford one now that you make $150K instead of $50K. Also don’t forget about the house you paid $400K for (and is worth $200K in pre-devalued dollars) is now worth $600K in “new dollars”. You can get a tax deductible HELOC for $200K from Citibank and buy that Vette!!!
So the goal then is to find way to shove as much cash into the system as possible without looking like your devaluing the currency. The real pickle is if the currency devalues itself before they get the money in the system. If the dollar drops 50% before they can shove enough in, when they do shove it in, the dollar will be decimated.
So the auto companies are a perfect place to shove cash.. You can give them infinite amounts of money and they will spend every dime overnight.
So I expect the “big 3” to get at least $500B if there is enough time…
Re: RunFromCheney… but in 2010 the Big 3 will reap massive profits from all those cars that the Feds are helping them invest for! And then everyone will return to getting their 50% to 200% bonuses so they can buy that cabin up North or that second boat. You’ll be missing out on a very lucrative opportunity by leaving in 2010.
I wonder what the Treasury would say about the auto bailout. I guess the $70B+ headed for Detroit is a real data point that was arrived at through detailed analysis.
http://www.forbes.com/2008/09/23/bailout-paulson-congress-biz-beltway-cx_jz_bw_0923bailout.html
Re Beller…
Wow.. I’m in Fargo’s league… An honor…
again farago…..you talk about principle….it is getting in the way of commonsence
This isn’t surprising. When the government makes working with the bondholders a precondition to putting a deal together, then that empowers the bondholders. These conditions may sound nice and diligent and fiscally prudent, but they only make the deal more expensive.
If we are intent on intervening, this was the wrong way to go about it. It would have been much cheaper for the FDIC to seize the GMAC Bank, and force Cerberus and GM to put the rest of GMAC into Chapter 7, then have the federal government bankroll a brand new company that could provide the dealers with floorplan. Force Cerberus to capitalize the new company with their own equity if they wish to take part in it.
For being a bunch of tough talking Republicans, they are sure acting like wimps. If they are going to bend the rules, they should at least be bending them to help the taxpayer, instead of GMAC’s creditors.
lw
farago has some great insight, however create your own opinions and like I said medications may help
Btw notice that they aren’t really bailing out the auto industry. The REAL auto industry is the supplier base. Unless the bailouts come with minimum production volumes that approximate 15M units per year, the suppliers are done for.
Hard for the treasury to deal with “small” suppliers.. They need to deal with banks/bank like entities… Hence they can work with GM via GMAC and pump the cash…
lw…now that post has merit…you make me proud
Well gag me with a maggot, wouldn’t you know, Rules Changed again! Billions fall like pennies from heaven, ain’t it grand? No medicine required, life is easy. Everybody just put in more time, eat a whole lot more sewage (debt) and get much sicker! The perfect storm, anyone else want money for nothing? Line up, we will give it out as fast as we can, we can’t make up any excuses not to now, after this! Why? Because we won’t be around for long, and when it all blows up big time as it surely will, the other guy will get blamed! NOTHING else is important but that!
beller… I took my Focusin pills… they really help…
I still contend that the real goal is to push cash.. doesn’t matter how…
Find an industry that can move cash into the economy quickly and I bet they get a “bailout”..
The burning pyre of dollar bills seems awfully toasty in winter doesn’t it????
The picture…
lw….glad to hear the pills help. GMAC WILL push cash out into the economy fast. Bank injections have not worked and will not work. Consumers can’t get $.Go to your local banks and look at the piles of declinations on the loan officers desk. GMAC will……right away…btw..got any spare pills for me
beller… No problem with the pills.. I’ll send over a pallet load.. you’ll need them all to get through 2009.
GMAC can definitely push the cash.. they just need to hand it to GM. I don’t think they will go back to their old lending standards of sub 700 scores.
It’s the brutal side of fractional reserve lending. Give GMAC $5B and permission to lend at 10:1 and you just put $50B into the economy…
Unfortunately if 10% defaults, they are shut down again and need $10B.. $5B to cover the defaults and $5B to start lending again…
So GM just needs to take the billions and spread it around.. One last massive Kegger before it all blows sky high!
@PCH101
If the FDIC intervened it would completely wipe out the insurance fund, which would cause big, big problems.
Since I’m on a roll for predictions and becoming increasingly cynical I’ll go out on a limb and predict Cerberus still refuses to improve financing options for GM dealers and makes it increasingly difficult for dealers to finance their floorplans, they aren’t an ATM afterall. All of the bailout money will disappear into Cerberus’ coffers and they will threaten a GMAC CH11 within the next few months, after Chrysler financial is turned into a bank holding company, in a successful blackmail attempt for many more billions.
If the FDIC intervened it would completely wipe out the insurance fund, which would cause big, big problems.
Not at all. The bank side, which is quite small, consists mostly of depository accounts, that could be sold off to another lender at little or no cost to the government.
On the other hand, we are getting spanked on this deal. An 8% return on zero is zero.
Merry Christmas
lw-
credit score means nothing. they will lend to under 700 scores mark my words and as long as they charge a premium for the risky credit, they will make money…lots of money. the problem is giving credit as you say sub 700 scores the same rate AS A tier credit that is not profitable. remember this there will always be a kegger..and my cup will always be half full…how about yours…need a fill up
Thank goodness the loans have been approved. We must do what we can to ensure that our domestic (American) car companies have a chance to succeed and resume their positions as great manufacturers and employers in the USA! Sorry TTAC…
lW,
Problem is we are going to get the inflation without the higher wages, like what happened in the ’70’s. They called it stagflation. Up till then they didn’t really think it was possible. Never doubt the power of the government to screw up the economic system. This time it looks like it will be deppressflation.
Wow it’s a party in here!!! I want a CTS-V bailout!
Bridge2far….don’t be sorry! remember the glass is half full
@lw: “bankrupting the WORLD’s reserve currency is not such a good thing for anyone.”
-is a BIG stretch from Detroit econ; I feel the big picture is more decoupled than you make it to be.
+The dollar’s value has been in the crapper for awhile. The un-delayed-blowup would’ve just been a little more of the same.
(I’m not sure what the Feedback-Loop-Offset on dollar-escalation due to Increased Foreign Demand is, but it seems more than 9+mos. eg:Increased US Exports, Foreign Tourism Influx, Increased Borrowing by Foreigners due to cheap currency+low rates)
If The Fed/USG wanted to pump money they could Just Expand M1 and use Fiscal Policy to increase Distributions, esp to the $200k/yr and lower (inverse ‘voodoo economics’, btw).
I don’t see the current maneuver as anything that smart.
It’s just Stretching the Fuse on the Bomb. +They just control the Speed of the inevitable explosion.
If you want to credit Hank and Ben (? -Hah!) with understanding anything, it’s Basic Microecon and the untenable cost structure of Det 2.8 viz. revs + knowing that C11 is truly the healthiest thing for them.
**I doubt any of the $ will promote any Accretive engines inside those Cos; it’s probably just covering Currently Distressed Property, admin backhoeing + offshore bank accounts in Lichtenstein; -nothing future.
-Though, for dealing GM/GMAC their Straight Flush Card on the River, I AM sure that Hank Paulson now owns the complete photo album set of Steve Feinberg + Bob Nardelli getting the Max Mosley Treatment.
willman…..thats over my head…i just want to learn the truth……….about cars
I’m thrilled that at least a few of my fellow Americans in Washington realize that giving GM a chance is the right way to go.
It’s like what Colin Powell said about American foreign policy: “You can always count on America to do the right thing, after they’ve exhausted all the other possibilities.”
Besides, I’m not sure what would happen to this column if GM went away… See? GM provides work for LOTS of folks! :-)
Colin Powell thinks just like Churchill.
Winston Churchill
“You can always count on Americans to do the right thing – after they’ve tried everything else.”
Probably? You want to bet $72.2b of MY money on these companies?
I’m Canadian. We’re actually giving them more, per capita. And the answer is still yes.
Principle is not something you abandon when times are bad. Exactly the opposite.
Depends on your principles. I’m an interventionist, and much as it pains me to see wealth redistributed in what I think is the wrong direction, this is an ugly, necessary step. Yes, it’s bad. Worse is sucking life out of a vulnerable economy.
I’ll make this clear: I don’t support ongoing pay-outs. I don’t support greenwashing grants, do-nothing subsidies or tax breaks for industries already rolling in cash. What I do support is what amounts to an economic adrenalin shot to a patient in cardiac arrest.
We’ll have time to decide what limbs to cut off once the patient is in recovery. Not now.
I’ll admit to bias in as much as I have a little more impetus given that I work in a) a province dependent on the auto sector and b) a supplier of GM, Ford and Toyota. I don’t think a lot of naysayers really understand how shaky a footing we’re on, or how they’re less than six degrees from an automotive-derived income-earner.
Cerberus (51% 0wner of GMAC) is supposed to be run by the great money geniuses of our time and the government keeps giving them money.
I get it, they must be geniuses, becasue they keep getting us to pay for their mistakes.
@ psarhjinian
What I do support is what amounts to an economic adrenalin shot to a patient in cardiac arrest.
Interesting you use a medical analogy. There’s another I’ve seen for these companies which suggests Triage might be best.
As you’re in the industry, I hope you’re trying to make other plans, because not one of these incompetent companies is basing their “turn-around” on realistic sales numbers.
No money for Ford. Interesting. Dan Quayle is VP of Cerberus Finance. Close ties to the Bush family. This is more a bailout of Cerberus than GM.
It is a payoff to the UAW. These companies cannot possibly survive under the present conditions. This is just gonna tide them over till Jan. 21/09 after which the payoffs will be much richer.
I usually get kissed before I get f**ked.
I just wonder why the bleeding hearts out there just don’t write a check to the Company of there choice and not be forced into it as most of us have.It always seems funny to me that the people who support Big Brother stealing from us just don’t step up, feel good about yourself,throw all the money you can at these loser’s.go figure?
It’s nice to know that RF has $72.2 billion (my money) stashed away with the government.
I guess he must pay a larger percent in taxes than the rest of us.
And it is grossly unfair that Detroit auto workers and management don’t pay any taxes despite their above average income. Not to mention auto suppliers, dealers and other hangers on.
Amazing what can be learned at TTAC.
@ RF
Has anyone ever commented that the original $25b Energy Dept “re-tooling” when it was announced required that “the borrower has assets that exceed its liabilities and that it is likely to be able to repay the loans“?
When did that one get swept aside with the other rules?
In Soviet Amerika, debt-for-equity swap YOU!
@ Luther (Pch101 and others)
Ya’ll love this;
Reduced Shakespeare Company on US Bailouts
This is not a payoff to the UAW or to GM or to Detroit Automakers. It’s a payoff to the money centers. It has always been about payoff to money centers.
There are lots of GM and GMAC bonds out there. The Bush Administration has already shown more willingness than even Congress to give free money to Cerberus of all companies, which will not even disclose its financials. GMAC is Cerberus (and is GM, and lots of share/bondholders who are sitting on junk).
If GMAC cannot raise money commercially, there is a reason for it- it is trash. But no trash is too stinky for us to give free money to.
In the old days if pubic funds were given to private concerns with insider ties it would be called graft, corruption, and would be loudly decried by the media.
Now the exact same practice, only far worse, are hailed as ‘saving the economy,’ ‘saving jobs,’ ‘for the children,’ and the practice is no longer in the closet. This is a huge power grab and money grab to the banks going on under our noses.
Just as the previous stock and real estate bubbles directly led us to this mess, so will the bailout bubbles be incredibly worse. The effect will be on us and our children.
But at least the bankers will have done ok, and got out even as the Titanic was going down, walking across the North Atlantic to safety by using the heads of taxpayers as stepping stones.
Well, this “ripple effect” does show how tightly the tentacles of the auto industry are wrapped around our (collective) spinal cords. Feed me, or die.
That Muppet should just push the plunger and get it over with.
Let’s not forget they will be back in two months asking for more. The Congress will put on a dog and pony show for the people and then give GM, et.al. whatever they want. GM’s fanboys will scream bloody murder that Super Bob and Really Awesome Rick had to even go to Washington and talk to those mean congressmen. By this time next year, we’ll probably be talking about bailout number 3. Meanwhile, Ford’s slice of the market will continue to grow through the unusual practice of making better cars versus better promotional literature and appeals to the government for help by GM and Chrysler.