Now that the frog– fog of war is beginning to lift from the deal between the federal government and troubled auto and mortgage lender GMAC, a few key facts have emerged. First and foremost, Business Week (BW) reminds us that the U.S. Treasury’s $6b “investment” in GMAC leaves it as the lender’s largest shareholder. Not to put too fine a point on it, the federal government owns GMAC. Second, BW reckons that means a boardroom shake-up is on its way. “GMAC’s 12-member board of directors, of which [J. Ezra] Merkin is chairman, is expected to be clipped to seven directors. Cerberus has four executives on the current board, but will get only one voting director on the new board… GM will go from having four voting executives on the board to just one, nonvoting executive.” In other words, GM can’t manipulate GMAC to move the metal. Or can it? More [non-Dodge] ramifications after the jump.
“When the deal is completed, GMAC will have about $25 billion in equity. Its new capital structure helped the lender get approval to become a bank holding company. That gives GMAC access to Federal Reserve funds at more competitive rates so the company can make more loans and help GM sell more cars.”
Which means that the U.S. Treasury is, effectively, in the car business with GM. Again. More. But the rules will have changed– at least according to longtime industry watcher Maryann Keller.
“GM will still be able to run programs like 0% financing. But the company will have to compensate GMAC for the risk to any nonprime loans and incur all of the costs of any marketing program, Keller says.”
So GM costs will be higher. And that’s OK, because they can always go back to Uncle Sam for more bailout billions. Will do, in fact.
Bottom line: the feds are in this auto bailout business up to your eyeballs. Barack’s boys face a stark choice: let the domestics go bankrupt, sell off our shares of GMAC and draw a line under this mess, or keep pumping taxpayer money into domestic automakers and their suppliers and “improving” their business plans (GM – Chrysler merger?). Until they go bankrupt anyway.
If there’s a slippery slope towards nationalization of the domestic automobile business– the American Leyland scenario– we’re on it.
Well, it well and truly is a bizarre world; who would have thought that America, especially, Bush America, would turn out to the largest donor of corporate welfare in human history? A TRILLION dollars to fatcats in suits and zipola to people who can’t make their house payments. Maybe we could cut a cheque for $3333 for every man, woman and child in the USA. Then they can decide with themselves who they “bail out.” But that is not going to happen.
And what for? This $6bn will only finance about 240,000 cars, a 1,000,000 max if leveraged. This is not going to save GM. Its problems are much deeper than that.
But it is all moot; American as reached a level of corruption and greed where all that matters is enriching the top 1% of society. GM’s suits will still get $45m a year, Bank of America the same. But hey, can’t raise the minimum wage to $7.00 an hour, that would cost too much.
Who would have thought?
Perhaps you’re not old enough to remember Ronnie Ray-Gun. Spend now, pay later, on the grandest of scales, was his modus operandi.
Bush America? Order of magnitude worse. As to the amount of leverage, it’s about 9 to 1 at current Fed regs for a bank – so it’s about $45B to loan.
From jump street, ‘fixing’ GMAC was (pretty much) fait accompli. It had to happen, or GM was instantly dead meat. Despite the “loan”.
(And the Cerberus guys wouldn’t have gotten paid for their 51%, but that’s another hustle…)
The next giveaway (as has been noted) will be Delphi.
Small and medium businesses, the ones that really drive the American economy, have their lifelines cut. Well-connected businesses that can’t grab their ass with both hands, get billions.
And some people still don’t understand why I see this ‘economic downturn’ lasting for quite a while…
I remember Ronnie Ray Gun. He made America feel good. He gutted the country doing it. Didn’t build any schools but a lot of weapons and prisons.
Worked really well, too.
Canucknucklehead,
He only made some of America feel good. The rest of us were embarassed, and knew the Mastercard would have to be paid off someday.
Scary part is that he was far closer to being a ‘Republican’ than Bush II.
It did work well for the 1%. The rest denied the facts and numbers, and pretended. (It’s an American thing, most of us think we can someday be really, really, rich. Therefore, we let lots of things go under that fantasy.)
Reagan was responsible for the largest and longest post-war boom on record. Along with the majority of Americans, I sure felt good as a middle class engineering student in 1984 when I was first old enough to vote, and don’t regret it for a second. If I remember the 80’s correctly,
1) The Federal governmnent income almost doubled from 1980 to 1989, from $244 Billion to $446 Billion due to Reagan’s tax plan, which can’t be blamed for runaway spending by congress
http://www.house.gov/jec/fiscal/tx-grwth/reagtxct/reagtxct.htm
2) Percent of middle class families earning over $50K grew from 17.6% to 23.5% (So who exactly was gutted?)
3) Reagan and Margaret Thatcher had the balls to stand up to to the parasitic Unions, which is something we desperately need now more than ever
“Reagan was responsible for the largest and longest post-war boom on record.”
Please, gsorter, don’t disturb that cherished liberal myth about reagan; it’s a constant source of comfort to ex-hippie boomers, particularly north of the border. I got a kick out of the “ray-gun” cliche, though, I didn’t realize those people were still around.
Ronald Raygun! I love that one. Guy wins the cold war, and STILL gets no love from the other side.
I wonder how much the new board memberships are really worth, and how the government will decide who gets them?
Blue 9,
Don’t worry man, we’re still around. I’m 42, so you might be stuck with me for a while longer. Don’t get me wrong, he wasn’t all bad. He was somthing close to a Republican. Not really, but kinda close. Way closer than the shrub.
C’mon Landcrusher, I would not give Reagan complete credit for winning the cold war any more than I would completely credit Clinton with the economy during his tenure.
They both did some things right, and happened to be in office to take the credit.
I think if you study the cold war, and how it was ‘won’, you’ll find that we simply outspent the USSR into oblivion. Since the end of WWII. By EVERY US President – Dem or Repub.
We also outsmarted them (sometimes), but the real coup de gras was delivered by the black goo.
The collapse of the price of oil was the final nail in their coffin.
It’s all, and always, about the money.
FWIW- The Ray-Gun thing came from one of his many pork barrel projects, the ‘Star Wars’ crap. I have a few friends in the military industrial complex. It was a big pile of cash boondoggle from jump street. Zero results. But, damn, they did get to have fun with that cash. (Yes, I got to have some of that fun with them. Expense accounts are a wonderful thing. Sorta.)
gsorter,
Longest boom? Really? You are convienently ignoring what he (and Congress) did to the Federal deficit. You have also seem to have forgotten that was when we switched gears from being the world’s largest CREDITOR nation, to the world’s largest DEBTOR nation. Borrow money, spend it, get stimulus. Pretty simple, until you have to pay it back.
That was the largest and longest smoke and mirrors job in history. At least until the worst spend-like-water-without-taxing Pres we have ever had got ‘elected’. Twice.
We are gonna have a brutal next few years.
I came here to talk about cars, not refight the 1980s. Anybody else here to talk about cars?
Reagan was responsible for the largest and longest post-war boom on record.
Yeah, a fake boom built on the country living beyond its means, which became a plank in the Republican platform and has now ended in the Republican Depression. My neighbors were living it up for the last few years. It’s easy to feel good when you take out a HELOC and spend significantly more than you make. It is not so pretty when the inevitable end of the road is reached.
Reagan was responsible for the largest and longest post-war boom on record…..gsorter, Longest boom? Really?
Based on borrowed and printed money, just like Bush. No new wealth was created and much of the industrial mid-west was gutted.
But Regan made people feel good and that is all that really matters. It seems that many of my American neighbours do not seem to understand the depth of the crisis that faces them now.
Let’s look at some of the ironies. For the $15,000,000,000 GM wants, added to the $6,000,000,000 GMAC has received (courtesy of the taxpayer), the entire GM workforce would receive $70,000 each. They could stay home for two years and do nothing.
A big part of the boom was due to the IT revolution. Remember that correlation is not causation.
Crappy irresponsible governance is only a part of the equation, although I guess it’s been gaining effectiveness starting with ronny and continuing with bush2.
I mean, how can these demagogue followers justify themselves anymore now that their heroes in power think nothing of nationalization? Allow me to gloat at pointing out their gullibility.
You’ve said it before, but one way or another they’re going bankrupt.
The only alternative I see is the remaining 2 fix their complete cost-structures, pay market-rate Total Cost/Employee to the UAW,
*and then Boss Stalin and the KGB absolutely Crush the surviving bolt-tightener rabochiy into powder under the boot heel of pre-baked compensation and their fatcat administrative skim.
—
Otherwise:
Before you go all misty-pants over Ronnie+Co.:
Remember that under Ron’s watch, Paul Volcker used the Nastiest bit of Monetary Policy, maybe in US history, to end the late-70s/early 80s Stagflation, creating a relative Tsunami of Unemployment as a result. Like, Great Depression-scale Unemployment. -So it wasn’t all great.
+++Yes, psharnininininnnninjjian, I just criticized the Reagan Administration. ==>Happy New Year!!!
(or whatever it is You People celebrate at the end of December; -you know, the last 31 days out of each 365? -if you do use 365 as your base day quantity for a ‘year’, and this is in-fact 2009 for you and not 7518 :P :D :D )
gsorter said:
1) The Federal governmnent income almost doubled from 1980 to 1989, from $244 Billion to $446 Billion due to Reagan’s tax plan, which can’t be blamed for runaway spending by congress
Did you just conveniently forget about the national debt accumulated in that era?
With that much money borrowed, and used as income, even an idiot can double the “income”.
If you make $50k per year, and you draw $50k per year from home equity, will your wife be impressed with your doubled income? Reagan is just another sub-prime actor.