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GMAC in 2010: “Government Motors” Expects Another $3.5 Billion Bailout to Survive

January 4, 2010

E.J. Manning

Is General Motors a bank or a car maker? Since its public downfall in December 2008, General Motors has received $12.5 billion in government aid. General Motors Acceptance Corporation is harboring a huge debt in the credit derivatives marketplace which is a major obstacle toward GM’s overall capability to be profitable. To finance its continued survival into 2010, the conglomerate has been unable to raise private or other Wall Street capital. GMAC was considered too big to fail and now taxpayers are entrenched in the debacle, in large part due to unrestrained questionable credit and banking practices, not simply auto manufacturing debt issues.

GMAC is a United States bank holding company that was previously the wholly owned financial services arm of General Motors. GMAC Financial Services provides a host of financial programs including insurance and mortgage operations in approximately 40 countries around the world. In 2008, the firm provided financing to 75 percent of the 6,450 GM dealers. On 24 December 2008, the Federal Reserve accepted GMAC’s application to become a bank holding company in order to gain access to billions of dollars in government aid, a crucial attempt to ensure the survival of the company.

Who owns the Government Motors of today? As of June 2009, approximately 40.1% of GMAC was owned by Cerberus Capital Management and related investors, 35.4% by the United States Treasury, 9.9% by General Motors, and the remaining in a blind trust. The fact is that GM has been in bailout mode since 2006. It has used Wall Street and government interests to prop itself up since through financial slight-of-hand and manipulation.

According to Reuters, GMAC has about $57 billion of total mortgage assets, or about a third of the company’s overall balance sheet. GMAC’s auto finance operations were profitable in the third quarter of 2009, earning about $164 million after taxes, while the mortgage business lost nearly $600 million. The truth is that GMAC is just another victim of Wall Street investment strategies. The main concern of the U.S. government is insuring GMAC’s debt against default in credit derivatives. A credit derivative is an unfunded bet that “sells protection” against the credit risk involving the failure of contractual agreements and the ability of all parties involved to fulfill those obligations. It’s all about investing in the viability of a given project. For now, Uncle Sam and your tax dollars continue to prop up the entire system along with the credit derivatives that bankers and Wall Street experts built.

H.R. 4173 is financial-reform legislation passed earlier this month by the House of Representatives. Bankers can expect an automatic bailout of $4 trillion dollars fast tracked as the need arises to keep the system in operation. This applies on an ongoing basis to GMAC and any other large financial institution with U.S. banking ties.

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