• Jan 8, 2010
No one likes to bandy on with clichés, but in some cases avoiding a cliché is to ignore a long history of facts and experience that brought it into existence. The cliché we speak is the one about hurling good money after bad. After the government hosed down GMAC with another $3 billion, Uncle Sam's stake in GM and Chrysler's official lender is anywhere from 56 percent to 70 percent depending on the kind of shares the government holds.

The money IV, though, hasn't come close to stemming the losses at GMAC – specifically its Residential Capital unit that was a subprime lending fiend not so long ago. The parent company looks to report a $10B loss for 2009 – its largest yearly loss ever – due to a fourth quarter loss of $5B, which also sets a company record for one quarter.

As to the wisdom of combining good money and bad, the government doesn't have a lot of choice: other bailed-out banks' lending practices would make Scrooge say, "Wow, that's stingy," and if GMAC goes under then a lot of GM and Chrysler dealers take fatal hits. Nevertheless, don't expect this year to bring better results: delinquencies will peak next year while home prices bottom out, and the government's subsidies for mortgage-holders will probably end this year. All of that probably equals a prognosis that could come from the Book of Cataclysm: "Let there be pain."

[Source: Business Week | Image: Craig Jones/Getty]


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    • 1 Second Ago
  • 32 Comments
      • 5 Years Ago
      Mortgage loans, credit loans and car loans continue to default and this year is expected to continue to pile up for defaulted notes at a all time high, who thought this was over? lol
        • 5 Years Ago
        unfortunately, the pumping of "capital" into failed banks and other lenders will create a false bubble which is already sending a false signal that this segment of the economy is recovering. People will be duped by the false signals (again), invest in the wrong parts of the economy, and once again, lose significant wealth when this latest bubble pops. Then we'll find some scapegoat to blame it on, when the reality is that the act of creating fake "capital" and thinking some person or organization is smart enough to know where capital should be allocated is the real tragedy, and the real treasonous act.
        • 5 Years Ago
        You're not the same level that was in support of this kind of thing and calling everyone against it idiots, bragging about your experience in the financial sector, and telling everyone they didn't know how economics really worked are you? Cause I'd be embarrassed if that were true.
        • 5 Years Ago
        "Ray 8:26PM (1/08/2010)

        You're not the same level that was in support of this kind of thing and calling everyone against it idiots, bragging about your experience in the financial sector, and telling everyone they didn't know how economics really worked are you? Cause I'd be embarrassed if that were true."

        Ray: when have I stated to be in support of anything? all I did was to correct an individual saying that it was you "tax money", which was due to an emotional uneducated comment..I felt the need to correct that individual to show him how that "money" came to be...as for judging on how the government is handling the situation, short answer there is no right way or wrong way of fixing the problem..

        Now to the current comment yes Loans continue to default, so why is it such a big surprise for GMAC to be at a lost of 3B>? GMAC didn't fail, the individuals given the loan to failed GMAC..then the solution that was given was to Try to give loans to people with excellent credit scores which wasn't the answer either, no body qualified..If there is no loans being generated there's no profits for the company..It's a loss loss situation..
      edjj1234
      • 5 Years Ago
      Where the hell is my stimulus? I have file bankruptcy, why dosen't GMAC and the rest of those companies that could not make it?
      If ya can't make it, get out of it.
      ED
      • 5 Years Ago
      The problem is, the government has no choice, but to keep propping GMAC up. They have painted themselves into a corner.

      First, they illegally allowed GMAC to become a bank, even when they did not have the proper reserves. Next, GMAC is the primary floorplanner for GM and Chrysler, and the primary finance company, plus, pretty much the only financier, to provide leases to GM and Chrysler.

      Thus, they HAVE to be kept solvent.............. at ANY cost. After all that the administration has sunk into the money pit known as GMAC............ they know that if they do not keep them solvent, that Chrysler, and possibly even GM, will fail. If dealerships have no floorplanning, they cannot order cars. If they cannot get financing for their customers, they cannot sell cars. The snowball rolls downhill folks.

      With the BK, and the still perilous position of the auto industry, I doubt that there are other lenders big enough, to fill the position of GMAC, for GM and Chrysler.

      If any of this fails, then you could pretty much be assured, that the party in power now, will be far from it, after November of this year.

      Said party, will not allow this to happen.

      So, while GM is "paying" back their "loans," with their loan money.............. they are still the recipient of a backdoor bailout that noone talks about.

      Isn't politics fun??
      • 5 Years Ago
      Wholly appropriate picture on many levels.

      And I'll keep my comments to automobiles, gladly... when politics are no longer a measurable factor on the auto industry...

      So yeah... real soon. Not.
      • 5 Years Ago
      Perfect pic! Costly just for one shot, but worth it...
      • 5 Years Ago
      The GMAC bank name is Ally. Maybe, they should change it to Alibi. Excuses, excuses......
      • 5 Years Ago
      Severing GM's obligations to GMAC should have been part of the bankruptcy restructuring.

      Cerberus' behavior was in part responsible for why Chrysler & GM got in trouble so quickly. They screwed up and GMAC and Chrysler financial stopped giving credit for the GM & Chrysler Auto businesses.

      The consolation is that part of why GMAC needs money is that they have to give credit for the cars GM is selling.
        • 5 Years Ago
        The culture of living above one's means is not mutually exclusive to the homebuying industry. Nor is the culture of lending monies to those borrowers. And these same borrowers buy, above their means, other things like automobiles.

        Its all about keeping up with the Joneses, via the bling-bling mentality of being pressured by peers in the oh so immature social clicks. I see GMAC no different in the lending to borrowers of this culture, and I certainly see that GMAC culture not changing anytime soon.

        Why? Because, that culture, and the basis of borrower cultures is the only thing GM, and GMAC, have got for their bread and butter existence.
      • 5 Years Ago
      Meanwhile, Ford Credit is profitable, despite the high borrowing costs that come with its parent's low (for now) credit rating. Fortunately Bill Ford Jr and Alan Mulally understood the value of keeping the finance company captive and not venturing into non-core (e.g. mortgage) businesses.
      • 5 Years Ago
      Of course they are. With Cerberus at the controls, and its hands in Uncle Sam's pockets, I'll bet GMAC was losing money hand over fist.

      Don't forget that this was the same company that said it needed US money to keep Chrysler alive, but it wasn't going to invest its own billions in the company because it wasn't worth their effort. The same company that shut down the spigot for financing GM dealers as a power play to get GM to purchase Chrysler.

      And I'm supposed to feel better that the US Government is taking control of GMAC stock and that this is a Cerberus "failure"? Hell, this is what private venture capital firms are all about -- churn, burn and turn.
      • 5 Years Ago
      This is unrelated, but what is the deal with ending every title of an entry with a question mark (?). Are you questioning the accuracy of your report? Are you not sure about what you are talking about? Is it a trend?
        • 5 Years Ago
        I can answer that.

        first, autoblog is biased, li - ber - ral biased. (P.S Autoblog filters the word "li- ber- ral", I think)

        second, autoblog likes to appear sophisticated, much like NYT.

        Sooner or later, there will be some other fair and balanced auto news web site much like Wall Street Journal thats going to destroy autoblog much like WSJ destoryed all other biased news paper.
        • 5 Years Ago
        Justin, if you think WSJ is unbiased, I have a bridge I'd like to sell you ...
        • 5 Years Ago
        I regularly read and subscribe to the WSJ and it definitely has it's own bias although the bias has changed over the years after Murdoch acquired it. It's been consistently uber pro-wall street and pro-corporate though. Every newspaper in the US has some sort of bias or another since they're meant to appeal to a certain segment of the population.
        The WSJ didn't used to have so much politics in it though and frankly I've been disappointed with how it's become so much less neutral than it used to be politically.
        But seriously Justin's post makes no goddamn sense...what the hell do question marks have to do with the wall street journal and the new york times.
        • 5 Years Ago
        I am certainly not a liberal... but Justin, WTF?

        Sense, your post makes none.
      • 5 Years Ago
      Gee who knew this administration couldn't run anything?

      Is this really surprising?

        • 5 Years Ago
        I dislike the the current administration as-well, but to be fair...The problem is people still continue to default on their loans, whether it be car loans or mortgage loans...
        • 5 Years Ago
        Bush Jr. did the same thing, McCain would've done the same...

        with said, still equally inexcusable. Bad assets and companies like this need to be liquidated and eliminated. It's the only way. Painful? Sure. But it beats the pain from continuing to extend it more and more, only to hold off an eventual, and bigger, implosion.

        Short term pains for long term gains... people these days seem to be completely enamored with the inverse concept - short term gains for long term pains.
      • 5 Years Ago
      Yeah, but....
      How great was the GMAC Bowl the other night? Central Michigan had that exciting comeback win to beat Troy!

      I wish I was kidding. Tack some of that $10B loss up to how much it cost to sponsor a meaningless college football game. It should have been called the American Taxpayer Bowl, because that's whose money went to sponsoring it.
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