A new report says the bailout of GMAC was wrong on so many levels, it’s hard to know where to begin. But for future reference, it’s important to note what happened.
The Congressional Oversight Panel’s report says taxpayers will probably never see at least $6 billion of the $17 billion bailout. It also strongly questions why GMAC was rescued in the first place. From the New York Times:
In one passage, the report concluded that GMAC became “one of the five largest wards” of the government even though it was “a company that apparently posed no systemic risk to the financial system, that did not seem to be too big to fail, too interconnected to fail, or indeed, of any systemic significance.”
So, how did GMAC convince the Treasury? From December 2008:
Analysts had speculated that if GMAC didn’t obtain financial help it would have to file for bankruptcy protection or shut down, which would be a serious blow to GM’s own chances for survival.
That’s debatable. At the time of the bailout, GMAC was majority owned by a private equity firm. GMAC was divested from GM in 2006. GM and GMAC most likely made it appear that GMAC was invaluable to its business because it had created a cozy dominance of the revolving lines of credit used by carmakers. It was widely known that GMAC crushed itself by getting into the mortgage business and still, the government gave it a second helping of billions in May, 2009:
The Treasury has said that the initial bailout was needed to prop up the auto industry, and that the subsequent ones were deemed necessary after GMAC took part in the “stress tests” ordered by the Fed, even though it “might appear that good money was being thrown after bad.”
The panel found that “half-hearted attempts at saving an institution from insolvency that lack coordination among regulators” might be more costly than a full bailout or bankruptcy.
Another question: How much did GMAC spend to get its bailout? Take a look at this chart of GMAC’s lobbying efforts. Note the figure in 2008, the year of the bailout. From Open Secrets:
Near the end of 2008, GMAC was granted status as a bank so it could qualify for TARP funding. Further note that it’s still spending more than a million dollars lobbying the federal government.
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