Moby
12-30-2008, 12:32 PM
Maybe spending $6 Billion on creating jobs might be a better approach. Who's going to take a car loan without a good paying job?
http://www.forbes.com/topstories/2008/12/30/gmac-washington-tarp-markets-equity-cx_bw_1230markets01.html
Brian Wingfield, 12.30.08, 04:20 AM EST
The U.S. government commits an additional $6 billion to rescue Detroit.
For months, critics of an auto industry bailout have raised a legitimate question: What good will it do if customers can’t get the financing to buy vehicles?
As 2008 draws to a close, Uncle Sam is trying to alleviate that problem while shelling out cash to keep the industry afloat. Late Monday, the Treasury Department said it would buy a $5 billion stake in GMAC, the financing arm of General Motors (nyse: GM - news - people ), in order to help prop up the company. In addition, the government will lend GM as much as $1 billion so that it can buy more equity in GMAC.
The funds will come from the Troubled Asset Relief Program, the $700 billion pool of taxpayer money that the U.S. government has set aside to get financial markets running smoothly. The aid is in addition to the $17.4 billion in emergency loans the Bush administration granted earlier this month to GM and Chrysler, which said they faced bankruptcy without immediate assistance.
While the timing of the announcement Monday evening was something of a surprise, the move itself was not entirely unanticipated. On Dec. 24, the Federal Reserve said it would allow GMAC to become a bank holding company, an action that permits it to receive TARP funds. The strings: GMAC had to convert 75% of its debt to equity by last Friday at midnight. However, earlier Monday the company refused to say if it had met the goal by the deadline.
Without government assistance, GMAC (nyse: GJM - news - people ), which provides both vehicle and mortgage financing, was in jeopardy of filing for bankruptcy. This would have spelled further trouble for GM, as GMAC helps to finance purchases of most GM vehicles. In addition, GMAC is jointly owned by GM and Chrysler’s parent company, Cerberus Capital Management. A Cerberus affiliate will also buy additional equity in GMAC.
The government’s move Monday helps to shore up GMAC--for now--and by doing so, it keeps in play an option for consumers to obtain vehicle financing (provided that they qualify). But it’s also another example of the sprawling bailout for banks and now the auto industry that Barack Obama’s incoming administration will inherit in January.
The Treasury has already used the first half of the TARP kitty, and in order to receive the second $350 billion the administration will need to submit a report to Congress explaining how the funds will be used. Treasury Secretary Henry Paulson has said that the remaining amount will need to be tapped, though it is not clear whether he will do the honors, or whether he’ll leave it to Obama.
In its statement Monday, the Treasury Department said it would "work with Congress and the President-elect's transition team on the appropriate timing for release of the remainder of the TARP funds to support financial market stability."
http://www.forbes.com/topstories/2008/12/30/gmac-washington-tarp-markets-equity-cx_bw_1230markets01.html
Brian Wingfield, 12.30.08, 04:20 AM EST
The U.S. government commits an additional $6 billion to rescue Detroit.
For months, critics of an auto industry bailout have raised a legitimate question: What good will it do if customers can’t get the financing to buy vehicles?
As 2008 draws to a close, Uncle Sam is trying to alleviate that problem while shelling out cash to keep the industry afloat. Late Monday, the Treasury Department said it would buy a $5 billion stake in GMAC, the financing arm of General Motors (nyse: GM - news - people ), in order to help prop up the company. In addition, the government will lend GM as much as $1 billion so that it can buy more equity in GMAC.
The funds will come from the Troubled Asset Relief Program, the $700 billion pool of taxpayer money that the U.S. government has set aside to get financial markets running smoothly. The aid is in addition to the $17.4 billion in emergency loans the Bush administration granted earlier this month to GM and Chrysler, which said they faced bankruptcy without immediate assistance.
While the timing of the announcement Monday evening was something of a surprise, the move itself was not entirely unanticipated. On Dec. 24, the Federal Reserve said it would allow GMAC to become a bank holding company, an action that permits it to receive TARP funds. The strings: GMAC had to convert 75% of its debt to equity by last Friday at midnight. However, earlier Monday the company refused to say if it had met the goal by the deadline.
Without government assistance, GMAC (nyse: GJM - news - people ), which provides both vehicle and mortgage financing, was in jeopardy of filing for bankruptcy. This would have spelled further trouble for GM, as GMAC helps to finance purchases of most GM vehicles. In addition, GMAC is jointly owned by GM and Chrysler’s parent company, Cerberus Capital Management. A Cerberus affiliate will also buy additional equity in GMAC.
The government’s move Monday helps to shore up GMAC--for now--and by doing so, it keeps in play an option for consumers to obtain vehicle financing (provided that they qualify). But it’s also another example of the sprawling bailout for banks and now the auto industry that Barack Obama’s incoming administration will inherit in January.
The Treasury has already used the first half of the TARP kitty, and in order to receive the second $350 billion the administration will need to submit a report to Congress explaining how the funds will be used. Treasury Secretary Henry Paulson has said that the remaining amount will need to be tapped, though it is not clear whether he will do the honors, or whether he’ll leave it to Obama.
In its statement Monday, the Treasury Department said it would "work with Congress and the President-elect's transition team on the appropriate timing for release of the remainder of the TARP funds to support financial market stability."