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« Has Anyone Seen Sandy Berger Around? | Main | The EPA and Your Health »

Conflicts of Interest

The government, having already funnelled $5,000,000,000 to last fall, is now suspending lending rules to benefit its new wards, GM and Chrysler:

The exemptions come as part of a multi-pronged aid package for GMAC that will be laid out early this evening. The Treasury Department is also planning to announce a second bailout for GMAC of $7.5 billion, which is in addition to a $5 billion infusion made in December. More money could be coming soon, the sources said.
Oh, goody.  Now, full disclosure: I own a couple of thousand in 5% GMAC bonds, maturing in September, currently trading at $90 ($100 is par value), for an annualized yield in the 50% range.  This is considered junk, but people are willing to be roughly 1-9 odds that the company won't default.  That said, I would rather take that chance than to see GMAC bailed out time after time.

Chrysler Financial, which has historically provided loans to Chrysler's car buyers and dealerships, is expected to be wound down over time, the sources said. GMAC may need as much as $4 billion more to provide loans to its new base of customers, industry sources said.
Let's see if Chrysler Financial pays any retention bonuses to the workers who stick around to work themselves out of a job.

The FDIC is preparing to announce today that it has given GMAC access to the Temporary Liquidity Guarantee Program that allows companies to borrow money at lower interest rates, the sources said....

GMAC applied to participate in the program shortly after it became a bank holding company. But until now the FDIC had been reluctant to allow GMAC access to the program, given its shaky financial position.

The use of FDIC resources to rescue an auto lender like GMAC would be without precedent. If GMAC is unable to repay the loans guaranteed by the FDIC, the agency could be forced to raise the money through a special assessment on banks

For the Fed to make an exception to its rule separating banks and commercial enterprises would not be unprecedented. The Fed took such a step in its original decision to bring GMAC under the agency's umbrella and it made similar moves involving other financial companies.

So the FDIC will use federal money (i.e. our money, or maybe Beijing's money) to let consumers borrow at a lower interest rate to buy cars made by government car companies. 

If those subsidized loans at lower interest rate fail to perform (now how could that happen?), the government may have to take money from banks - who are now in no position to refuse the favor - in order to cover its losses.  The only precendent it can cite for waiving these rules is for GMAC itself.

Proponents of the auto bailout assured us that the government would never rewrite the rules to benefit itself.  Others of us didn't see how it could be avoided.  And now, GMAC is being used as the IV drip for GM and Chrysler.  Just as the "public option" for medical insurance will favor the government favorites, and drive out private insurance.

So, Scott Sperling, you still think this is capitalism at its best?

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  booklist

Power, Faith, and Fantasy


Six Days of War


An Army of Davids


Learning to Read Midrash


Size Matters


Deals From Hell


A War Like No Other


Winning


A Civil War


Supreme Command


The (Mis)Behavior of Markets


The Wisdom of Crowds


Inventing Money


When Genius Failed


Blink: The Power of Thinking Without Thinking


Back in Action : An American Soldier's Story of Courage, Faith and Fortitude


How Would You Move Mt. Fuji?


Good to Great


Built to Last


Financial Fine Print


The Day the Universe Changed


Blog


The Multiple Identities of the Middle-East


The Case for Democracy


A Better War: The Unexamined Victories and Final Tragedy of America's Last Years in Vietnam


The Italians


Zakhor: Jewish History and Jewish Memory


Beyond the Verse: Talmudic Readings and Lectures


Reading Levinas/Reading Talmud