Fixing GMAC: Paging JPM

Surprise, surprise — GMAC needs more money. As you may recall, GMAC was the one institution that got a C- on the stress tests this spring that were impossible to fail. I imagine the analysts at the Fed really wanted to give it an F, but they couldn’t. In any case, it seems that GMAC is too big to fail, because of its importance to the auto industry. Yves Smith says, “The reason for more dough to GMAC is so GM and Chrysler can continue to finance auto purchases, not as a result of greater than expected losses on its existing portfolio. So this is cash for clunkers under another brand name.”

Again, not surprisingly, the government is treating the 50% ownership threshold as some sort of magic line. From the Times article:

“With all three helpings of federal aid, it is possible that the government could wind up owning at least half of the company. But GMAC and Treasury officials are discussing ways to structure the investment in a way that could limit the government’s ownership interests. One possible option would be to also ask some of its private preferred stockholders to convert their investments into common stock.”

So I have two ideas. The first is that if we put more money in GMAC, we should divide it in two and let the mortgage lending part fail. If we insist on keeping the whole thing afloat, that means we are subsidizing both the auto lending part (which is supposedly critical to the economy) and the mortgage lending part (which isn’t).

The second is that this would be a great time for JPMorgan Chase (JPM) to get some good PR by stepping in and offering to replace GMAC as the funding source for GM and Chrysler dealers, so the government can abandon GMAC. Or even buying GMAC outright, including assuming all its debt and committing to subsidize the auto business, for $1 or so. Yes, that would make JPMorgan bigger, which I’m not thrilled about. But from Jamie Dimon’s perspective, it would show the potential benefits of having big banks that are willing to act in the national interest now and then, and it would be a little like Goldman declining to haggle over the price of buying back its warrants from Treasury.

Now the idea of relying on big banks to serve the national interest obviously sounds like bad policy to me. But if Jamie Dimon wants to take this problem off the taxpayer’s hand, I think he would be welcome to it.

Comments

[epeon:]

We deserve this debacle. We voted in fools to run the government and they do what fools do: foolish things. This makes over $100 billion we have poured into the GM rathole.

Oct 28 03:09 PM

[Alex_G:]

To the author,

The mortgage part of GMAC (ResCap) is already walled off and can be cut loose. This was ironically done when Cerberus bought 51% to protect ResCap from GMAC. If this is done, no capital needs to be raised, as almost all of the balance sheet risk is at ResCap.

My question is this:

Why won't the Govt let them do it? It's the most logical thing to do.

Oct 29 01:30 AM

[Living4Divi...:]

GMAC bottomless pit

Oct 30 11:02 AM