The Housing Shell Game Moves to Autos

The Wall Street Journal reports of a new round of bailouts for GMAC (GMA). If you are not familiar with how the full Ponzi scheme economy is working, I touched on this in a June piece (well before Cash for Clunkers). Let's review.

... in the "you can't make this stuff up" category....Chrysler (DCX) now has access to GMAC as part of its government intervention. The same GMAC that has been bailed out via $14 some Billion of US taxpayer dollars. So what is Chrylser offering now? You guessed it... 5-year, 0% loans. Because if Americans can't afford to pay interest, let the taxpayer cover it. Just chalk up another one for the grandkids to pay off... we now are subsidizing car purchases - trying to create unnatural demand via taxpayer handouts.

Do you understand now how the two largest purchases -- homes, cars -- in America are working? We Americans are a bunch of stones. We are out of blood. We keep squeezing ourselves so we can "shop til we drop - or the terrorists have won," but, gosh darn it, we've hit a dry spell. We've borrowed as a collective to the hilt. Before this crisis, some of us were taking near mortgages out on cars - 4-year, 5-year loans? Haha... nope. Try 8-year car loans. Once we have said car, we are now allowed to take "cash out" loans against said asset; an asset that depreciates by the day. The car ATM: Cramerica edition. Do I even need to explain what we did in the housing market the past half decade? If so, you need to exit that cave you might be enjoying.

So, instead of accepting the pain a "reset" would cause the economy, we've turned to a full Ponzi scheme both in housing and autos. We've posted tens, if not a hundred-plus posts on the housing disaster, but we are doing the the exact same scheme in the auto sector.

Here is how it works: Many Americans cannot afford a car (house)... or at least a car (house) "they deserve". [Some] banks are finally realizing they have to begin making loans (mortgages) where there is a good chance they get paid back. I know; very old school. So they offer outrageously high interest rates -- like 5-6%. Horrific. Not enough Americans can afford a car (house) at these unfair rates, and without home equity to borrow against to purchase said car they have to actually borrow against income / savings. Of course, 70% of Americans essentially have no savings so that's the #1 issue. Plus, savings is a bad word in America; just ask our government and central bank. Every "solution" brought to us the past 18 months has been to increase spending, not saving. And what savings you do have, Ben Bernanke is attacking to make sure you get nearly nothing on your money. (Ma! I got 1.32% on my CD! Awesome!) It is as if the leadership in our country hates savers; they punish them relentlessly and reward spenders.

As we watch GMAC -- just replace that acronym with FHA, Fannie, Freddie, pick your poison, and you can parallel American policy for autos with homes. Of course, the housing disaster we're "rebuilding" is of much larger scale, but the same playbook.

We borrow money we don't have from the future or foreigners to subsidize interest rates. That allows Americans to afford cars in cool deals where little to nothing down is required and "rock bottom" interest rates are prevalent. Since few banks will do that stupid of a deal anymore we need a true idiot to show up. Lo and behold -- the Bank of the US Taxpayer via GMAC is here.

That's where the taxpayer is used on the front end of the deal. But your work is not done sir/madam. On the back end of the deal, when many of these buyers can't afford the car "they deserve" they default on the loan, and lo and behold GMAC shows up (as they have for a third time) to collect from the Bank of the US Taxpayer. Because only with a truly insufferable fool who does not realize the money he "receives" is his own money, borrowed with interest, into perpetuity, can you pull this stunt off. Thankfully, a massive populace who lacks financial literacy is happy to provide the dough. And much of this populace, who already do not save, is trained they don't need to; others will provide for them with constant government handouts (loosely labeled incentives) so they can live the lifestyle they truly deserve. Why start saving now ?

Shell 1, shell 2, shell 3... doesn't matter which shell you look under. The same money (that we don't have) is under each shell, to help create "prosperity." Housing. Autos. It's all the same. Just change the delivery method slightly.

Speaking of which; good news. An extension of the home tax credit is roaring through Congress. Shell 83.

I see some of you with steam above your head out there. Don't be mad about it. I am sure if you talk to your fellow American (who lives inside the Matrix) they are happy to accept the money because "the government owes it to us." You might want to ask them who exactly "the government" is (if they blink in rapid fashion as a response, be patient). But please don't bother asking them where the money is coming from because we don't want anyone's head to explode. Yours or theirs. It's all good. And I still stick by my prediction that Cash for Clunkers 2.0 will be here by next spring.

Remember, as each of these programs roll out the apologists can say "it's only $XX billion" and "we deserve it."

Onto the latest bailout / handout my friends...

• In a stark reminder of how some battered financial firms remain dependent on government lifelines, GMAC Financial Services Inc. and the Treasury Department are in advanced talks to prop up the lender with its third helping of taxpayer money, people familiar with the matter said.
• The U.S. government is likely to inject $2.8 billion to $5.6 billion of capital into the Detroit company, on top of the $12.5 billion that GMAC has received since December 2008, these people said. (This won't be the last round; check back in 6 months) The latest infusion would come in the form of preferred stock. The government's 35.4% stake in the company could increase if existing shares eventually are converted into common equity. (cool, we can put this into our portfolio of AIG (AIG), GM, Citi (C), Bank of America (BAC), Chrysler and ... am I leaving anything out?)
• GMAC has $181 billion in assets and is a major financier for 15 million borrowers and thousands of General Motors and Chrysler car dealerships in the U.S.

And here is another "scam": the taxpayer is backstopping the debt. I believe this is "free market capitalism." Hold on, let me leaf through this dogma pamphlet.

• Federal officials also are moving to shore up GMAC's ability to fund its daily operations, with the Federal Deposit Insurance Corp. telling the company Tuesday the agency will guarantee an additional $2.9 billion in debt, according to people familiar with the discussions. The FDIC guarantee will make it easier for the company to sell debt to investors. The FDIC backed $4.5 billion in GMAC-issued debt earlier this year.

Clicking my virtual heels three times -- "we are not Japan," "we are not Japan," "we are not Japan."

• People close to GMAC said they don't expect the government to call for changes in management as a result of the likely infusion. The company posted a second-quarter loss of $3.9 billion amid rising loan delinquencies and the continued U.S. auto slump. It expects to release third-quarter earnings next week (looking forward to it!).

GMAC entered into an agreement with Chrysler in April 2009 to provide auto financing and services to Chrysler dealers and customers. This allowed GMAC to leverage its core strength of auto financing and become part of a solution with the U.S. government to restructure the auto industry. (a.k.a. the Ponzi solution)

Comments

[carbonblack:]

Zombies, zombies, everywhere more zombies!!!

Oct 28 06:03 PM

[igggy:]

Mark,
At least in this case the benefits are visible. Someone is going to buy a car, or a house, or whatever. Somebody else might keep keep their job.

When AIG got 100+ billion, nobody knows where the money went - at least the number of people who benefited was much smaller, those people already had plenty of money, and they live (or could live if they wanted to) in Switzerland.

Oct 28 06:48 PM

[enigmaman:]

Remember you cant fight the fed, they know cars will not sell with loans that charge interest, I mean you end up with a car payment that should be your house payment, that why everybody used to lease but now lenders refuse to approve leases so Gov motors offers 0%, unless we can sell cars at prices they can afford on their own the Fed will have to subsidize the purchase, or they have to build less expensive cars of import from Eastern Europe, Russia, and India who has the $3000 -2 door sedan

These are the new Fed government commitment vows between purchasers of autos and or homes and the Fed government, found at the bottom over the note

I ________________purchaser and the Fed government do hereby declare jointly together this day that with these new , check one ( car) ( house) keys we both agree that for better, for worse, for richer, for poorer, in sickness and health, we will not break these bonds of commitment forged with this purchase until death do us part."

Oct 28 06:53 PM

[TeresaE:]

Well luckily Helicopter Ben said they won't start raising prime until the recovery is here.

Since it isn't, then all is well.

Liar loans for all and gosh darnit, I deserve that new hybrid.

Oct 28 07:54 PM

[Mark Bern:]

I don't need a new car or another house, but I'm starting to feel like I need to go out buy something in order to get my share. If I'm going to be paying for everyone else, at least I ought to get mine, too.

I just made that up. But maybe that is the logic that the Administration hopes will overtake us all and create another debt sponsored recovery. We should reconsider our nation's name; perhaps something more appropriate like: Bubblemerica!

Oct 28 09:40 PM

[GoldLovingP...:]

Teresa deary,

Did you finish past the 3rd grade? I used to be a Jr hs teacher i would be happy to help you school you to at least that level.

Let me know if your interested!
GoldLovingPuppy

OH Also, Don't change your current photo to something more current, cause if you do you won't be getting many more thumbs up.

On Oct 28 07:54 PM TeresaE wrote:

> Well luckily Helicopter Ben said they won't start raising prime until
> the recovery is here.
>
> Since it isn't, then all is well.
>
> Liar loans for all and gosh darnit, I deserve that new hybrid.

Oct 28 11:04 PM

[Roger Knights:]

If you give a zombie a transfusion it becomes a vampire.

Oct 29 01:20 AM

[John Galt:]

>"a massive populace who lacks financial literacy "

Ding ding ding

Make the kids read a few choice liberal books, teach the kids American history of the 1800's, the middle ages, a little bit of math, a little bit of science, art, PE, tons of electives... let them write book reports on the state they live in, but god forbid they learn a lick of economics.

You could get through college and get an entire degree without taking math... math! Meanwhile, you have to take semesters full of humanities courses.... I mean, if you never took an anthropology class you just wouldn't be "well rounded". You need that 'diversity of thought", but you don't have to take any business, economics, math, or science classes.... Those aren't need to make you "well rounded".

Don't teach anything at all about money... knowledge is power right? Not even a basic course about balancing a check book. They'd give you a joke civics course where you do a practice 1099. You don't want to arm the citizens of the future with any knowledge about money right?

Oct 29 08:59 AM

[Jesse99:]

Rickrolled by TraderMark - fantastic way to start the morning.

Oct 29 10:54 AM

[GotLife:]

The Us Government is quickly becoming the West Virginia Coal Company Store. "Jest take that new pot for the Missus and you ken pay on time Davey." Then dependency keeps you in the mine for the rest of your short days.

The only difference I see here is statement has changed to, "Jest take that new truck Billy and we'll get yer neighbors, chillens and granchillens to pay fer the interest on it. Hec, you'll be dead anyway. Live it up now!" Then dependency keeps you in the party for the rest of your short days.

I bet the bill comes quicker. Of course, no one will recognize it anymore than they recognize the source of their current economic situation.

Oct 29 03:06 PM

[TeresaE:]

Way back in the dark ages I was curious why all majors weren't required to take Accounting I & II.

Every business person needs the knowledge - especially when you consider that the number one cause of new business failure usually occurs on the bookkeeping & tax side.

And every employee should understand what their bosses are dealing with.

Makes too much sense, I'm sure the teachers' unions would never agree to providing educations that create productive, knowledgeable citizens.


On Oct 29 08:59 AM John Galt wrote:

> >"a massive populace who lacks financial literacy "
>
> Ding ding ding
>
> Make the kids read a few choice liberal books, teach the kids American
> history of the 1800's, the middle ages, a little bit of math, a little
> bit of science, art, PE, tons of electives... let them write book
> reports on the state they live in, but god forbid they learn a lick
> of economics.
>
> You could get through college and get an entire degree without taking
> math... math! Meanwhile, you have to take semesters full of humanities
> courses.... I mean, if you never took an anthropology class you just
> wouldn't be "well rounded". You need that 'diversity of thought",
> but you don't have to take any business, economics, math, or science
> classes.... Those aren't need to make you "well rounded".
>
> Don't teach anything at all about money... knowledge is power right?
> Not even a basic course about balancing a check book. They'd give
> you a joke civics course where you do a practice 1099. You don't
> want to arm the citizens of the future with any knowledge about money
> right?

Oct 29 08:06 PM

[TeresaE:]

Thanks for the advice "deary."

And, just for the record, I was in the Top 50 before I ever uploaded my photo.

As for being my Junior High adviser, well, thanks anyway, I'll pass.

I need to learn more than being able to call a 6 hour a day, 9 month a year, job "full time."


On Oct 28 11:04 PM GoldLovingPuppy wrote:

> Teresa deary,
>
> Did you finish past the 3rd grade? I used to be a Jr hs teacher i
> would be happy to help you school you to at least that level. <br/>
>
> Let me know if your interested!
> GoldLovingPuppy
>
> OH Also, Don't change your current photo to something more current,
> cause if you do you won't be getting many more thumbs up.
>
> On Oct 28 07:54 PM TeresaE wrote:

Oct 29 08:17 PM

[GoldLovingP...:]

So now teaching is a terrible Job.

Your a real piece of trash missy!

GoldLovingPuppy


On Oct 29 08:17 PM TeresaE wrote:

> Thanks for the advice "deary."
>
> And, just for the record, I was in the Top 50 before I ever uploaded
> my photo.
>
> As for being my Junior High adviser, well, thanks anyway, I'll pass.
>
>
> I need to learn more than being able to call a 6 hour a day, 9 month
> a year, job "full time."

Nov 02 06:56 PM