GMAC: Its Good to Be a Bank

"The bondage of fifteenth century serfdom has become the catalyst for causing the middle-class to grovel for survival. They mistakenly assumed that the business and political leaders would maintain a minimum concern for those whom they serve or lead." Warren B. Eller, 1931

“This country is governed for the richest, for the corporations, the bankers, the land speculators, and for the exploiters of labor.” Helen Keller

Without banking reforms and an equitable median hourly wage, the development of new variations of debt creation for the people to support the corporate status quo is futile, if not cruel.

Bloomberg
Treasury to Buy $5 Billion GMAC Stake, Expand GM Loan
By Rebecca Christie and Hugh Son

Dec. 29 (Bloomberg) -- The U.S. Treasury said it will purchase a $5 billion stake in GMAC LLC, the financing arm of General Motors Corp.

Treasury will also lend an additional $1 billion to GM so the automaker can participate in a rights offering at GMAC to support the lender’s reorganization as a bank holding company, the Treasury announced today. The loan is in addition to $13.4 billion the Treasury agreed earlier this month to lend to GM and Chrysler LLC.

Separately, GMAC said it has accepted all bonds tendered in a debt swap designed to reduce its debt load.

“Once the offers are settled, which we expect to do promptly, results will be disclosed,” said spokeswoman Gina Proia in an e-mail.

“The company intends to act quickly to resume automotive lending to a broader spectrum of customers to support the availability of credit to consumers and businesses for the purchase of automobiles,” GMAC said in statement.

GMAC had limited loans to buyers with the best credit ratings, cutting into GM’s sales.

The credit from the Treasury is under its Troubled Asset Relief Program and comes after the Federal Reserve last week approved GMAC’s application to become a bank holding company.

“This is part of our strategy to position GMAC for long term stability,’’ said Toni Simonetti, a spokeswoman for GMAC. “The reason we’re doing this is so we can provide credit to consumers; we’ll put these funds to use right away.’’

FDIC Guaranty

GMAC will “continue to pursue’’ other ways to boost liquidity, including applying for an Federal Deposit Insurance Corp. guaranty program and attracting retail deposits from consumers, Simonetti said. (We are all banks now - Jesse)

Becoming a bank makes it easier for GMAC to get federal aid and eases the threat of a collapse, which threatened to dry up credit for purchases of GM cars. Dealers depend on GMAC to finance about three-quarters of their inventory. Analysts have said the lender’s survival is a crucial step toward saving GM, which has said it may run out of cash.

GMAC joins more than 190 regional banks, commercial lenders, insurers and credit-card issuers seeking funds from the Treasury’s bailout program for financial firms. American Express Co., the biggest U.S. card company by sales, and CIT Group Inc., the biggest independent commercial lender last year, won capital infusions last week after converting into banks.

Slow Sales

With GM selling cars at the slowest pace in 26 years and the country in its worst housing crisis since the Great Depression, GMAC and its Residential Capital LLC unit have no way to revive their own revenue and have been shut out of credit markets. GMAC has $540 million of bonds due this month and another $11.6 billion that mature in 2009 and previously said it would cancel plans to become a bank if the debt swap failed.

The Fed has since granted approval before the swap was finished....