200812.30
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Crony Capitalism at GMAC

John Snow may have been a lousy Treasury Secretary, but his lobbying skills are not in doubt. The government threw a little more money GM’s way last night (via WSJ):

WASHINGTON — The federal government Monday deepened its involvement in the U.S. automotive industry by committing $6 billion to stabilize GMAC LLC, a financing company vital to the future of struggling car maker General Motors Corp.

In response, GMAC said Tuesday that it will immediately resume auto financing for “a broader spectrum of U.S. customers.”

The company said it will modify its credit criteria to include retail financing for customers with a credit bureau score of 621 or above, compared with the 700 minimum score it put in place two months ago as its troubles deepened. The median US consumer credit score is 723.

“The actions of the federal government to support GMAC are having an immediate and meaningful effect on our ability to provide credit to automotive customers,” said GMAC President Bill Muir said in a prepared statement.

Because you know, what people with low credit scores really need is a new car and a little more debt. Snow, who was Treasury Secretary before Paulson, works for Cerberus Capital which was the largest shareholder of GMAC:

The move represents the second tranche of government aid that redounds to the benefit of giant private-equity firm Cerberus Capital Management, which owns Chrysler and, until these recent moves, a majority stake in GMAC. John Snow, a top player at Cerberus, was the Bush administration’s Treasury secretary before Henry Paulson.

Maybe if GMAC had stuck to financing cars, they wouldn’t be in this mess, but they were neck deep in the mortgage market too. Now GMAC is a bank holding company and gets to access the TARP as well as having new debt guaranteed by the government. Existing debt holders participated in a debt for equity swap. Cerberus 49% stake will be diluted to a max of 33%. Certainly, they would have been diluted a little more in bankruptcy court where GMAC belonged. Thanks to John Snow the wealthy investors at Cerberus get bailed out and the management at Cerberus doesn’t even have to take a pay cut:

As part of the deal, GMAC agreed to limit compensation on its top 25 executives including a ban on severance packages for the top five employees. The limits won’t apply to executives at Cerberus.

Cerberus made some lousy investments buying Chrysler and GMAC. Why should taxpayers be forced to bail them out? Disgusting…

Update: I didn’t notice this earlier. Not only is GM going to use these bailout funds to finance buyers with low credit scores but they’re offering 0% financing to boot. The dividend on the preferred we taxpayers just bought is 8%. How exactly will GMAC make money on that deal? Let’s see…pay 8% for money and then loan it at 0%. What do you think the chances are that we’ll ever get our money back from these financial geniuses?