Through today, GMAC has received government bailout funds totaling $12.5 billion. The company is asking the Obama administration for $5.6 billion more. One might say that in a true democracy, GMAC would need to ask permission from each taxpayer whose funds would go towards shoring up the company’s balance sheet, a move that would make GMAC appear more stable on paper. But we have a representative democracy, where Congress makes decisions that occasionally reflect the will of the members’ constituents.
GMAC might receive their third bailout. Industry analysts agree that the failure of GMAC would have a devastating ripple effect throughout the rest of the economy. If GMAC fails, so would the companies who depend on GMAC to offer loans to customers, General Motors and Chrysler. The failure of these companies in turn would result in the failures of suppliers and dealers. The government has already pumped so much taxpayer money into these companies that their failure would signal a broader failure of the entire bailout process. Also, GMAC’s total bailout is still less than the financial injections Citigroup and Bank of America have received.
In personal finance, an additional bailout for a failing company would be similar to throwing good money after bad. For example, if one makes a poor purchasing decision while buying a car, costly repairs might be necessary. Rather than cutting the losses and getting rid of the car, one might continue putting money into the black hole, and after time, the money that you spent on the purchase and repairs could have purchased a nicer car that ran without problems.
There is no guarantee that another bailout will save GMAC in the long run.
GMAC is the parent company of Ally Bank, formerly known as GMAC Bank, an online bank that has drawn in more customers with a savvy advertising campaign and high interest rates. The American Bankers Association forced the FDIC to request Ally Bank to lower its rates because other banks couldn’t compete with Ally’s new strength acquired with the help of taxpayers.
If GMAC were to fail, Ally Bank depositors should be safe as long as they have stayed within FDIC’s coverage limits.
I think it may be time to start allowing companies like GMAC, those who require funding from taxpayers to improve their balance sheets and who have little prospect for paying taxpayers back, to fail. There are signs the economy is recovering. Maybe it is time to let the market and capitalism work itself out. Those companies who remained conservative will survive and those who chased bad loans and complex derivatives without sufficiently considering risk will step aside.
Do you think GMAC should receive another bailout?
Photo credit: jim.greenhill
3rd Rescue Considered for GMAC, Eric Dash, New York Times, October 28, 2009
About the Author
{ 11 comments… read them below or add one }
As with all the others, I still believe that we should have let them all go under. There are many smaller companies that are doing the right things that could pick up the slack if these companies went under. Corporate greed, CEO pay scales, poor decisions based solely upon how much money can I possibly make without a care in the world attitude and without a care about customers and employees, that is what brought this about. These upper level executives knew what they were doing, let them fail and let the ones who are doing the right things pick up the pieces.
We have to think long term and doing the right things and doing things right the first time.
Todd
We’ve had over a 100 bank “failures” this year. In most of the other cases the FDIC stepped in to bring a healthy bank to the table to take over a failed institution. The bad assets are addressed and the healthy portfolio is managed without a hitch. Why shouldn’t the same happen with GMAC?
The only other concern is that all this started with concern over collapse of the financial system because of banks that were “too big to fail”. In the end, many of the healthier “too big to fail” organizations have taken over others only to become bigger. Are we not setting ourselves up for more trouble?
GMAC, like Ma Bell, should be broken up and sold to several smaller institutions that have proven track records.
Let ‘em fail. Whatever happened to the Capitalist ideals that we supposedly held so dear and yet have turned our backs on? Bailing these guys out helps us in the short-term but ultimately harms us in the long-run because it only encourages these business “leaders” to keep making the same mistakes with very, very limited “punishment” (i.e.: they still hang on to their jobs or — if replaced — simply move on to the next sucker [aka company or government post]).
This whole turn of events is absolutely ridiculous.
Do you know of any good articles about what to do if the institution holding your mortgage fails? GMAC holds mine…
I stumbled on this blog article through twitter and the headline grabbed my attention. If I remember correctly, GMAC operates Ally bank correct? What does this mean for people who have those bank accounts?
I addressed that in the article… in short, not much.
NO MORE BAILOUTS!!! If they haven't been able to get it together with the other 2 bailouts, they should not be allowed to get a third.
Like you said, no more throwing good money after bad.
I agree with Single Guy, they have had their chance now they need to suck it up and deal with it. If we continue to support failure people aren't going to change the way they do business to prevent these problems in the future. We let these guys fail and I am sure people are going to try harder to make sure they can support themselves.
Obama will put money into the black hole to save his union. I may be wrong but didn't they receive something like $80 billion??? This concept of to big to fail totally is wrong ,they should have never put money in banks or car companies. The money the banks paid back should go to reduce the dept ,but the money is going to cap and trade. In Sacramento they are starting to install ( smart meters and plug ins for electric cars ) in every house and business in California ,they got $ 175 million grant to do this so you can see where this is going.( Sacramento Bee )
I still believe that we should have let them all go under. There are many smaller companies that are doing the right things that could pick up the slack if these companies went under.If they haven't been able to get it together with the other 2 bailouts, they should not be allowed to get a third.
You state, in your title; “GMAC is asking…”. Judging from the responses – the public would be highly unlikely to allow the money to continue to flow. I guess the fix is in.