The Result Of Taxpayers’ Financial Bailout Of GMAC

Editor's Note: Linda Beale announced her return to blogging after the death of her husband here.   Welcome back to blogging Linda

The result of taxpayers’ financial bailout of GMAC

GMAC (ALLY), as most of you likely know, was General Motors’ (GM) financial group.  GMAC had originated as a means for the auto company to support the market for autos through its wholly owned lending group.  But as with most corporate enterprises, it outgrew its origin, reaching near-collapse after becoming heavily involved in the residential mortgage securitization business and subprime loans.  It was transferred to a hedge fund in 2006, and ultimately required rescue by the government’s bailout program in the 2008 financial crisis.  Why was GMAC bailed out when other mortgage lenders were not?  The government wanted to save the auto lending business, so “auto czar” Steven Rattner says, the rescue of GMAC was necessary in that “the government had to act quickly and there wasn’t enough time to untangle GMAC’s mortgage unit from the auto lending business.” U.S. Taxpayers Earn Profit on Ally, as Treasury Cuts Stake, Wall St. J., Oct. 21, 2014 at C4.

GM, of course, ultimately established a new financial arm related to its auto business, and that company has acquired some of the GMAC’s successor’s businesses around the globe.  See, e.g., GM Financial to Benefit from Wall Street Upgrade, Sept 24, 2014.

GMAC –renamed Ally Financial in its new incarnation–was bailed out by the federal government, with remedies including government-approved board members, sales of business lines, bankruptcy of its subprime mortgage business, and more than $17 billion in government capital through TARP.  Six years down the road, Treasury is selling off shares of Ally:  it announced last week that it had sold $245.5 million since mid-September and had now reduced federal ownership from almost 74% to barely over 11%.  The government made about “$18.3 billion from selling Ally shares–a return of $1.1 billion, or about 6.4%, on its $17.2 billion investment.”  U.S. Taxpayers Earn Profit on Ally, as Treasury Cuts Stake, Wall St. J., Oct. 21, 2014 at C4.

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