The Federal Reserve has agreed to reclassify GMAC Financial Services as a bank holding company, aiding the auto lender's effort to gain access to billions in government capital through the Troubled Asset Relief Program.
The decision will allow GMAC to seek investment from the Treasury Department through its $700 billion bailout fund, and to borrow money from the Federal Reserve through its discount window, which provides short term loans to help financial institutions meet their liquidity needs.
GMAC finances inventory for auto dealers and provides loans for buyers. It also makes mortgage loans and other loans. It historically has packaged the loans into securities and resold them to investors, replenishing its capital and then repeating the cycle.
But the collapse of the market for those types of asset-backed securities has made it difficult for GMAC to raise the money it needs to keep its business going and meet its obligations to its own lenders.
GMAC's approval as a bank holding company comes with some conditions. Its owners, General Motors Corp. and Cerberus Capital Management LP, must significantly reduce their stakes in the business within three years.
General Motors and Cerberus, the majority owner of Chrysler LLC, already stand to receive $17.4 billion in loans from the Treasury Department under the auto-industry bailout plan authorized Dec. 19 by President George W. Bush.
Earlier this week, the Federal Reserve approved American Express Co. and CIT Group Inc. as bank holding companies. Shortly thereafter, they announced that they would receive a total of $5.72 billion in investment from the Treasury Department.
I suppose all of us can see things about the solutions being tried that we think are a disaster, but when leaping from the deck of a sinking ship should I quibble over the color of my life preserver? The jam we are in has many causes and many people who have failed us, but right now we have to save ourselves and not blame the liberals or the whatevers. Just do it, and do it, and do it, and hope that we learn to swim in these waters before it's too late. It's clear that no one thing will do it. Our only hope is that we stumble into multiple cures.