Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24
US House Prices Trend Forecast 2024 to 2026 - 11th Oct 24
US Housing Market Analysis - Immigration Drives House Prices Higher - 30th Sep 24
Stock Market October Correction - 30th Sep 24
The Folly of Tariffs and Trade Wars - 30th Sep 24
Gold: 5 principles to help you stay ahead of price turns - 30th Sep 24
The Everything Rally will Spark multi year Bull Market - 30th Sep 24
US FIXED MORTGAGES LIMITING SUPPLY - 23rd Sep 24
US Housing Market Free Equity - 23rd Sep 24
US Rate Cut FOMO In Stock Market Correction Window - 22nd Sep 24
US State Demographics - 22nd Sep 24
Gold and Silver Shine as the Fed Cuts Rates: What’s Next? - 22nd Sep 24
Stock Market Sentiment Speaks:Nothing Can Topple This Market - 22nd Sep 24
US Population Growth Rate - 17th Sep 24
Are Stocks Overheating? - 17th Sep 24
Sentiment Speaks: Silver Is At A Major Turning Point - 17th Sep 24
If The Stock Market Turn Quickly, How Bad Can Things Get? - 17th Sep 24
IMMIGRATION DRIVES HOUSE PRICES HIGHER - 12th Sep 24
Global Debt Bubble - 12th Sep 24
Gold’s Outlook CPI Data - 12th Sep 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

GMAC Bailout: A Sign of the Times

Companies / Credit Crisis Bailouts Dec 31, 2008 - 09:39 AM GMT

By: Oxbury_Research

Companies

Best Financial Markets Analysis ArticleWASHINGTON — The Treasury Department said Monday that it will provide $5 billion to GMAC Financial Services LLC, the ailing financing arm of General Motors Corp., from the $700 billion bank rescue program.(The Huffington Post)

GMAC will also potentially receive up to $1 billion from the Treasury in the form of an equity purchase. Shocking right? Not if you have two eyes and can read beyond a 4th grade level.


Back in the first week of September I shared with you this figure from Ty Andros.

* Lehman Brothers (LEH)--11-13%

* Merrill Lynch (MER)--11-12%

* Morgan Stanley (MS)--9-10%

* Citigroup (C)--9 ½-10 ½%

* Keycorp (KEY)--11-13%

* National City (NCC)--13-15%

* Wachovia (WB)--10-12%

* Zions Bancorp (ZION)--13-15%

* GM/GMAC (GM)--not possible

* Washington Mutual (WM)--not possible

* Ford (F)--not possible

Of these 11 companies, at least 8 have either gone bankrupt, or received bailout money. I hate to be Captain Obvious here, but you can't run a company that has large short term liabilities and is forced to pay double digit interest rates.

I believe many Americans have grown comfortably numb with the fact that there is an ever pending bailout. The recipient may be unknown in the near term, but there is trouble brewing, and Uncle Sam is waiting with his checkbook.

So instead of going on one of my rants, I would like to focus at the irony of this situation, and how GMAC has been truly a story of the times.

Rush to the Bubble

As you know GMAC deals in auto lending, mortgage lending, and insurance. So why does a company that has manufactured cars for nearly 100 years get involved in the credit markets?

The answer if very simple, to make money. Just like every bubble that preceded it, there was a lot of money to be had in the credit bubble before it went bust. As a result of Keynesian economic policies in the form of ultra loose fiscal and monetary actions, the system was flush with liquidity.

The firms that had access to the highest tiers of our fractional banking pyramid scheme were the ones that made the most money. The easiest way to access this money and then turn it around for a profit was to lend money. That's what GM decided to do when it created GMAC.

All bubbles come to an end. As you know, when the pop, the markets move hard. Those left long the bubble get burned. For GMAC, their burn amounted to approximately $10 billion in losses over the last two years.

GMAC is simply a perfect sign of the times. GM, a manufacturing giant, altered it's long lasting business plan by entering the lending markets. GMAC is a direct product of Keynesian economics. Without loose monetary and fiscal policies, GMAC doesn't have a market. I guess when it's all said and done, GMAC will be another drop in the bucket.

By Nicholas Jones
Analyst, Oxbury Research

Nick has spent several years researching and preparing for the ripsaws in today's commodities markets.  Through independent research on commodities markets and free-market macroeconomics, he brings a worldy understanding to all who participate in this particular financial climate.

Oxbury Research originally formed as an underground investment club, Oxbury Publishing is comprised of a wide variety of Wall Street professionals - from equity analysts to futures floor traders – all independent thinkers and all capital market veterans.

© 2008 Copyright Nicholas Jones / Oxbury Research - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Oxbury Research Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Joseph
28 Oct 09, 10:04
gm bail out

dont give gmac or gm anything. Enough let these companies die off . No one is bailing out small business, just the big ones come on . lets not be fooled here. They rip us off then we are supposed to bail them out. Come-on enough said..

Plus their cars stink they are old and out dated . They always have problems. except of course the chevy corvette. When will Gm rise to the standards that americans deserve. Stop bailing them out . Lets build a new company that serves americans and keeps it affordable


Post Comment

Only logged in users are allowed to post comments. Register/ Log in