Profits in G.M.A.C. Bailout to Benefit Financiers, Not U.S. –

Profits in G.M.A.C. Bailout to Benefit Financiers, Not U.S. –

It’s all about moral hazard and the concept of too big to fail. These bailouts are what communist governments did to ensure the survival of these greedy risk taking enterprises. I say let them fail and let it be a lesson for other companies taking extreme risks. But alas, Washington is run by lobbyists and every politician is easily bought. 

 Among the companies that were bailed out by the federal government during the financial crisis, perhaps the most intractable is proving to be the company formerly known as the General Motors Acceptance Corporation. It’s a case study in how bailouts can linger and profits, when they do come, flow not to the government but to the Warren E. Buffetts of the world.
G.M.A.C. was the financial arm of General Motors. In the years leading up to the financial crisis, it was also G.M.’s most profitable unit, which tells you something about the auto industry at the time. The company earned more profit from lending money to customers than in selling cars.
In 2005, desperate to raise cash, General Motors sold a 51 percent stake in G.M.A.C. to the private equity firm Cerberus Capital Management. Cerberus beat out a rival, Kohlberg Kravis Roberts, for the privilege, spurring BusinessWeek to write that Henry R. Kravis’s loss “has to sting.”

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