TREASURY IS KEEPING BILLIONS OF TAXPAYER DOLLARS IN AMERICA’S MOST TROUBLED BANK
TO SPARE PRESIDENT BARACK OBAMA THE EMBARRASSMENT OF ANOTHER FAILED BAILOUT, EXPERTS SAY
The Treasury Department is keeping billions of taxpayer dollars in America’s most troubled bank to spare President Barack Obama the embarrassment of another failed bailout, according to financial experts.
American taxpayers have given auto-lender Ally Financial more than $16.3 billionfrom the Troubled Asset Relief Program, leaving the government controlling 74 percent of the company. The company’s mortgage lending arm has been hemorrhaging money for years, but Treasury refuses to cut its losses for fear of embarrassing the administration.
“Geithner and the rest of Treasury doesn’t want to admit that it is a mess and they’ve been lying to us for three years,” said Christopher Whalen, cofounder of Institutional Risk Analytics. “They’re waiting until after the election.”
In March, Ally failed the federal stress test by the largest margin of any bailout recipient. The test measures a company’s ability to survive future economic crisis.
The company’s mortgage subsidiary, Residential Capital (ResCap), missed a $20 million interest payment on April 17. The following day, Fitch Credit Ratings downgraded ResCap to ‘C’ from ‘CCC,’ and placed Ally’s ‘BB-‘ rating to Rating Watch Negative.
Ally is now the worst performing bailout recipient, and many in the financial industry do not see a path to recovering taxpayer money.
Prior to May 2009, Ally was known as General Motors Acceptance Corporation (GMAC). It served as GM’s in-house auto-loan shop and provided financing to approximately 75 percent of the inventory at GM dealers.
In 2006, in order to generate capital, a struggling GM sold a 51-percent stake in a then-vibrant GMAC—which had entered the booming subprime mortgage business earlier in the decade—to Cerberus Capital Management for $14 billion.
“GMAC was taken out of GM in the first place because everyone thought it was so valuable,” Whalen said. “Investors wanted to salvage it from a GM bankruptcy and GM needed the cash at the time.” The sale also preserved GMAC’s credit rating, which allowed them to make even more subprime loans to house and auto buyers.
As the economic collapse took hold, GMAC/Ally looked to the government to stay afloat. Ally has spent nearly $9 million on lobbying since 2007.
Despite lacking the capital to qualify as a bank, the Federal Reserve granted Ally an exception and re-designated it a “bank holding company” in December 2008, a move that allowed it to receive bailout money. Within a week, the Fed bought a $5 billion stake in Ally and loaned the company another $1 billion.