I'm Obligated to Report This

Thursday, October 29, 2009 , , , , 0 Comments

The true sign of your economic condition isn't what CNBC tells you it is,
it's the infrastructure. Duh.

Because if I don't, someone might pull my card and say I'm asleep at the wheel. #3. It is too big to fail, could be neatly dismantled but will not be, and does not necessarily pose a risk to the system if contained properly.

And it's still getting a bailout.


GMAC, which lends money to buyers of G.M. and Chrysler vehicles, is racing to shore up its finances before a crucial Nov. 9 deadline, when federal regulators will evaluate its financial health.

In a prelude to what is likely to be another direct government rescue, GMAC borrowed $2.9 billion in the bond market on Wednesday with the backing of the Federal Deposit Insurance Corporation.

But that money probably will not be enough to plug all the holes at GMAC, whose disastrous foray into subprime mortgages pushed the company to the brink of bankruptcy. GMAC is seeking as much as $5.6 billion in taxpayer money, on top of the $12.5 billion it received in two previous installments along with the growth in its lending responsibilities.

The government has already pumped more into GMAC than it did into Chrysler’s car business. If the third rescue goes through — the terms were still being negotiated — the government could wind up with a majority stake in GMAC. It currently owns 35 percent.

Some analysts suggest other, more radical steps — like cleaving the company in two — might be needed to deal with GMAC’s problems, but no such plans appear imminent.

No other financial company has gone cap in hand to the government three times. The two giants of the bailout era, Citigroup and Bank of America, were rescued twice, although they received many billions more than GMAC.

Why rescue GMAC again? The federal government has committed more than $60 billion to prop up G.M. and Chrysler, and letting GMAC fail, the thinking goes, would threaten a recovery in the broader car industry.

“We are in too deep for us to sensibly back out now,” said Douglas Elliott, a former investment banker who is now a fellow at the Brookings Institution. “We will probably lose less money by putting in more now.”

In totally related news, our friends from up North tell us "the United States Government is on a trajectory to default on their obligations." (h/t Krupo)

There simply isn’t enough taxing power, value creation or outside capital willing to support its egregious spending. Stating the obvious may be construed by some as fear mongering, ‘talking up our book’ or worse, but our view is not as severe as you might think. In the Federal Reserve Bank of St. Louis’ Review from July/August 2006, Lawrence Kotlikoff stated that “partial-equilibrium analysis strongly suggests that the U.S. government is, indeed, bankrupt, insofar as it will be unable to pay its creditors, who, in this context, are current and future generations to whom it has explicitly or implicitly promised future net payments of various kinds.” He went on to suggest that the US should immediately close the Social Security program to reduce future liabilities (could you imagine?), use a voucher system for Medicare to limit costs, and replace personal, corporate, payroll and estate taxes with a single federal sales tax. All this, published in an article from 2006, well before the credit crisis and subsequent meltdown had even begun!

Three years later, the financial condition of the US government is completely untenable.

Disclaimer: this blog is not backed by the full faith and credit of the United States

That's probably a good thing.

Jr Deputy Accountant

Some say he’s half man half fish, others say he’s more of a seventy/thirty split. Either way he’s a fishy bastard.