Hey, if everyone here puts in a buck, we can buy a MoA house in Detroit.
Thinking of Detroit. GMAC, General Motors Financing Arm, was supposed to become a bank and eligible for TARP money if it was able to restructure debt it has into equity. But some GMAC bondholders did not want to convert the GMAC bonds they own into stocks of lesser value and boycotted that solution. PIMCO being the biggest one of them.
On one side it risked that GMAC would go bankrupt and default on the bonds PIMCO owns. On the other side was the chance that the Treasury would break its own rules and bail out GMAC no matter what and the bonds would be paid for in full.
PIMCO won. The Treasury caved in:
Someone should please explain the next grafs to me.
The deal is lopsided — such investments are generally proportional to existing ownership stakes — and it could have the effect of restoring GM to majority ownership of GMAC.
The distinction would be short-lived, however, because the Federal Reserve has required both companies to divest most of their ownership stakes as a condition of allowing GMAC to become a bank holding company.
GM is, by demand from the Fed, supposed to lower its stake in GMAC as a condition for GMAC to become a bank. Now the Treasury lends a billion to GM to buy more of GMAC so GMAC has the equity to become a bank. Something does not compute here.
But this deal might reignite the great credit machinery:
GMAC, the automobile financing company, said Tuesday morning that it would immediately resume financing to a wider range of car buyers, a day after the Treasury Department injected billions of dollars into the lender.
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And General Motors said Tuesday that it would begin to offer zero-percent financing on some models as it tries to jump-start sales.
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“This is exactly what some of the government money was intended to do — stimulate credit, stimulate business,” Mr. LaNeve said.
That is healing the consequences of the last binge with more hard drinks. That may work as long as the consumer's liver is able to cope with it. I doubt that's still the case.