Missteps in GMAC Bailout Could Cost Taxpayers $6.3 Billion

GMACIn their bailout of GMAC, U.S. officials took some key missteps that may have resulted in higher taxpayer costs and an uncertain outlook for the financial services giant, according to the most recent report by the government’s official overseer of bailout expenditures.
The government should have pursued other options — including a bankruptcy restructuring — for GMAC, the in-house credit arm of General Motors that has expanded over the years to providing home mortgages, insurance and commercial loan products, said the Congressional Oversight Panel.
The federal government has provided $17.2 billion in bailouts so far to GMAC and now owns 56.3 percent of the company. The U.S. Treasury insists that GMAC is solvent and will not require further bailout funds, but the Office of Management and Budget estimates that $6.3 billion or more may never be repaid, the oversight panel said.
As of Dec. 31, 2009, GMAC is the 14th-largest bank holding company in the U.S. with $172 billion in assets. It operates in 40 countries, serving 15 million customers.
“Although the Panel takes no position on whether Treasury should have rescued GMAC, it finds that Treasury missed opportunities to increase accountability and better protect taxpayers’ money,” the panel reported.
The Congressional Oversight Panel was created to oversee the Troubled Asset Relief Program (TARP) – the government’s primary bailout facility. Its mission is to provide recommendations on regulatory reform.
The panel said it remains unconvinced that bankruptcy was not a viable option for GMAC in 2008 for GMAC.
Such as it did for Chrysler and General Motors, Treasury might have been able to “orchestrate a strategic bankruptcy for GMAC,” the panel said.
“This bankruptcy could have preserved GMAC’s automotive lending functions while winding down its other, less significant operations, dealing with the ongoing liabilities of the mortgage lending operations, and putting the company on sounder economic footing,” the panel’s March report said.
The panel also said Treasury officials should articulate an exit strategy for GMAC.
The oversight panel’s members are: former Securities and Exchange Commissioner Paul S. Atkins; J. Mark McWatters; Richard H. Neiman, Superintendent of Banks for the State of New York; Damon Silvers, Policy Director and Special Counsel for the AFL-CIO; and Elizabeth Warren, Leo Gottlieb Professor of Law at Harvard Law School.
Here’s a link to the panel’s March report: The Unique Treatment of GMAC Under the TARP.

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