GMAC Financial Receives $5 Billion from the Treasury

On December 19 the government announced it's financial rescue package for GM and Chrysler. Just weeks later the treasury will hand out another $5 billion to GM's financial parent, GMAC Financial Services. This massive amount of money is in addition to all previous allotted funds for the carmaker. The money will be taken from the $700 billion bank rescue program, otherwise know as the bailouts.

The treasury has also announced that they will loan up to $1 billion to GM in order to allow the company to participate in an equity swap with GMAC.

According to Wikipedia, an equity swap is a swap where sets of future cash flows are exchanged between two counter parties. Typically Equity Swaps are entered into in order to avoid transactions costs, or even to get around rules governing the particular type of investment that an institution can hold.

With the previous information at hand, I have to ask; is this really a smart move on the part of the Treasury, GM, and GMAC? I do not think so. The Treasury is giving them one amount of money, while saying they will loan them another amount in order to keep their company from heading to bankruptcy. Now GM is going to receive an additional loan worth up to $1 billion to take part in this equity swap.

We are looking at two failing companies, one the parent of another, who are both receiving bailouts in the form of grants and loans, and just saying 'keep messing up because we will keep paying your way'. The bailout plans are getting even more ridiculous as the time since the start of this financial crisis is left further behind.

Follow this timeline:

September 7: The Government seizes Fannie Mae, Freddie Mac

September 14: Bank of America buys Merrill Lynch

September 15: Lehman Brothers Files Bankruptcy

September 16: Government Gives AIG an Emergency Loan (who will take a $400,00 trip to the spa)

September 19: Bush Announces a Bailout Plan

September 29: House Rejects Bailout Plan

October 1: Senate Passes Bailout

October 3: House Approves Bailout and Bush Signs the Bill

October 8: AIG Gets Another Loan ($37.8 billion on top of Septembers $85 billion)

November 10: AIG Gets a Bigger Bailout ($40 billion in return for partial ownership)

November 13: Budget Deficit Reaches $237.2 Billion, The Highest Ever

November 14: Bush Wants to Give $25 Billion to the 'Big Three'

November 24: Citigroup Gets Second Bailout (after their failed attempt to buy Wachovia)

December 19: $17.4 Billion in Loans to the Carmakers

Now, of course I am leaving out some tidbits in between. There was much more action than that. On top of all that, without the smaller stuff, now GMAC is going to get their hands on money from the $700 Billion 'Wall Street Bailout', and GM more money for this equity swap.

To dig further into the monetary value of these bailouts, one should seek out more information. My research shows the following.

In October of 2007 there was a total United States population of 232,715,000. 153,516,000 of this population were working, looking for work, recently unemployed, or retired. A total of 145,743,000 held jobs at that time.

Divide $700 billion between the entire United States population and you get just over $3000 per person. For arguments sake we will also divide the $700 billion figure by the number of working people in the United States. This will give us a figure of just over $4550 per working person. Also for the sake of this determination we will not add in any of the carmaker bailouts, or any of the extra bailouts and loans made after the initial October 3 plan.

We now play with our monopoly money and give those funds to the citizens of the United States. Not adjusting the figure for income limits in any way. With $4550 I could have paid off my auto loan, hence having helped my bank. I still have $2550 left. I would then pay off my credit cards, again paying my debt to the banks and helping them, leaving me with $1550. I would have then stocked my cupboards and refrigerator with food, leaving me now $1000. With that $1000 I go shopping for the holidays. Having twice the amount of money I would have normally been able to spend, I now help out our failing retailers and department stores.

A friend of mine said if the $700 billion were split this way she would have taken the entire $4550 and put that money down on a new car, as she is driving quite an older model. Hence, she helped out a carmaker.

This all sounds quite small, but times it all by 153,516,000. Now, I do know that not all people would have spent the money the same way. In the event they did, here are some astonishing figures.

Between auto loan payoff and credits cards, banks across the country could have received up to $460,548,000,000. Grocery stores across the country could have received up to$84,433,800,000. Retailer's nation wide would have been taking in a possible $153,516,000,000.

Homeowners could have saved their families from foreclosure. Car owners could have saved themselves from repossession. The people could have saved their bank and their local retailers.

Instead our government gave all the money to the companies and the corporations. Where they could have done just as well, if not better, by disbursing the funds to the people, who could then save themselves and the chosen ones the government cared about more.

If nothing else the old adage was proven true: the rich get richer and the poor get poorer. While too many people are losing their homes, their cars, their jobs, and their faith due to unforeseen circumstances, the government bailed out the companies who drove themselves into the ground by poor planning.

Some people are in their situations due to poor planning as well, but these people did not have poor planning of billions of dollars like these large companies did. If they were lucky, they had a few tens of thousands to live on.

I extend my gratitude to the government for making life even harder for the average Joe and Jane. You gave handouts to those who should be punished. While the people who were suffering at the hands of irresponsible CEO's were driven further in to the ground. Thank you for saving the jobs of the 2.5 million people employed in some way connected to the carmakers. The other 200 million plus citizens appreciate your helpfulness, and thoughtfulness, in forgetting the rest of us.

sources:

http://www.wgal.com/save-money/17686933/detail.html

http://en.wikipedia.org/wiki/Equity_swap

http://wiki.answers.com/Q/How_many_people_are_employed_in_the_United_States

http://www.bls.gov

http://www.wgal.com/money/18378483/detail.html