Why Bother Becoming a Bank?

Jacob Sullum | December 29, 2008

Last week the Federal Reserve Board gave GMAC, the mostly spun-off financial arm of General Motors, permission to become a bank. According to The New York Times, that change "will allow GMAC to tap as much as $6 billion in government bailout money"—i.e., "funds from the $700 billion financial rescue package," a.k.a. the Troubled Asset Relief Program (TARP). Today the Times reports that GMAC, which loans money to car dealers and buyers, is trying to satisfy the conditions for its transformation into a bank. Among other things, it has to convert 75 percent of its debt into equity and shrink the share of the company owned by G.M. from 49 percent to less than 10 percent. The Times again notes that the main point of becoming a bank is to "gain access to billions of dollars in government aid," including "as much as $6 billion" from TARP. Under the Emergency Economic Stabilization Act (PDF), a business can receive TARP money only if it is a "financial institution," such as "a bank, savings association, credit union, security broker or dealer, or insurance company."

Question: Why is GMAC going to all this trouble when G.M. itself, along with Chrysler, somehow qualified as a financial institution, thereby allowing the Bush administration to unilaterally lend it money? If carmakers count as financial institutions, pretty much any business does, so why bother taking the steps necessary to become a bank? Since the Bush administration has shown time and time again that it is prepared to ignore the law when complying with it is inconvenient, why pretend that the law actually matters?

Comments

Nigel Watt|12.29.08 @ 11:49AM|#

The law matters when you haven't placed the necessary bribes, which appears to be the case for GMAC right now. Give them a week.

SIV|12.29.08 @ 11:59AM|#

Why become a bank? How about Ujamaa....

Ujamaa (Cooperative Economics)
To build and maintain our own stores, shops and other businesses and to profit from them together.

Happy Kwanzaa everyone!

|12.29.08 @ 12:02PM|#

GMAC foolishly didn't anticipate the level of mendacity and ignoring of laws of the Bush administration. The sky's the limit!

|12.29.08 @ 12:07PM|#

By doing this, GMAC will get access to its own pile of Free Federal Loot, and won't have to share with GM.

ed|12.29.08 @ 1:02PM|#

Okey-dokey, from this moment on I, too, am a "bank."

(Holds his hand out. Waits for his fair share.)

|12.29.08 @ 1:02PM|#

Anybody need to borrow 20 bucks? I've got my application in to become a bank holding company and I need to make a few more loans. Don't worry about paying it back either. That's no longer necessary.

ed|12.29.08 @ 1:05PM|#

"Our own stores, shops and other businesses."

I finally get it! Kwanzaa means segregation!

|12.29.08 @ 1:19PM|#

Somehow, these lines from an old Doonesbury seem appropriate:

"Duke, why don't you just steal the money?"

Point of pride. I've always worked within the system."

|12.29.08 @ 1:19PM|#

Question: Why is GMAC going to all this trouble when G.M. itself, along with Chrysler, somehow qualified as a financial institution, thereby allowing the Bush administration to unilaterally lend it money? If carmakers count as financial institutions, pretty much any business does, so why bother taking the steps necessary to become a bank? Since the Bush administration has shown time and time again that it is prepared to ignore the law when complying with it is inconvenient, why pretend that the law actually matters?

Are you serious? You don't see several very good reasons to reorganize as a bank? Jacob, if you're that ignorant of the relevant issues, you should stay out of the conversation.

|12.29.08 @ 1:43PM|#

You don't see several very good reasons to reorganize as a bank?

Apparently, there are 6 billion very good reasons to reorganize as a bank, that sprung into existence when TARP was created.

Apparently, though, it wasn't necessary or desirable for GMAC to be a bank until TARP hove into view.

rtfp|12.29.08 @ 1:51PM|#

Warren, if you can't read your own quoted material, much less the post, you should stay out of the conversation.

The question, as you even quoted, is why bother jumping through the hoops to become a bank when it has been shown that even a fucking automaker can be twisted into a financial institution under this law. If GM is a financial institution, then how is GMAC not already one as well without any need of hoop-jumping?

Or, since I guess you missed it:

If carmakers count as financial institutions, pretty much any business does, so why bother taking the steps necessary to become a bank?

Nowhere is there any implication that he doesn't see several good reasons to be a bank/financial institution. Only the question of, given precedent, why isn't GMAC already one.

Pac|12.29.08 @ 2:14PM|#

Apparently, there are 6 billion very good reasons to reorganize as a bank, that sprung into existence when TARP was created.

Apparently, though, it wasn't necessary or desirable for GMAC to be a bank until TARP hove into view.

You sir receive a round of applause

OHHHHHHHHHH what are we gonna do with Uncle Arther,

oh uncle arther

he's down the hole

But watch your step

because he's about to become a bank

OHHHHHHHH what are we gonna do with Uncle Arther

|12.29.08 @ 5:10PM|#

Wait a minute, GMAC is now a bank, and the guy who runs GMAC is in bed with Madeoff, so, the taxpayers will now bail Madeoff as well

Hey, I want to be a bank too!

dam it all|12.29.08 @ 7:50PM|#

Thats why I'm buying Toyota and turning in my Shitty S-10. It's not even 9 years old and has less then 90,000 miles and its falling a part.

gotta love good' ol fashioned American quality products!

|12.29.08 @ 9:03PM|#

I know our American auto industry must SURVIVE. I refuse to be forced to buy a car from a foreign auto maker whose profits go overseas or used to buy up another "chunk of Americana". I shake my head when some Americans seem smug when talking about buying Toyota's, etc. The quality of the American made cars are vastly improved and are equal or better than the foreign automakers products. The perception that they aren't is the problem that has to be overcome in the minds of the car buyers. Toyota for one has been having recalls, American car makers have been winning awards for safety and innovation. Hummm. Consumers beware of your foreign love affair. Middle income decent paying American jobs help all of us in every part of the country (taxes, purchasing power, community stability). Use your intellect before "Made in America" will only be read about in history books and our economy further tanks. We will have contributed to the problem. We allow other automakers (and businesses) to come here and flourish, undercut our own industries who want to provide decent wages and reasonable benefits to their hard working workforce. This has happened for so many other industries and caused the loss of millions of jobs for hard working Americans whose families suffer. As for me, I'm planning on putting some of my savings in GMAC Bank's CD's because I want GM and GMAC to be successful for years to come. I want MADE IN AMERICA TO CONTINUE TO BE A SOURCE OF PRIDE AND NOT A MEMORY. Think about it.

|12.29.08 @ 10:03PM|#

I want Ford, GM & GMAC to go bankrupt, but not before they steal the money that Alicia deposits in their bank's cd's.

|12.29.08 @ 10:30PM|#

As for me, I'm planning on putting some of my savings in GMAC Bank's CD's because I want GM and GMAC to be successful for years to come.

Staying the hell away from GM stock, huh? Smart.