Miracle TARP Can Cover Anything

The Treasury Department has agreed to buy a $5 billion stake in GMAC, General Motors' former financial subsidiary, to help it become a bank holding company. The money will come from the Troubled Asset Relief Program (TARP), created by the Emergency Economic Stabilization Act. Yet GMAC wants to be a bank so it can be considered a "financial institution" under the act and thereby qualify for TARP money. In other words, GMAC is receiving TARP money so it can be eligible for TARP money. Assuming there's no time travel involved, that sounds pretty fishy. On second thought, this plan would be logically impossible even with a time machine.

Wait, it gets better. According to The New York Times, the Treasury Department will also give G.M., which owns 49 percent of GMAC, $1 billion in TARP funds so the carmaker can "purchase additional equity offered by GMAC." At the same time it is buying more GMAC stock, G.M. is supposed to reduce the share of the company it owns to less than 10 percent. Presumably this is possible because GMAC is issuing a lot more stock as part of its plan to convert 75 percent of its debt to equity. But that's hardly the most confusing part of the deal. GMAC, which loans money to car buyers and dealers, evidently did not count as a "financial institution" until it decided to become a bank. Yet G.M., which makes cars, somehow does. The $1 billion it will receive to facilitate the GMAC transformation is on top of the $9.4 billion it is already getting from TARP, on the strength of being such a crappy carmaker that it's on the verge of bankruptcy.

A few weeks ago I explained why President Bush's creative use of TARP is illegal and unconstitutional.