In a 200-page report published this week, the congressional panel overseeing the $700 billion TARP bailout challenged the special treatment GMAC received.
The Congressional Oversight Panel, as the committee is called, is tasked with reviewing the Treasury Department’s actions and assessing the impact of spending to stabilize the economy. In its January report, the panel questioned Treasury’s conclusion that GMAC is “too big to fail.”
The panel devoted four pages in the report to GMAC. Here are the most salient points:
In answers to questions posed by members of the Panel, Assistant Secretary Allison suggested that Treasury’s assistance to GMAC has provided a “reliable source of financing to both auto dealers and customers seeking to buy cars,” helped “stabilize our auto financing market,” and contributed “to the overall economic recovery.” GMAC is a source of retail and wholesale financing for both GM and Chrysler. Treasury has stated that if it refused to support GMAC after providing assistance to GM and Chrysler, it would undermine its own investments in the automotive companies. Treasury has also stated that denying support to GMAC in December 2009 would have placed Treasury’s previous investments at risk, and that refusing assistance after promising it in May would have had a detrimental effect on market confidence.
In spite of Assistant Secretary Allison’s general statements about the reasons for providing additional support to GMAC, Treasury has not yet articulated a specific and convincing reason to support the company. Treasury’s most recent announcement of assistance states only that its “actions fulfill Treasury’s commitments made in May to GMAC in a manner which protects taxpayers to the greatest extent possible.” It has never stated that a GMAC failure would result in substantial negative consequences for the national economy. If Treasury has made such a determination, then it should say so publicly. It does not appear that the support has been made on the merits of the investment, particularly given GMAC’s recent statements that it anticipates reporting fourth quarter 2009 losses of approximately $5 billion. Treasury has not indicated whether it will be open to providing additional financing to GMAC in the future.
Moreover, GMAC has received different treatment from all other financial institutions that were subject to the stress tests. Unlike other institutions, it was subjected to additional stress tests after the initial stress test results were released in May, and unlike other institutions, its capital buffer requirements were revised in light of this second round of tests. GMAC was the only institution that was allowed to benefit from post-May improvements in its financial position and in related sectors of the economy. In the face of criticism about the merits of saving GMAC, Treasury owes the public a more detailed and convincing explanation not only of its rationale for providing substantial assistance to GMAC, but also of its rationale for treating GMAC differently than other stress-tested institutions.
Click here to read the full report. GMAC coverage begins on page 100.
