Merry Christmas, here is your gift

The Fed’s decision was a welcome holiday present for GMAC’s major
investors, GM and Cerberus Capital Management, which bought a 51
percent stake in GMAC in 2006…The Fed board granted GMAC’s application on an emergency basis,
eliminating the normal process of comment and review in favor of
immediate action.

GMAC is now a bank, even though they haven’t reached requested levels of capitalization.  Here are more detailsElizabeth Duke voted against. 

I believe that moving more assets under government guarantees is exactly the opposite of what we should be doing.

Addendum: More comment from Felix.

Comments

Tyler

You may not feel that way about GMAC Christmas present if were one of the thousands of small investors, including many in retirement, who thought GMAC was a good source of income for them. Where is your Christmas spirit?

I am a bit puzzled about why GMAC, specifically, gets rescued. In the past it offered preferential treatment for people seeking loans to buy GM cars. But now by virtue of the agreement with the Fed it must offer equal terms to customers of all auto companies -- including, if I understand the word "all" correctly, foreign manufacturers. If the goal were to help in the bailout of GM then to end the preferential treatment of GM customers makes no sense. I assume the Fed is really bailing-out bond and equity holders. What is so special about them? I lost 40% on my S&P Index funds this year.

The Fed is a private bank. Who it gives its money to, or who it allows into its club, is none of your business. It's a private entity.

It's nice to have friends.

I can't wait until the fusion Obama/Fwank/Dodd/Pelosi programs start coming out. Of course by then I'll be trading squirrel meat for engine parts at the informal economy park under the bridge overpass at the river. Ask for 'Paul' and get lucky, Made In America, squirrel foot.

DJR,

Not sure I understand your complaint. The Fed is a private bank. It lends money. Nothing mysterious there. Its member banks help create the economy which supports you in your job.

GMAC lends people money to buy cars, and lends car dealers money to buy inventory. Nothing mysterious there. GMAC is very "banklike." The Fed has allowed it to join its club of banks, and by this action, the Fed can lend GMAC money to help dealers buy inventory and people buy cars. This is evil how, exactly?

What the Fed is doing should be separated from what the Federal government, through the Treasury Department and Congress, is doing. What the Federal Government is doing is investing taxpayer dollars in private businesses (bailout) ... that is to say, buying stock. It shouldn't be doing that, but that's different than what the Fed is doing.

The Fed is protecting and strengthening its member banks. As it should.

Congress, on the other hand, is under no obligation to buy stock in banks or other businesses such as AIG or GM. That's a poor use of tax dollars. However, union voters are demanding that the federal government give billions to support union jobs. The Congress is responding to the demands of the organizations which donated money to get the Congress elected.

Quid. Pro. Quo.

Don't confuse Congress with the Fed. The Fed is private. Congress is elected and can be un-elected.

I thought that the Fed controlled the quantity (and hence the diluted value) of those green papers in our pockets. What could be more in control of our lives? Except, perhaps, if they also priced the value of access to that dough - which they do too.

The President nominates the chairman and other members of the Fed ... but any private business could theoretically be set up this way as long as Congress approved of it. This makes it seem like the Fed is part of the government, but it only seems that way.

"Quasi-public" is a meaningless word. The public, for example, has no access to Fed meetings, for example, except that information which the Fed deigns to make public. The Fed was able to force a bailout on its member banks, which had no choice but to accept the bailout, for example, even though some of the member banks did not need or want a "bailout."

The Fed, like any private business, operates at the whim of the people. The people could outlaw it, same as we do brothels. But make no mistake, sir. We are a private business.

DJR ... All banks issue money as soon as you deposit money in them. This is how money is created. The government mints merely print up the paper. We could choose not to have banks. Some societies do not have them. But they are efficient, so we choose to allow their existence.

So, reiterating ... the Fed allowing GMAC to become a bank is not a meaningful event. Lots of entities become banks every year.

What would be a meaningful event is if the Congress decided to invest tax dollars in GMAC. That would be stupid and shortsighted, but also be a payback to the unions that elected the Congress.

That's how Congress works. It gives our tax dollars to whoever elects it.

Fedgovernor,

Other private enterprises are legally barred from competing with the Federal Reserve. Isn't that fact relevant in this discussion? If the Fed were just another private business, then it would have to compete with other banks. In the example you give, where the Fed forced the bailout on banks that did not want it, if the Fed were just another business and subject to competition, some of those banks would presumably have changed their membership to one of the Fed's competitors, reducing the Fed's power to force the bailout on members that didn't want it.

However, the Fed, by law, has no competitors; therefore, it is not just another private business, and its policies should be subject to some degree of public review, which is precisely the point your interlocutors were trying to make.

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