Thursday, November 20, 2008

General Motors and alternative ways of getting bailout

GMAC, General Motors’ automotive financing arm, is applying to be a bank holding company. That’s what every investment bank, insurance, and financial services company is trying to do now. Becoming a commercial bank allows them access to the Fed discount window and, possibly, to the TARP.

Is this an indirect way for GM to get government bailout money then? That has been speculated today by Felix Salmon and John Carney.

But will it work for GM? John Carney doesn’t think so. I suspect that the Treasury might very well tell GMAC to take a hike…..All along the Treasury department, from Paulson to Kashkari, has told us that the TARP is an investment not a prop to failed companies. If they mean it, this would be a great chance to prove it by closing the TARP window to GMAC.

Well, we all know by now that begging for help is not the most effective way of getting bailout support. Causing systemic risk is. That means, transmitting the ramifications of its failure to a host of inter-connected institutions.

Perhaps, telling all its employees, suppliers, and affiliates to default on all their loan obligations, both corporate and personal, should GM fail, will actually do the trick. That worked out well for AIG, and the preferred banks of the TARP. Some of them didn’t even ask for the money, but they got it.

Money doesn’t go to the person who begs for it, it goes to the one who can cause a lot of trouble if he doesn’t get it. The Somali pirates know this.