What will happen in the next several weeks:
By Daniel at 11 December, 2008, 8:38 am
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The senate’s reluctance to give Dtetroit $14 billion aside, here are two news items from last night that I think foretell what will happen in the next several weeks:
1. GMAC was only able to get 25% of its investors to restructure their portions of the company’s debt; about 75% of the investors were needed to allow GMAC to declare itself a bank holding company and become eligible for TARP funds. The new deadline is Friday (tomorrow); no one thinks they will make it. GMAC is (about) half owned by Cerberus, which owns 80% of Chrysler, and about half owned by GM (I forget which side has the 49% and which one has the 51%).
2. Of the $350 billion in TARP funds released by congress, all but $15 billion has been oblgated. In Congressional hearings Wednesday (yesterday), house members made it very clear the Bush administration wasn’t getting another nickle of the funds. There are 40 days left before Obama takes office and 46 days until the executive branch really opens for business.
I think GMAC is going to fail in its hail-Mary pass at the TARP funds - and there isn’t much of it left anyway. Whether Cerberus has the wherewithal to survive that is an interesting question, but it will inevitably increase the pressure on Chrysler. GM is just going to take it like a punch in the gut to their rebuilding plans. GMAC funded about 34% of new GM car purchases.
Given GMAC’s impact on the car and mortgage markets, I think that’s going to have a knock-on effect on the financial system, which Congress isn’t going to mess with for at least the next month and a half. Combine that with its knock-on effect on both Chrysler and GM, and how would YOU invest in the US economy before March 2009?
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