GM – A Car Company Gives Sub-Prime Lending a Try
Ah, the Community Re-investment Act. It was a progressive dream turned nightmare as it was the root cause of the housing bubble that we are all now living through. Sure, financial houses reacted to ridiculous government lending requirements by creating silly financial instruments, but they weren’t really given a choice.
Now, GM is following suit. In July, GM acquired Americredit. After having dumped their controlling interest in GMAC, this is GMs only in-house financing capability. The problem is.. it’s a sub-prime car loan company. For those not paying attention the last two years, sub-prime means high-interest loans to people that don’t have the credit – and perhaps – the personal sense of responsibility to buy a car.
Why would GM choose a sub-prime lender as their only in-house financing arm? Well, because the Obama administration or UAW probably gave them no choice. I am certainly speculating here, but there is precedence. CRA (Community Re-Investment Act) was enacted in 1977 – yeah Carter… sigh. The supposed purpose behind the ill-conceived legislation was to make sure that minorities weren’t being discriminated against. Instead, it forced bank to find creative ways to make loans to those that could not afford them. That’s what we call today, the sub-prime home loan market.
GM is now in the car loan rip-off business. Anyone who has ever screwed their credit into the ground knows these places. You end up paying too much for a crappy car and have an interest rate you can barely deal with. Well, GM certainly has the crappy cars… guess that they’ll be adding in the crappy loans too.
CRA and this GM fiasco are actually tactics meant to support a bigger strategy which has two parts in order to suck in a bigger set of useful idiots. The first part is about inflation. To keep inflation going, we have to have an increasing level of credit (fractional reserve revue in some other article .. maybe). When people borrow, it creates money – a lot of money. This makes money worth less (not yet worthless.. but they are working on it), which makes things more expensive (inflation). To create more debt, the government needs to make more people eligible for debt. So they force banks to lend to people who are way too much of a risk.
GM buying Americredit is a back door automobile re-investment act. It appears as though a government watchdog has caught on.
Neil Barofsky, the special inspector general for the Treasury Department’s corporate bailout program, said in a letter to Sen Charles Grassley obtained by Reuters on Wednesday that auditors for the Troubled Asset Relief Program also want to know what role Treasury officials played in “reviewing, approving or otherwise participating in the AmeriCredit decision.”
The audit was triggered by a request from Grassley for Barofsky to look into that deal, which carried a 25 percent premium over the AmeriCredit share price at the time. Grassley also requested an examination of GM’s planned public share offering due later this year.
Wait, not only did they buy a sub-prime lender .. they overpaid? No way, not the government… ugh.
The government being involved in real-estate has caused one of the largest recessions in American history. Their involvement in the car industry may just conclude what the Unions started – the demise of American manufacturing.