A scathing report by a Congressional watchdog examining the bailout of GMAC Inc. found that the Treasury Department did not adequately protect taxpayer money.
The government should have orchestrated a strategic bankruptcy of the auto finance company last year rather than invest $17.2 billion to save it, according to a draft of the report to be released Thursday by the Congressional Oversight Panel of the Troubled Asset Relief Program.
"The rescue came at great public expense," the 155-page report says.
The decision to rescue GMAC "is one of the more baffling decisions made under the Tarp," the panel found. "A company that apparently posed no systemic risk to the financial system, that did not seem to be too big to fail, too interconnected to fail, or indeed, of any systemic significance, was assisted to the extent of a total of $17.2 billion of taxpayers’ money and became one of the five largest wards of state."
The oversight panel also found that GMAC was treated more favorably than other companies in comparable circumstances, including both General Motors Corp. and Chrysler Group LLC, which were forced into bankruptcy.
Last month, the report says, the oversight panel asked for "assurances from witnesses" that no third-party shareholder in GMAC would receive a return on its investment before taxpayers. The government currently own 56.3% of the company.
"The fact remains that the only way to ensure that result would have been through a bankruptcy," the report stated. "The panel remains unconvinced that in 2008 or very early 2009 bankruptcy or a similar restructuring, including a sale of the automotive financing business, was not a real possibility; nor has the panel been convinced that even now a GMAC or ResCap bankruptcy or sale of the automotive financing is impossible." (ResCap is short for Residential Capital LLC, GMAC's chronically unprofitable mortgage unit.)
GMAC was included in the stress tests of 19 institutions last year only because it had won approval from supervisors at the Federal Reserve to convert to a bank holding company in December 2008, the report found. Because it was included in the stress tests - and found to need additional capital - GMAC received additional funds from the government.
"It might appear that good money was being thrown after bad," the report stated. "The supervisors' decision proved decisive in several ways to GMAC's fate, underscoring the extent to which some aspects of the resolution of the financial crisis have been dependent upon the trust placed in the supervisors."
The report also found that Treasury did not place the same conditions on GMAC's access to Tarp funds as it did on GM or Chrysler. Treasury also did not require that GMAC create a viable plan for returning to profitability. No such plan exists, the report found.
A GMAC spokeswoman responded in an email by stating that the panel's responsibility is to "analyze history."
"However, GMAC's management team is focused on the future," said Gina Proia, the spokeswoman. "That includes continuing to provide the highest level of service to auto dealers and consumers in support of our [equipment manufacturer] partners, returning GMAC to a high level of profitability, and repaying the U.S. Treasury's investment in full."
A Treasury spokeswoman did not respond to a request for comment by press time.