Tuesday, December 30, 2008

GMAC - so sad

Nice post from Denninger. 

In short, GMAC (financing arm of GM) borrows money from the government at 8% and lends it to customers with below average credit ratings at 0% in to let them purchase cars that GM will lose money on. 

This is wealth destruction at its finest. Every time GM produces a car, thousands of dollars  in wealth are destroyed since the costs of building the car are thousands of dollars more than the price customers are willing to pay for the car. In a normal market, this would quickly drive a company out of business and shift production to more efficient companies that are meeting customer demands. Instead, the United States government levels the playing field by subsidizing the worst companies. After all, it's no fair that GM can't compete -- clearly, the remedy for this is to have the productive members of society (tax payers) subsidize GM inability to compete. It's as if the government were using Atlas Shrugged as its playbook.

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