Fed Changes Rules to Benefit Government Carmakers, Washington Post Covers

May 21st, 2009 8:16 PM

The Fed and the FDIC have waived lending and borrowing rules for GMAC in order to ease consumer borrowing for GM and Chrysler cars, and the Washington Post doesn't seem to find anything unusual about this:

The Federal Deposit Insurance Corp. granted a rare approval to a program that will allow GMAC to raise money cheaply and take on lending for Chrysler. The Federal Reserve had to waive a rule separating banking and commerce that would have prevented GMAC, which just became a bank holding company, from lending to GM customers because the auto maker is a major shareholder in GMAC.

According to the Post, "The decision by regulators to grant these waivers demonstrates the lengths the government is going to prop up the nation's auto industry."  Well, Ford Motors is also part of the auto indutry, but it doesn't appear that Ford Credit is going to benefit from this program, so it's not the auto industry that's getting breaks, it's the now-government-un car companies.

For the Fed to make an exception to its rule separating banks and commercial enterprises would not be unprecedented. The Fed took such a step in its original decision to bring GMAC under the agency's umbrella and it made similar moves involving other financial companies.

So the relevent precedent the Post can cite is the one involving GMAC.  I know there are space limitations in a newspaper, but it's hardly reasonable to claim as precedent a decision involving the same company now getting another waiver.

Moreover, the Post notes that up until now, the FDIC had been reluctant to give GMAC access because of its shaky finances.  It doesn't even address the possibility that the waiver was influenced by Washington's newly-acquired stake in the car companies.