When the government gets involved in bailouts, it?s not always easy to identify all possible negative consequences. Sure, there?s the moral hazard, and the fact that resources are seized from productive members of society to prop up those who?ve failed.
But Fortune?s Allan Sloan describes another downside in his latest column:
One of the little-noticed rocks I’ve looked under recently: the government’s rescue of GMAC, now Ally Financial, which has given its old shareholders a multibillion-dollar windfall.
These folks thought they had a great deal in 2006. General Motors, which had owned GMAC (the name I’m using throughout this column for simplicity’s sake), was thrilled to have investors led by Cerberus, the big, smart Wall Street house, fork over $7.2 billion for a 51% stake. Oops. The ink had barely dried when GMAC’s mortgage business, much of it subprime, turned from a crown jewel into toxic waste. The world financial system began imploding. GMAC ran out of borrowing power and got government help to stay afloat in late 2008, the first of several bailout infusions. Without the bailout, GMAC would have gone broke, and the old holders’ stake would have been worth zippo. What’s that stake worth now, mostly because of taxpayer support? Would you believe more than $3 billion?
