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I Can’t Believe The Government Wants To Unleash This On The Public

20 | By Shah Gilani

Do you know Ally Financial Inc.?

You’ve no doubt seen their commercials. They used to be all over the tube hawking their high-yielding certificates of deposit. Now they’re all over the tube with their “no hidden fees” campaign.

I like the one where the woman is afraid to try new things because she’s had bad experiences before. Her mechanical dog sparks a fire when he drinks water and her trainer hooks her up to electrodes that zap her. I like these commercials; they’re funny.

But Ally isn’t funny.

It recently announced that it’s launching an initial public offering (IPO) of its stock at a price per share of $25 and $28. The shares will be offered by the U.S. Treasury as part of its planned exit of its investment in Ally during the subprime crisis in 2008.

I’ve heard some analyst say this could be a good deal for investors.

But I can’t believe the government wants to unleash this on the public.

The Truth About Ally Financial

Ally was formerly GMAC (General Motors Acceptance Corporation), a finance unit of General Motors. They got stupid-greedy and got into subprime-mortgage lending instead of sticking to their auto-financing knitting.

GMAC looked clever for a while.

And all-too-clever Cerberus Capital Management (the giant hedge fund/private equity shop) bought a 51% interest in them in 2006. (Then Cerberus bought Chrysler. Not two of their better moves.)

GMAC imploded mostly because its subprime unit, Residential Capital LLC, sunk the company.

GMAC had to be rescued. The government bailed it out with $17.2 billion in TARP money. But it needed another $3 billion more (no one seems to remember that) in “liquidity” backstopping, which it got from the Federal Reserve after it begged to become a bank-holding company to feed at the Fed’s free-money-for-failures trough.

They changed their name to the friendly sounding Ally Financial (as in I’m your ally) on May 15, 2009.

Then, with the government’s backstop, Ally began to grow its deposit base. Investors weren’t putting money into the company, which is why the government had to come in. But the weak bank was allowed to advertise for depositors.

They shilled for themselves offering high rate CDs. You know about high rate CDs, right? They caused the S&L crisis. They are high interest payments to depositors to lend the bank money, which it then lends out at higher rates for a profit.

Okay, if you have to pay high rates to get deposits into your bank, where are you going to find borrowers that are going to pay higher than market interest rates so your bank turns a profit?

Oh, that would be subprime all over again.

Only, this time Ally is playing the game with subprime auto loans.

Good for them. They’ve gone back to their auto-lending roots. Too bad that’s potentially bad for you if you’re dumb enough to invest in Ally when it goes public.

Most of Ally’s loan book is auto loans. And most of those are probably subprime. We’ll see how much of their book is autos and how much is subprime when we get a look at their S1 IPO filing documents.

In the meantime, Bloomberg reported that LTV, that’s loan-to-value, for subprime autos rose from 112% in 2012 to 114.5% at the end of 2013. That means lenders are lending 14.5% more than the automobile being purchased and financed is worth!

Seriously? Why are lenders lending more than a car is worth? Is there some new math I don’t know about that adds depreciation back onto the value of an asset that makes it worth more when you drive it out of the showroom? Or better yet, off the used car lot?

Exeter Finance, which was bought by Blackstone Group, recently said they’re seeing an increase in late payments up to 7.8% of outstanding loans, up from 5% in 2012.

And about GM, their auto dealers with the weakest finances owed them $12 million at the end of 2012. At the end of 2013 the amount those dealers owed GM had risen to $1.6 billion, according to Bloomberg.

So, now the government, which coddled GMAC, stroked it back to health, let it borrow from depositors at high rates to lend out at higher rates in order to make more money to pay it back and look profitable… wants to unleash it on the public?

That’s going to be a winner, for sure.

And by the way, there are other short-selling opportunities about to float to the top of the “let’s make money on this crap falling” game, as more subprime auto lenders are getting deeper and deeper into the swamp.

Shah

BTW: If you want the chance to make some real money on situations like these… and you don’t mind going against the grain… and making Wall Street’s blood boil… take a look at this presentation I put together for you. You’ll be surprised how easy it is.

20 Responses to I Can’t Believe The Government Wants To Unleash This On The Public

  1. Richard Waldren says:

    S hah, as always thank you for your wisdom in this matter. I hope alot of people read this and just see how wicked our govt. really is in letting the flakes remain in business and scoff up more money.

  2. Ralph says:

    In all reality it’s the people of the nation who are willing to take the risk on these companies who trot out their ads of financial goodwill! The people who take these risks of goodwill do not care about the underlying financial motives because the Government allows it. Who bails out Ally when the crap hits the fan? Really, the taxpayer of course, because the Government investigates the wrong doing of Ally, and somehow it all gets resolved by whatever way the Government and regulators agree it to be resolved! Will honesty and transparency ever be part of big business? Not ever! Stockmarket investors make money through the knowledge of their willingnes s to make money.

  3. Benton H Marder says:

    Tell me something, Shah. How do the car dealers go from owing $12 million in 2012 to owing $1.6 billion one year later? That’s a helluva kick. There’s something fishy here. I suspect that there’s some serious ‘skim’ for someone in all this. Go dig into it and see what you find.

  4. RUSS SMITH says:

    Hi!, Shah & Staff:

    You heard about the potato salesman buying potatoes for $5 a sack in Oregon and selling them for $3 a sack in California didn’t you? When his friend approached him, to point out he was involved in a losing proposition, he merely replied: “Yes!, I know that but LOOK at the business I’m in brother!”

    RUSS SMITH, CA. (One Of Our Broke, Fiat Money States)

  5. terry l. thomas says:

    What so new about this? The government with its insatiable demand for money, is just playing the same old game of selling debt to gullible people who think they’re going to get a few more dollars for their investments.

    Since the U.S. governments credit rating stinks just like the sub-prime assets of the housing and now the auto market, they just created a new player, Ally Financial.

    Oh well, a fool and his money are soon separated. The only trouble with this ponzi (organized crime racket) scheme is the perpetrators are the government officials who approved and allowed thiis crime to be alllowed and committed.

    After all the U.S. government still owns a comsiderable chunk of GM and their operations.

    I am willing to bet, no one goes to jail for this one and the taxpayer is shafted again. ANY TAKERS!!!

    Terry Thomas

  6. harry thomas says:

    The auto portion of Ally’s book will not help. G.M. has resorted to substantially lower standards
    in order to move cars and trucks that have already had a birthday! I believe this will get very
    ugly. Huge losses when these loans go bad.

  7. H. Craig Bradley says:

    WE HAVE NOT LEARNED A DARN THING IN THE LAST 10 YEARS

    Clearly, we have not learned anything since the 2008-2009 financial crisis and “Great Recession”. I mean, how dumb can a White Guy Be, honestly? We are repeating the same mistakes but from a smaller base. Eventually, we will have another financial collapse, except nobody in the world will be there or be able to bail the United States financial system out. So, bad loans will cause a depression and financial collapse.

    Sorry, but that’s where the next one is headed. The Treasury and the FED are all tapped- out.The rest of the world won’t want our paper unless interest rates are way up in the double digits ( 20% +). When Asset Deflation sets in the 1% will see their incomes and net worth plummet. Unless you are worth $30 Million or more ( ultra high net worth individual) and have 0 Debt, you will look poor and feel poor. That would be most of the wannabes you see jetting about. The decline will come like a thief in the night, fast and sudden with no warning at all. Nobody will see it coming and when they do, it will be too late to prepare. Scary, dangerous, and such.

  8. H. Craig Bradley says:

    SUB-PRIME BORROWERS NOT BACK IN AS YET

    The auto repo business is still slow compared to pre-2009. It may pick-up with lenders loaning to more sub-prime borrowers, but so far, that does not appear to be the case. ( Source: Aames Associates, Glendale, CA).

  9. Eric Rhodes says:

    You called this out again Shah, god knows how many didn’t know this Ally really was an enemy in disguise. Good on you Sir! Keep up keeping us informed.

  10. Joel Carlson says:

    I watched, as the public was scammed by our own gov. into bailing these criminals out. WITH OUR TAX MONEY. That was lost in the paperwork. Now, these same criminals want to lend money again, at higher rates? Gee, I wonder where this will end up?

  11. L. david carlo says:

    Thank you Mr. Gilani for telling it like it is….let us not forget what Mitt and friends planned for the gold plated auto companies..let them go bankrupt and the Mitt “Rkins” team would buy them up for pennies on the dollar cut the workers’ wages in half while laughing all the way to their banks….don’t believe there is a God…just watch the evening news and see heaven and hell here on earth which is mandated upon us by the “Rkins” team making laws through ALEC…. locking in slavery with a smile… thanks again for being a stand up guy….. if America fails????

  12. Kosovokid says:

    The government has no business in business. The lack of leadership in the current regime has us heading over the cliff led by this pied piper. Government is way too big!

  13. PeterW says:

    I believe, that government/large financial institutions can and do manipulate the Stock Market at will, therefore, logic has no place in trading Stocks.

  14. Ed says:

    Evil Cartel plus evil crooks and more plain crooks running the system as long as they make money they do not care about America and the hard working middle class and honest and decent people these Evils and the Cartel have to be Abolished
    God help us and God bless America

  15. Mike says:

    Does this surprise anyone, I mean, really, this is how a ponzi operates, robbing from Peter to pay Paul, and it always ends the same, huge losses, and who pays, the tax payer when the next bail out hits.

    Worse yet, wait until the whole economy collapses when the world finds out U.S doesn’t have anywhere near the gold reserves they say they have. The U.S couldn’t even meet the demand from Germany for the release of their gold held in U.S. If this isn’t a tip off of things to come, nothing is, so why would anyone care about long term losses when the whole financial system collapses.

  16. Felix Guerrera says:

    Investing in stock markets or anything financial was never my bag. I was like a block of wood where they used me to store their screws they drilled into me for another time. I just was not knowledgible enough. I guess my worse fault was believing everyone was honest. I was young and gullible! Now I am old and not so gullible but I have to admit when it comes to dealing in Financial matters, I Stink! I am convinced that if someone came up to me and said ” Here is a Million Dollars, a present just for you, This is certified, registered, only in your name, No one can take it! Here is a prospectus for you to read so you can know how safe it is. You will get your money back! The prospectus is 1 inche thick.! Upon reading it I find that the company I received it from states, that in the event the company goes under, All the big boys get the money and if there is any money left over, it will go to me. That is the kind of luck I would have! I am smart enough to know that if any thing is left over I may be able to buy a pair of socks with it. So today if I wanted to venture into trying to become a prosperous man. I would have to find a completely honest Financial Agent to actually coach me or do it for me. I really admire some of these successful men in the business of making money. To me reading about how they study every little detail of a company over periods of time, convinces me some, not all, are genius. HONESTY, That is harder to find !

  17. Ken says:

    Does anyone know that Cerberus in Greek mythology is the monster dog that guards the entrance to Hades? Isn’t that an appropriate name for a business of this kind?

  18. polywan says:

    the wave of wave in every mind, it is a god for one minute if you try it out within the need of peace , everybody possible to get it

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