OT but of major importance if you work in the US OEM automotive sector.
Unka' George's analysis:
ResCap [Residential Capital] is a wholly owned subsidiary of GMAC [General Motors Acceptance Corporation], which up until the credit implosion had been a major source of positive cash flow for GMC.
ResCap has just announced major layoffs of more than 5,000 people because of losses of more than 1 billion $US a quarter ==>for each of the last 7 quarters FOR THAT ONE DIVISION. Another well-known division of GMAC is Diatech Funding.
A major worry is the *HIGHLY* convoluted, arcane and incestuous relationships between/among the former GMC diversions such as Delphi. It is known that GMC remains responsible for very significant amounts of Delphi obligations including pensions, thus the creditors may be in the position of trying to guess under which shell among dozens (if not hundreds) the assets are hiding [assuming there are any]. It appears that at each stage the borrowed assets were *HIGHLY* "leveraged" so a small contraction at the extreme end may well amplify as the financial perturbation propagates back up the tree, as "leverage" works to amplify losses as well as gains. Thus the admitted losses of more than 1 billion per quarter may well be leveraged to 10, 20 or more billion $s per quarter.
Of particular concern is the timing of this announcement as it is only about 60 days to the US presidential election, and General Motors has historically been a Republican corporation [ e.g. SecDef "Engine Charlie" Wilson]. This indicates the situation may be far more critical than indicated.
On April 3rd 2006, GMC sold a half interest to Cerberus Capital Management, which is the hedge fund that owns Chrysler, but remains responsible for much of the debt obligations ["assets"] created before the sale, thus if this is indeed the sound of first domino falling, a GMAC failure may well take down *BOTH* GMC and Chrysler. Much of GMAC's automotive related "assets" appear to consist of the residual value of leases for large SUVs, and those 72 month 0 down, 0 APR loans for SUVs and pick-up trucks [falling "like a rock?].
As taxpayers we are responsible for the GMAC bank through FDIC.
The effects of the huge amounts of GM related CDSs [credit default swaps] in the case of a default will be enormous, but unpredictable, as the amounts and counter-parties are largely unknown at this point.
===== Reuters article follows === GMAC to cut 5,000 jobs at ResCap mortgage unit By Jonathan Stempel
2 hours, 19 minutes ago NEW YORK (Reuters) - GMAC LLC, the auto finance and mortgage company, plans to eliminate about 5,000 jobs at its Residential Capital LLC unit and close all 200 GMAC Mortgage retail offices to combat weak housing and credit markets. The job cuts will affect about 57 percent of ResCap's work force, leaving the mortgage unit with 3,800 employees, GMAC spokeswoman Gina Proia said.Most of the cuts will take place this year.
GMAC said it will stop offering mortgages through its Homecomings Financial broker channel. It also will evaluate strategic options for GMAC Home Services, which helps companies relocate employees, and "non-core" mortgage servicing businesses. GMAC plans to keep offering mortgages directly "where there is a secondary market to sell the loans." {currently there is none -- Unka George}
==== For the complete AP article see