[JPRT, 111th Congress]
[From the U.S. Government Publishing Office]






 
                     CONGRESSIONAL OVERSIGHT PANEL

                        MARCH OVERSIGHT REPORT *

                            _________

              THE UNIQUE TREATMENT OF GMAC UNDER THE TARP

[GRAPHIC] [TIFF OMITTED] TONGRESS.#13


                 March 10, 2010.--Ordered to be printed

    * Submitted under Section 125(b)(1) of Title 1 of the Emergency 
        Economic Stabilization Act of 2008, Pub. L. No. 110-343



                  U.S. GOVERNMENT PRINTING OFFICE
54-875                    WASHINGTON : 2009
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing 
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC 
area (202) 512-1800 Fax: (202) 512-2104  Mail: Stop IDCC, Washington, DC 
20402-0001


                     CONGRESSIONAL OVERSIGHT PANEL
                             Panel Members
                        Elizabeth Warren, Chair
                             Paul S. Atkins
                           Richard H. Neiman
                             Damon Silvers
                           J. Mark McWatters


                            C O N T E N T S

                              ----------                              
                                                                   Page
GMAC Executive Summary...........................................     1
Section One: GMAC................................................     4
    A. Overview..................................................     4
    B. Automotive Industry Financing.............................     5
    C. GMAC's Business, its Structure, and Why it was Failing....     9
        1. Company Overview and Recent History...................     9
        2. BHC Application and Approval..........................    14
        3. GMAC's Relationship with GM...........................    22
        4. Global Automotive Finance.............................    27
        5. Mortgage Operations...................................    30
    D. History/Timeline of Various Stages of Investment..........    36
        1. GMAC Before December 24, 2008.........................    36
        2. Timeline of TARP Investments: December 2008-December 
          2009...................................................    37
        3. Government Support from Programs Other than the TARP..    46
        4. Impact of the TARP on Executive Compensation..........    47
    E. Justification for the Rescue of GMAC......................    48
        1. GMAC's Significance to the Financing of the Automotive 
          Industry...............................................    48
        2. Commitments Made by Treasury..........................    63
        3. Systemic Importance of GMAC: Could it Just be 
          Permitted to Fail?.....................................    66
        4. Treasury's Explanations for why Bankruptcy Law Could 
          Not be Used and Why ResCap Could Not be Abandoned in a 
          Restructuring..........................................    71
    F. GMAC and the Stress Tests.................................    75
    G. GMAC and the AIFP: A More Lenient Approach................    80
        1. Due Diligence and Demonstrations of Viability.........    80
        2. Consequences to Shareholders..........................    81
        3. Bankruptcy............................................    82
    H. Exit Strategy and Expected Returns from the GMAC 
      Investment.................................................    84
        1. Treasury's Options for Divesting the GMAC Stake.......    84
        2. GMAC's Current Strategy...............................    86
        3. The Forthcoming Business Plan.........................    96
        4. Treasury's Approach to Managing its Shareholder 
          Interests..............................................    97
        5. Evaluating the Investment: Current and Required Value.   100
    I. Conclusion and Recommendations............................   102
Section Two: Additional Views....................................   107
    A. J. Mark McWatters and Paul S. Atkins......................   107
Section Three: Correspondence with Treasury Update...............   113
Section Four: TARP Updates Since Last Report.....................   114
Section Five: Oversight Activities...............................   131
Section Six: About the Congressional Oversight Panel.............   132
Appendices:
    APPENDIX I: LETTER FROM SECRETARY TIMOTHY GEITHNER TO CHAIR 
      ELIZABETH WARREN, RE: RESPONSE TO QUESTIONS ON EXECUTIVE 
      COMPENSATION, DATED FEBRUARY 16, 2010......................   133
======================================================================

                         MARCH OVERSIGHT REPORT

                                _______
                                

                 March 10, 2010.--Ordered to be printed

                                _______
                                

                        GMAC EXECUTIVE SUMMARY *

---------------------------------------------------------------------------
    * The Panel adopted this report with a 4-0 vote on March 10, 2010.
---------------------------------------------------------------------------
    In 1919, to meet the growing demand of American families 
hoping to purchase their own automobiles, General Motors 
Company (GM) founded its own in-house credit arm, General 
Motors Acceptance Corporation. GM's goal was to lay the 
groundwork for a successful automotive industry by providing 
credit for car dealers to purchase inventory and by extending 
loans to individual borrowers to buy their own cars from those 
dealers.
    Over the decades, GM's once-small credit arm expanded far 
beyond the realm of automotive lending, providing home 
mortgages beginning in 1985, auto insurance for both dealers 
and consumers, and even financing to manufacturers and 
distributors in the non-automotive sectors. In 2006, GM spun 
the General Motors Acceptance Corporation off into an 
independent company, GMAC Inc. (GMAC), which today ranks as the 
fourteenth largest bank holding company (BHC) in the United 
States.
    Soon after GMAC began its independent life, its existence 
came under threat when the U.S. financial system plunged into 
crisis. By late 2008, GMAC's residential mortgage unit was 
suffering crippling losses due to the downturn in the housing 
market, and its automotive financing operations faced an 
uncertain future as GM barreled toward bankruptcy.
    GMAC's historic ties to GM would, in the end, prove to be 
its salvation. As Treasury considered using funds from the 
Troubled Asset Relief Program (TARP) to rescue GM and Chrysler, 
it quickly came to the conclusion that GM could not survive 
without GMAC's financial underpinning. In particular, GMAC 
provided GM dealers with almost all of their ``floorplan 
financing''--that is, loans to purchase their inventory. 
Without access to this credit, many dealers would be forced to 
close their doors. On December 29, 2008, as part of its bailout 
of the domestic automotive industry, the federal government 
provided GMAC with $5 billion in emergency funding.
    In the months that followed, GMAC became further entwined 
in the government's financial rescue efforts. It was one of 19 
banks subjected to ``stress tests'' to ensure that it could 
withstand even a sharp economic downturn. When the stress tests 
revealed that GMAC needed to increase its capital buffers and 
it could not raise that capital in the markets, the government 
provided further investments of $7.5 billion in May 2009 and of 
$3.8 billion in December 2009. As its lending capacity shrank, 
GMAC continued financing GM's dealerships, even as it was 
forced to shrink the availability of loans to customers to buy 
cars. Over the same period, GMAC also acquired part of the 
operations of Chrysler Financial Services Americas LLC 
(Chrysler Financial) and took on the role of the dominant 
floorplan financer for Chrysler dealerships as well.
    Although the Panel takes no position on whether Treasury 
should have rescued GMAC, it finds that Treasury missed 
opportunities to increase accountability and better protect 
taxpayers' money. Treasury did not, for example, condition 
access to TARP money on the same sweeping changes that it 
required from GM and Chrysler: it did not wipe out GMAC's 
equity holders; nor did it require GMAC to create a viable plan 
for returning to profitability; nor did it require a detailed, 
public explanation of how the company would use taxpayer funds 
to increase consumer lending.
    Moreover, the Panel remains unconvinced that bankruptcy was 
not a viable option in 2008. In connection with the Chrysler 
and GM bankruptcies, Treasury might have been able to 
orchestrate a strategic bankruptcy for GMAC. This bankruptcy 
could have preserved GMAC's automotive lending functions while 
winding down its other, less significant operations, dealing 
with the ongoing liabilities of the mortgage lending 
operations, and putting the company on sounder economic 
footing. The Panel is also concerned that Treasury has not 
given due consideration to the possibility of merging GMAC back 
into GM, a step which would restore GM's financing operations 
to the model generally shared by other automotive 
manufacturers, thus strengthening GM and eliminating other 
money-losing operations.
    There is no doubt that Treasury's actions to preserve GMAC 
played a major role in supporting the domestic automotive 
industry. These same steps, however, have reinforced GMAC's 
dominance in automotive floorplan financing, perhaps 
obstructing the growth of a more competitive lending market. 
The rescue also came at great public expense. The federal 
government has so far spent $17.2 billion to bail out GMAC and 
now owns 56.3 percent of the company. Both GMAC and Treasury 
insist that the company is solvent and will not require any 
additional bailout funds, but taxpayers already bear 
significant exposure to the company, and the Office of 
Management and Budget (OMB) currently estimates that $6.3 
billion or more may never be repaid.
    In light of the scale of these potential losses, the Panel 
is deeply concerned that Treasury has not required GMAC to lay 
out a clear path to viability or a strategy for fully repaying 
taxpayers. Moving forward, Treasury should clearly articulate 
its exit strategy from GMAC. More than a year has elapsed since 
the government first bailed out GMAC, and it is long past time 
for taxpayers to have a clear view of the road ahead.
                           SECTION ONE: GMAC


                              A. Overview

    The U.S. government has spent a total of $17.2 billion to 
support GMAC under the TARP. GMAC received funds on three 
separate occasions, spanning both the Bush and Obama 
Administrations: in December 2008, May 2009, and December 2009. 
As part of the government bail-out effort, GMAC has received 
special treatment apart from the funds that it has received. In 
an unusual divided vote, the Federal Reserve approved GMAC's 
application as a BHC. GMAC was the only bank that needed TARP 
funds in order to meet the capital buffers established under 
the bank ``stress tests'' because it could not raise funds from 
private sources. GMAC is now 56.3 percent owned by Treasury. 
Although the total amount of money given to GMAC is 
significantly less than that received by some other 
institutions, it still constitutes a significant use of 
taxpayers' funds and has resulted in a company that is 
majority-owned by the U.S. government.
    Although often misunderstood as the financial services arm 
of GM, which is how it started, GMAC is a diversified financial 
services firm that derives its revenues from automotive 
finance, where it holds a dominant position, as well as 
mortgage operations, insurance operations, and commercial 
finance. GMAC is the fourteenth largest BHC in the United 
States, with $172 billion in assets on December 31, 2009.
    In previous reports, the Panel has examined TARP programs 
that affected numerous financial institutions. This report 
examines the ways the TARP was used to support a single 
institution. The report considers GMAC's financial status at 
the various times Treasury provided support and discusses how 
GMAC reached the point of needing such assistance. The report 
analyzes Treasury's justification for support, which is founded 
on the dual pillars of support to the automotive industry and 
GMAC's participation in the stress tests, and asks whether 
alternative approaches might have been possible. The report 
also compares the way GMAC and other banks were treated under 
the stress tests and the way GMAC, GM, and Chrysler were 
treated under the TARP's Automotive Industry Financing Program 
(AIFP).
    Looking forward, the report examines the approach that 
GMAC's new management is taking to return the company to 
profitability and considers whether taxpayers can expect to 
receive a return on their investment. The report also evaluates 
Treasury's role as the largest shareholder of GMAC.
    These questions fall clearly within the Panel's mandate 
under the Emergency Economic Stabilization Act of 2008 
(EESA).\1\ Specifically, they implicate the use of the 
Secretary's authority under EESA, the impact of Treasury's 
actions on the financial markets, the TARP's costs and benefits 
for the taxpayer, and transparency on the part of Treasury. The 
report builds on the Panel's previous work, including its June 
2009 report on the stress tests, its September 2009 report on 
TARP assistance to the automotive industry, and its January 
2010 report on exit strategies from TARP investments.
---------------------------------------------------------------------------
    \1\ See Emergency Economic Stabilization Act of 2008 (EESA), Pub. 
L. No. 110-343 Sec. 125.
---------------------------------------------------------------------------

                    B. Automotive Industry Financing

    The government's intervention in GMAC cannot be properly 
evaluated without understanding the role that credit plays in 
the automotive industry. Financing is crucial to the 
distribution and sale of automobiles because of the substantial 
capital outlays involved in the purchase of automobiles by 
dealers and consumers. There are two distinct types of lending 
in the automobile sales industry: wholesale lending, which 
enables dealers to stock and replenish their inventories, and 
retail lending to consumers. In the United States, 
substantially all wholesale purchases by automobile dealers and 
about three-quarters of retail consumer purchases are financed 
with borrowed funds.\2\ Automobile dealers, which typically 
operate as independent franchises affiliated with one or more 
automobile manufacturer, serve as intermediaries between 
manufacturers and consumers. Dealers finance their wholesale 
purchases of automobiles through floorplan financing--a form of 
inventory goods financing in which a loan is made against 
specific collateral.\3\ Individual customers finance their 
automobile purchases or leases by obtaining consumer credit.
---------------------------------------------------------------------------
    \2\ See Senate Committee on Banking, Housing, and Urban Affairs, 
Written Testimony of Ron Bloom, Senior Advisor, U.S. Department of the 
Treasury, The State of the Domestic Automobile Industry: Impact of 
Federal Assistance (June 10, 2009) (online at banking.senate.gov/
public/index.cfm?FuseAction=Files.View&FileStore_id=40341601-355c-4e6f-
b67f-b9707ac88e32) (hereinafter ``Ron Bloom Testimony before the Senate 
Banking Committee''). As of December 2009, 26 percent of all automobile 
purchases were cash transactions. This figure has been relatively 
constant over the past five years, fluctuating between 22 and 32 
percent. Data provided to the Panel by J.D. Power and Associates.
    \3\ See U.S. Comptroller of the Currency, Comptroller's Handbook: 
Floor Plan Loans, at 1 (Mar. 1990) (online at www.occ.treas.gov/
handbook/floorplan1.pdf) (hereinafter ``Comptroller's Handbook: Floor 
Plan Loans'').
---------------------------------------------------------------------------
    For many consumers, the purchase of a new automobile 
represents the largest purchase that they will make other than 
the purchase of a house.\4\ Consumer automobile financing is a 
type of consumer credit, a category that also includes credit 
cards, unsecured cash loans, and student loans.\5\ As of 
December 2009, 56 percent of all consumer automobile 
acquisitions were financed purchases, 18 percent were financed 
leases, and 26 percent were cash transactions--a distribution 
that has been broadly stable over the last five years.\6\ A 
broad array of automobile financing companies, national and 
regional banks, credit unions, and other financial institutions 
provide consumer automobile credit, which has lower barriers to 
entry than floorplan financing.
---------------------------------------------------------------------------
    \4\ The average price of a new vehicle is $28,000. See National 
Automobile Dealers Association, Understanding Vehicle Financing (online 
at www.nada.org/NR/rdonlyres/A7731694-50E7-48CE-94E3-2EC33B446287/0/
Understanding_Vehicle_Financing.pdf) (hereinafter ``Understanding 
Vehicle Financing'') (accessed Mar. 8, 2010).
    \5\ See Board of Governors of the Federal Reserve System, Report to 
the Congress on Practices of the Consumer Credit Industry in Soliciting 
and Extending Credit and Their Effects on Consumer Debt and Insolvency, 
at 1 (June 2006) (online at www.federalreserve.gov/boarddocs/
rptcongress/bankruptcy/bankruptcybillstudy200606.pdf).
    \6\ Data provided to the Panel by J.D. Power and Associates.
          FIGURE 1: CONSUMER AUTOMOBILE PURCHASES BY TYPE \7\

[GRAPHIC] [TIFF OMITTED] 54875A.001


 FIGURE 2: FINANCED CONSUMER AUTOMOBILE PURCHASES BY CREDIT SOURCE \8\

[GRAPHIC] [TIFF OMITTED] 54875A.002


    Floorplan financing is a vital cog in the U.S. automotive 
market, as it allows dealers to offer cars to consumers. 
Floorplan financing is crucial for dealers because of the 
significant cost associated with financing their entire 
inventories via wholesale automobile purchases from the 
manufacturers. The average floorplan loan is $4.9 million, and 
collectively U.S. automobile dealers hold about $100 billion 
worth of inventory.\9\ Floorplan loans provide dealers with a 
revolving line of credit that allows dealers to maintain their 
inventories for sale to customers. This also helps 
manufacturers manage their inventory, facilitating the transfer 
of automobiles from the plant to the dealer. For the lender, 
the generally low profit margins in floorplan financing are 
balanced by an attractive credit profile and gateway business 
opportunities to other, potentially more lucrative product 
lines (e.g., consumer auto and dealer real estate lending).
---------------------------------------------------------------------------
    \7\ Data provided to the Panel by J.D. Power and Associates.
    \8\ Data provided to Panel by J.D. Power and Associates.
    \9\ See National Automobile Dealers Association, Understanding the 
``TALF'' (Mar. 30, 2009) (online at www.nada.org/NR/rdonlyres/38703F1F-
DC88-4870-9170-7B4778B59261/0/Understanding_the_TALF_MAR_30_2009.pdf).
---------------------------------------------------------------------------
    A floorplan loan is essentially a two-party contract 
between the automobile manufacturer and the dealer, with the 
lender serving as a third-party financier. In a typical 
floorplan loan, a dealer agrees to purchase a certain number of 
cars from a manufacturer for a set price. The lender will 
advance the amount of the purchase price of the automobiles to 
the dealer and, in turn, take a security interest in the 
automobiles as collateral for the loan. Floorplan loans 
typically have a set interest rate, require monthly interest 
payments by the borrower, and call for a portion of the loan 
principal to be repaid upon the sale of part of the loan's 
collateral--i.e., each automobile.\10\ Many floorplan loans 
also include buyback provisions in which a manufacturer agrees 
to repurchase cars that have not been sold after a certain 
amount of time.\11\ Floorplan financing is a low-risk business, 
particularly in comparison to consumer automotive lending. 
Repayment rates have historically exceeded 99 percent, and 
delinquency rates have been correspondingly low.\12\ In fact, 
losses--to the extent they occur--have been primarily 
attributable to fraud, as opposed to credit problems.\13\
---------------------------------------------------------------------------
    \10\ GMAC, LLC, Form 10-K for the Fiscal Year Ended December 31, 
2008, at 46 (Feb. 27, 2009) (online at www.sec.gov/Archives/edgar/data/
40729/000119312509039567/0001193125-09-039567-index.htm) (hereinafter 
``GMAC Form 10-K for 2008'') (``[W]e generally require payment of the 
principal amount financed for a vehicle upon its sale or lease by the 
dealer to a customer. Ordinarily a dealer has between one and five 
days, based on risk and exposure to the account, to satisfy the 
obligation'').
    \11\ See Comptroller's Handbook: Floor Plan Loans, supra note 3, at 
2.
    \12\ See Congressional Oversight Panel, Transcript: COP Hearing on 
GMAC Financial Services (Feb. 25, 2010) (publication forthcoming) 
(online at cop.senate.gov/hearings/library/hearing-022510-gmac.cfm) 
(hereinafter ``Transcript of COP Hearing on GMAC'') (Testimony of Paul 
Atkins, Michael Carpenter, and Chris Whalen). For example, GMAC net 
charge-offs on floorplan loans (i.e., losses) increased from $15 
million in 2008 to $69 million in 2009, driving a corresponding 
increase in charge-offs as a percentage of outstanding loans (charge-
off ratio) from 0.1 percent to 0.4 percent, or 30 basis points. See 
GMAC, Inc., Form 10-K for the Fiscal Year Ended December 31, 2009, at 
73 (Mar. 1, 2010) (online at www.sec.gov/Archives/edgar/data/40729/
000119312510043252/0001193125-10-043252-index.htm) (hereinafter ``GMAC 
Form 10-K for 2009''). While the increase is significant, the absolute 
level of losses on floorplan loans is quite modest given the severe 
economic, financial, and industrial dislocation affecting GMAC in 2009.
    \13\ Industry analysts conversations with Panel staff; market 
participants conversations with Panel staff. To the extent there has 
been a recent moderate uptick in floorplan lending loss rates, this 
reflects strains on the value of dealer collateral resulting from the 
economic downturn, credit crisis, and restructuring of the domestic 
automotive industry. Id.
---------------------------------------------------------------------------
    In contrast to the highly competitive and relatively 
unconsolidated consumer finance market, the floorplan finance 
market is dominated by two types of players: (1) the captive 
and former captive automobile finance companies, which are 
described as such because they are owned by or have deep ties 
to specific automobile manufacturers and which finance about 80 
percent of floorplan lending; and (2) national and regional 
banks, which finance most of the remainder. Detroit's Big Three 
automobile manufacturers--Ford Motor Company, GM, and Chrysler 
Group LLC--have traditionally relied on their captive financing 
arms to provide the vast majority of floorplan financing for 
their dealers and a substantial portion of consumer credit.\14\ 
GMAC and Chrysler Financial were spun off from their parents in 
2006 and 2007, respectively, but their enduring operational and 
economic interdependence is illustrated by the largely stable 
share of GM dealer financing provided by GMAC and Chrysler 
dealer financing provided by Chrysler Financial (until GMAC 
took over Chrysler Financial's floorplan business in May 2009). 
While all major foreign manufacturers operating in the United 
States have their own captive finance companies, among the Big 
Three, only Ford retains a captive finance subsidiary.\15\
---------------------------------------------------------------------------
    \14\ Captive financing organizations can be structured as legally 
separate subsidiaries or distinct business lines, but they exist 
primarily as extensions of their corporate parents. Their purpose is to 
facilitate the parent corporation's sale of goods or services by 
providing debt and/or lease financing to the parent's customers. See 
Standard & Poor's, Captive Finance Operations (Apr. 17, 2009) (online 
at www2.standardandpoors.com/spf/pdf/media/
Captive_Finance_Operations.pdf).
    \15\ Although not as substantial as the Big Three in terms of sales 
or financing operations, several smaller automakers have licensed third 
party banks as their exclusive financing providers. For example, 
following changes in Ford ownership of Jaguar Land Rover and Mazda, 
both automakers replaced Ford Motor Credit with Chase Auto Finance. See 
JPMorgan Chase & Co., Jaguar Land Rover Selects Chase as Exclusive U.S. 
Financing Provider (Nov. 6, 2008) (online at investor.shareholder.com/
jpmorganchase/releasedetail.cfm?releaseid=346487); Donna Harris, Mazda 
Names Chase Auto As Dealer Lender, Automotive News (Sept. 30, 2008) 
(online at www.autonews.com/article/20080930/ZZZ_SPECIAL/309309943). 
Chase Auto Finance has also served as the captive financing arm of 
Subaru of America since 2001.
---------------------------------------------------------------------------
    An independent financing company makes a profit by lending 
at a rate higher than its cost of funds, at a sufficient spread 
to cover credit losses. Captives, however, are able to forgo 
some of this spread owing to the economics that underpin their 
relationship with the original equipment manufacturer 
(OEM).\16\ Captive finance companies have an alignment of 
interests with their parents; they exist to facilitate the sale 
of their parent companies' products. Therefore, parent 
companies have historically been willing to subvent the loans 
made by their captives (in the case of the consumer loan 
market) \17\ or provide dealer incentives (in the case of the 
floorplan financing market) in order to increase sales of the 
product--creating fungibility of profits between the OEM and 
the captive finance company.
---------------------------------------------------------------------------
    \16\ Industry analysts conversations with Panel staff.
    \17\ See Section C.3(a) of this report. General Motors may elect to 
sponsor incentive programs (on both retail contracts and leases) by 
supporting financing rates below standard rates at which GMAC purchases 
retail contracts. Subvention is the manner in which GM pays for 
exclusive promotions offered through GMAC. Through this practice, which 
is akin to a marketing expense, GM underwrites customer financing rates 
at levels below what GMAC would otherwise offer.
---------------------------------------------------------------------------
    Accordingly, GMAC is crucial to driving sales of GM 
automobiles. When GMAC lost its status as a wholly-owned 
subsidiary of GM, its historical relationship as a captive 
financing arm was largely replicated in practice (and in many 
cases contractually, particularly in the consumer space).\18\ 
The contracts attempted to replicate the longstanding 
relationship between the two entities in the provision of 
consumer finance; GM agreed to provide subventing opportunities 
to GMAC, and GMAC, in return, agreed to supply consumer credit.
---------------------------------------------------------------------------
    \18\ See Section C.3(b) of this report.
---------------------------------------------------------------------------
    In the consumer market, the captive credit organizations 
frequently coordinate with their parents in sales promotions, 
by which consumers receive below-prime interest rates on 
automobile purchases and additionally benefit from the 
convenience of ``one-stop shopping.'' \19\
---------------------------------------------------------------------------
    \19\ See Understanding Vehicle Financing, supra note 4 (accessed 
Mar. 8, 2010).
---------------------------------------------------------------------------
    In the floorplan market, the captive or ``semi-captive'' 
relationship is best exemplified in the tripartite finance 
relationship among a captive finance company, the OEM, and the 
dealers. The OEM allows the auto dealer effectively to borrow 
interest-free (generally up to 60 days) by extending a credit 
to the dealer for helping to finance the OEM's inventory. This 
credit, as well as other incentives, helps subsidize the daily 
interest charges assessed by the captive finance subsidiary to 
the dealer as part of the floorplan finance relationship. The 
OEM credit is completely realized by the dealer upon the OEM's 
delivery of the inventory. As a result, and because the 
financing company's interest charges accumulate daily, the 
dealer's net return on the floorplan finance transaction is 
higher if the inventory is sold sooner. This arrangement 
provides sufficient incentive to the dealer to move inventory 
off its lot (i.e., sell cars), aligning its interests with that 
of the OEM.\20\
---------------------------------------------------------------------------
    \20\ Industry analysts conversations with Panel staff; market 
participants conversations with Panel staff.
---------------------------------------------------------------------------
    The difference between the scale of the operating models of 
the captives and the banks helps explain why captive finance 
companies have traditionally penetrated the floorplan lending 
market to a much greater extent than the banks. The OEMs' 
finance arms can offer dealers credit that is enhanced by both 
the inventory credit underwritten by the OEM (which is also 
available to banks) as well as other promotions that the OEM 
may sponsor to encourage financing via a captive. Also, in 
certain instances, captive finance companies may be willing to 
realize lower profits on floorplan lending. Industry sources 
add that this market position is enhanced by the stickiness of 
these relationships. This owes largely to cultural factors 
(long-term relationships, desire to work closely with their 
primary manufacturer) as well as logistical ones (integrated 
manufacturer and dealer systems). Ultimately, many industry 
sources believe that these benefits help captives overcome an 
otherwise higher cost of funds versus the lower cost of capital 
at many of their third-party bank competitors.\21\
---------------------------------------------------------------------------
    \21\ Industry analysts conversations with Panel staff; market 
participants conversations with Panel staff. There was also a 
perception among some market participants that GMAC would be more 
willing to facilitate the consumer credit needs of the dealers' 
customers--especially less credit-worthy borrowers--if the dealers were 
willing to have GMAC also supply their floorplan financing. The 
relative advantages of the captives in the auto dealer financing market 
are discussed in more detail in section E.1, infra.
---------------------------------------------------------------------------
    In recent years, the traditional retail and floorplan 
finance relationships between GMAC and GM, GM dealers, and GM 
customers have been strained by a number of factors, including 
GMAC's shift to non-captive status, the higher cost of funds 
for GMAC caused by the financial crisis and the associated 
credit crisis, and the effects of the restructuring of GM and 
Chrysler.

       C. GMAC's Business, its Structure, and Why it was Failing


1. Company Overview and Recent History

    GMAC Financial Services, formerly known as General Motors 
Acceptance Corporation, was founded in 1919 as a wholly owned 
subsidiary of GM to provide GM dealers with the financing 
necessary to acquire and maintain automobile inventories and to 
provide customers with a means to finance automobile 
purchases.\22\ GMAC opened branches in Detroit, New York, 
Chicago, San Francisco, and Toronto in 1919 and expanded its 
automotive finance business to the United Kingdom a year later. 
GMAC had financed its 100 millionth vehicle by 1985 and by 
2001, had attained net income of $1 billion and arranged more 
than $1 trillion of financing for 150 million cars and trucks 
across the world.\23\ In 2004, GMAC-SAIC Automotive Finance 
Company, China's first automotive finance company, opened for 
business.
---------------------------------------------------------------------------
    \22\ GMAC, Inc., Form 10-Q for the Quarter Ended September 30, 
2009, at 65 (Nov. 10, 2009) (online at www.sec.gov/Archives/edgar/data/
40729/000119312509230634/0001193125-09-230634-index.htm) (hereinafter 
``GMAC Form 10-Q for Q3 2009'') (stating that ``GMAC was established to 
provide dealers with the automotive financing necessary to acquire and 
maintain vehicle inventories and to provide retail customers the means 
by which to finance vehicle purchases through GM dealers'').
    \23\ GMAC, Inc., History (online at www.gmacfs.com/us/en/about/who/
who_history.html) (hereinafter ``GMAC: History'') (accessed Mar. 8, 
2010).
---------------------------------------------------------------------------
    The company's operations have expanded and diversified to 
include insurance, mortgages, commercial finance, and online 
banking.\24\ GMAC's first expansion outside automotive finance 
occurred in 1939, when it entered the automobile insurance 
sector with the formation of Motors Insurance Corporation (now 
part of GMAC Insurance Holdings).\25\ In 1985, GMAC expanded 
into the mortgage sector with the creation of GMAC Mortgage 
following the acquisitions of Colonial Mortgage from 
Philadelphia National Bank and a mortgage servicing platform 
from Norwest Mortgage.\26\ GMAC also formed a real estate 
services subsidiary, GMAC Home Services, by purchasing Better 
Homes and Gardens Real Estate in 1998.\27\ GMAC's mortgage 
operations later expanded to Europe and Latin America with the 
formation of International Business Group (IBG) in 2001. GMAC 
entered the Canadian residential market with the launching of 
GMAC Residential Funding of Canada Ltd. in 2002. GMAC 
restructured its mortgage operations in 2005, creating a new 
parent holding company for its mortgage business, Residential 
Capital, LLC (ResCap), a global real estate finance business. 
In 1999, GMAC created the GMAC Commercial Finance Group after 
purchasing the Bank of New York's asset-based lending and 
factoring business unit.\28\ GMAC entered the banking sector in 
2000 by forming GMAC Bank, which received its charter in 
2001.\29\ Finally, in 2004, GMAC created GMAC Automotive Bank 
to purchase retail installment sale and lease contracts from 
automobile dealers, and this institution's application for 
federal deposit insurance was approved by the Federal Deposit 
Insurance Corporation (FDIC) in June 2004.\30\
---------------------------------------------------------------------------
    \24\ GMAC, Inc., Who We Are (online at www.gmacfs.com/us/en/about/
who/index.html) (accessed Mar. 8, 2010).
    \25\ Id.
    \26\ Id. As GMAC CEO Michael Carpenter stated at the Panel's recent 
GMAC hearing, ``General Motors decided to diversify its financial 
services business many years ago and built up this mortgage banking 
business.'' Transcript of COP Hearing on GMAC, supra note 12 (Testimony 
of Michael Carpenter).
    \27\ In September 2008, ResCap entered into an agreement to sell 
the GMAC Home Services business to Brookfield Residential Property 
Services.
    \28\ GMAC: History, supra note 23.
    \29\ GMAC Bank, an insured federal savings bank, received its 
charter from the Office of Thrift Supervision (OTS) on August 22, 2001. 
Headquartered in Wilmington, Delaware, GMAC Bank was designed to offer 
or make available a variety of banking and personal financial services 
products, including FDIC-insured money market accounts, certificates of 
deposit, and transactional checking accounts, and also to originate and 
purchase residential mortgage loans, home equity loans, and lines of 
credit. According to GMAC, ``GMAC Bank will not provide any funding for 
GMAC's auto finance business and will not make loans to dealers for 
wholesale auto financing or loans to consumers for retail auto 
financing.'' GMAC, LLC, GMAC Receives OTS Charter to Open New Federal 
Savings Bank (Aug. 22, 2001) (online at media.gmacfs.com/
index.php?s=43&item=178).
    In connection with GMAC's 2006 spin-off from GM, GMAC Automotive 
Bank, an insured state nonmember industrial loan company based in Utah, 
purchased certain assets totaling approximately $11.7 billion and 
assumed certain liabilities totaling approximately $10.7 billion of 
GMAC Bank. At that time, GMAC Automotive Bank was renamed GMAC Bank, 
and the federal savings bank charter of GMAC Bank remained active while 
that institution was renamed National Motors Bank, FSB. Cerberus was 
temporarily allowed to acquire the ILC as a special exception to the 
FDIC's then-existing moratorium on such applications. These steps were 
taken in order to allow GMAC, then controlling two insured depository 
institutions, to consolidate some of its operations. See Federal 
Deposit Insurance Corporation, Order and Basis for Corporation Approval 
(Nov. 15, 2006) (online at www.fdic.gov/regulations/laws/bankdecisions/
Merger/gmacmerger.pdf). GMAC Bank is a U.S. online bank that offers a 
variety of savings products, including certificates of deposit (CDs), 
online savings accounts and money market accounts, and remains subject 
to regulation and examination primarily by the FDIC and the Utah UDFI.
    \30\ Federal Deposit Insurance Corporation, Decisions on Bank 
Applications: GMAC Automotive Bank, Application for Federal Deposit 
Insurance (June 25, 2004) (online at www.fdic.gov/regulations/laws/
bankdecisions/DepIns/gmacauto.html).
---------------------------------------------------------------------------
    The decline in the last decade in GM's credit position--
caused by the downgrade of its debt to non-investment grade 
status, decreased sales, and the looming bankruptcy of Delphi 
Corporation, GM's biggest parts supplier--negatively impacted 
GMAC's credit ratings and increased the cost of financing GM 
automobile sales. As noted above, GMAC as a finance arm had 
also branched out into other lending sectors besides the auto 
industry. These circumstances called into serious question 
GMAC's ownership and governance structure. As a result, on 
November 30, 2006, GM sold 51 percent of the equity in GMAC to 
an investment consortium led by Cerberus Capital Management, 
L.P. (Cerberus) for about $14 billion.\31\ GMAC emerged as an 
independent global financial services company, which company 
management stated provided an opportunity to ``transform GMAC 
from a captive operation to a more globally diversified 
operation.'' \32\
---------------------------------------------------------------------------
    \31\ GM received approximately $14 billion in cash from this 
transaction over three years, including distributions from GMAC. The 
$14 billion in cash that GM receives as part of the transaction 
included $7.4 billion from the Cerberus-led consortium and an estimated 
$2.7 billion cash distribution from GMAC related to the conversion of 
most of GMAC and its U.S. subsidiaries to limited liability companies. 
In addition, GM retained about $20 billion of GMAC automotive lease and 
retail assets and associated funding with an estimated net book value 
of $4 billion that monetized over three years.
    \32\ GMAC, LLC, GMAC Financial Services Reports 2006 and Fourth 
Quarter Earnings (Mar. 13, 2007) (online at media.gmacfs.com/
index.php?s=43&item=218) (hereinafter ``GMAC Q4 2006 Earnings'').
---------------------------------------------------------------------------
    GMAC's core businesses--automotive finance and residential 
mortgages--were previously very profitable. GMAC's Global 
Automotive Finance (GAF) segment was profitable through 2007, 
and its mortgage operations remained profitable through 2006.
    GMAC's results of operations have been recorded in four 
business segments, which were recently reduced to three: \33\
---------------------------------------------------------------------------
    \33\ As of December 31, 2009, GMAC reclassified the presentation of 
the business activities comprising its operating segments. This 
reclassification makes it difficult to compare business segments for 
the period prior to 2007 to business segments for the restated period 
between 2007 and 2009. GMAC now reports its Insurance segment within 
Global Automotive Services. Introduction of funds-transfer-pricing 
(FTP) methodology shifted certain interest revenue and expenses to 
Corporate & Other. For example, prior to the restatement, GMAC reported 
$70 million in Corporate & Other net income for 2007, whereas after the 
restatement, the company reported a $1.33 billion Corporate & Other 
loss. Global Automotive Finance was the primary segment beneficiary of 
this reporting change, with net income increasing from $1.5 billion to 
$2.9 billion in 2007. See GMAC Form 10-K for 2009, supra note 12, at 
203.
---------------------------------------------------------------------------
           Dealer and retail automotive financing 
        services (recorded in the GAF segment, which is now 
        part of an enlarged Global Automotive Services 
        segment);
           Insurance for consumers, automotive 
        dealerships, and other businesses (included within 
        Global Automotive Services, and no longer a standalone 
        segment);
           Mortgage activities focusing primarily on 
        the residential real estate market in the United 
        States, with some international operations; this 
        segment includes the operations of ResCap; \34\ and
---------------------------------------------------------------------------
    \34\ The GMAC Board of Directors continues to review various 
strategic alternatives related to the wind-down of ResCap, including 
asset sales. ResCap no longer provides public financial statements (the 
company last provided public financial statements as of June 30, 2009).
    For further discussion of GMAC's plans to dispose of some of 
ResCap's portfolio through asset sales, see Section H.2, infra.
---------------------------------------------------------------------------
           Commercial finance activities that provide 
        secured lending products and other financing (reflected 
        in the ``Corporate and Other'' segment, which also 
        includes corporate operations and interest rate risk 
        management).
    As of December 31, 2009, the company had 15 million 
customers and operations in approximately 40 countries, along 
with approximately $172 billion in assets, making it one of the 
largest U.S. bank holding companies.\35\ The following tables 
show the contribution made by its business segments to GMAC's 
overall performance and profitability.
---------------------------------------------------------------------------
    \35\ GMAC Form 10-K for 2009, supra note 12, at 1. At the time of 
the stress tests, GMAC was the 11th largest BHC, with approximately 
$189 billion in assets as of December 31, 2008. For comparative 
purposes, the four largest BHCs covered by the stress tests--JPMorgan 
Chase, Citigroup, Bank of America, and Wells Fargo--had assets of $2.2 
trillion, $1.9 trillion, $1.8 trillion, and $1.3 trillion as of 
December 31, 2008, respectively.

                        FIGURE 3: GMAC NET REVENUE BY SEGMENT (MILLIONS OF DOLLARS) \36\
----------------------------------------------------------------------------------------------------------------
                                                             2005*      2006*       2007       2008    2009 \37\
----------------------------------------------------------------------------------------------------------------
Global Automotive Finance (GAF)..........................     $4,375     $4,361     $6,323     $4,058     $5,029
Mortgage.................................................      4,860      4,318      1,772        953        609
Insurance................................................      4,259      5,616      3,164      2,961      2,271
Corporate & Other \38\...................................      1,423        527    (1,512)      7,463    (1,648)
                                                          ------------------------------------------------------
Net Revenue..............................................    $14,917    $14,822     $9,747    $15,435    $6,261
----------------------------------------------------------------------------------------------------------------
\36\ GMAC Form 10-K for 2009, supra note 12; GMAC, LLC, Amendment No. 1 to the Form 10-K for the Fiscal Year
  Ended December 31, 2008 (May 14, 2009) (online at www.sec.gov/Archives/edgar/data/40729/000119312509111453/
  d10ka.htm) (hereinafter ``Amendment to GMAC Form 10-K for 2008''); GMAC, LLC, Form 10-K for the Fiscal Year
  Ended December 31, 2007 (Feb. 27, 2008) (online at www.sec.gov/Archives/edgar/data/40729/000095012408000900/
  k23730e10vk.htm) (hereinafter ``GMAC Form 10-K for 2007''); GMAC, LLC, Form 10-K for the Fiscal Year Ended
  December 31, 2006 (Mar. 3, 2007) (online at www.sec.gov/Archives/edgar/data/40729/000095012407001471/
  k12221e10vk.htm) (hereinafter ``GMAC Form 10-K for 2006''); GMAC, LLC, Form 10-K for the Fiscal Year Ended
  December 31, 2005 (Mar. 28, 2006) (online at www.sec.gov/Archives/edgar/data/40729/000095012406001524/
  k01870e10vk.htm) (hereinafter ``GMAC Form 10-K for 2005'').
\37\ For further discussion on GMAC's changes to reporting segments that occurred in the fourth quarter of 2009,
  see note 33.
\38\ The large ``Other'' revenue in 2008 reflects the effects of a pretax gain arising upon the extinguishment
  of $11.5 billion of debt in the exchange offer conducted in the fourth quarter of 2008. For further discussion
  of the exchange offer, see Section C.2.(b)1, infra.* Note: Historic 2005-2006 segment results do not correspond with restated segment data for 2007-2009 period.
  See footnote 33 for further discussion.

               FIGURE 4: GMAC NET REVENUE BY SEGMENT \39\

[GRAPHIC] [TIFF OMITTED] 54875A.003


* Note: Historic 2005-2006 segment results do not correspond 
with restated segment data for 2007-2009 period. See footnote 
33 for further discussion.
---------------------------------------------------------------------------
    \39\ GMAC Form 10-K for 2009, supra note 12; Amendment to GMAC Form 
10-K for 2008, supra note 36; GMAC Form 10-K for 2007, supra note 36; 
GMAC Form 10-K for 2006, supra note 36; GMAC Form 10-K for 2005, supra 
note 36.


                                   FIGURE 5: GMAC NET INCOME/(LOSS) BY SEGMENT
                                           [Dollars in millions] \40\
----------------------------------------------------------------------------------------------------------------
                                                             2005*      2006*       2007       2008       2009
----------------------------------------------------------------------------------------------------------------
GAF......................................................     $1,153     $1,243     $2,913     $(216)      $(19)
Mortgage.................................................      1,021        705    (4,379)    (5,587)    (8,273)
Insurance................................................        417      1,127        459        459      (439)
Corporate & Other........................................      (309)      (950)    (1,325)      7,212    (1,567)
                                                          ------------------------------------------------------
Net Income/(Loss)........................................     $2,282     $2,125   $(2,332)     $1,868  $(10,298)----------------------------------------------------------------------------------------------------------------
\40\ GMAC Form 10-K for 2009, supra note 12; Amendment to GMAC Form 10-K for 2008, supra note 36; GMAC Form 10-K
  for 2007, supra note 36; GMAC Form 10-K for 2006, supra note 36; GMAC Form 10-K for 2005, supra note 36. * Note: Historic 2005-2006 segment results do not correspond with restated segment data for 2007-2009 period.
  See footnote 33 for further discussion.

            FIGURE 6: GMAC NET INCOME/(LOSS) BY SEGMENT \41\

[GRAPHIC] [TIFF OMITTED] 54875A.004

* Note: Historic 2005-2006 segment results do not correspond 
with restated segment data for 2007-2009 period. See footnote 
33 for further discussion.

    Along with numerous other financial institutions, GMAC was 
severely impacted by the downturn in the residential real 
estate and capital markets. By early 2007, GMAC started seeing 
some signs of distress. In March 2007, it reported 2006 net 
income of $2.1 billion, compared to net income of $2.3 billion 
for 2005. While GMAC indicated that its performance reflected 
``record earnings in the insurance business and continued 
strong profitability in automotive finance,'' it reported 
significantly reduced net income at ResCap due to the declining 
U.S. residential housing market.\42\ As a result of these 
market conditions, GMAC incurred a net loss of $2.3 billion for 
2007. The housing price depreciation and the frozen credit 
markets seen in the fall of 2008 (the peak of the financial 
crisis) severely impacted (if not virtually halted) GMAC's core 
operations--its mortgage and automotive lending businesses.\43\ 
These circumstances reduced liquidity, depressed asset 
valuations, and required GMAC to post additional loan loss 
provisions due to credit deterioration.\44\
---------------------------------------------------------------------------
    \41\ GMAC Form 10-K for 2009, supra note 12; Amendment to GMAC Form 
10-K for 2008, supra note 36; GMAC Form 10-K for 2007, supra note 36; 
GMAC Form 10-K for 2006, supra note 36; GMAC Form 10-K for 2005, supra 
note 36.
    \42\ GMAC Q4 2006 Earnings, supra note 32.
    \43\ GMAC Form 10-K for 2008, supra note 10, at 20.
    \44\ GMAC Form 10-K for 2008, supra note 10, at 29.
---------------------------------------------------------------------------

2. BHC Application and Approval

            a. Rationale for Application
    Since the 2006 spin-off, GMAC Bank had operated as an 
industrial loan company (ILC) because it did not meet the Bank 
Holding Company Act (BHCA)'s definition of a ``bank.'' \45\ In 
response to deteriorating market conditions, significant third 
quarter losses, and the prospect of looming fourth quarter 
losses, on November 20, 2008, GMAC requested the approval of 
the Board of Governors of the Federal Reserve System (the 
Board) under section 3 of the BHCA \46\ to become a BHC upon 
the conversion of GMAC Bank to a commercial bank. GMAC took 
this step after conversations with the FDIC and Treasury about 
strategies for surviving the financial crisis.\47\ GMAC's 
management maintains that the final decision to seek BHC status 
was a joint decision resulting from discussions between GMAC 
management, the board of directors, Treasury, the Federal 
Reserve, and the FDIC.\48\ At the time, GMAC's board of 
directors was dominated by GM and Cerberus.
---------------------------------------------------------------------------
    \45\ GMAC Bank did not qualify as a ``bank'' under the BHCA because 
it was an ILC that did not offer demand deposits. See 12 U.S.C. 
Sec. 1841(c)(2)(H). ILCs and industrial banks are FDIC-supervised and 
insured financial institutions operating under specific charters that 
have ``nearly all of the same powers as commercial banks'' and whose 
distinct features include the fact that they can be owned by commercial 
firms that are not regulated by a federal banking agency. Kenneth Spong 
and Eric Robbins, Industrial Loan Companies: A Growing Industry Sparks 
a Public Policy Debate, Federal Reserve Bank of Kansas City Economic 
Review, at 41 (Fourth Quarter 2007) (online at www.kc.frb.org/Publicat/
Econrev/PDF/4Q07Spong.pdf). The ILC is subject to oversight by federal 
and state bank regulators; however, the controlling company in many 
cases is not.
    While ILCs were initially developed in the early 1900s to provide 
small loans to industrial workers, they have recently ``reemerged as a 
way for commercial and financial firms to offer banking services 
without being subject to the ownership restrictions and parent company 
supervision that typically apply to other companies owning depository 
institutions.'' Id. at 43. ILCs support a company's operations by 
allowing commercial firms such as auto companies and manufacturers to 
offer financing to their customers, clients, or dealers.
    For further discussion of the details of GMAC's spin-off from GM in 
2006, see Note 29, supra.
    \46\ 12 U.S.C. Sec. 1842.
    \47\ GMAC conversations with Panel staff (Feb. 16, 2010).
    \48\ GMAC conversations with Panel staff (Feb. 16, 2010).
---------------------------------------------------------------------------
    The primary reason GMAC sought to convert to a BHC appears 
to be to gain access to government assistance related to the 
financial crisis. The conversion made GMAC eligible for access 
to the FDIC's Temporary Liquidity Guarantee Program (TLGP) 
facility and the TARP's Capital Purchase Program (CPP).\49\ The 
December 2008 announcement of the AIFP--and the subsequent 
funding of GMAC under this program--suggests that it may not 
have been necessary for GMAC to become a BHC in order to gain 
access to TARP funds. When GMAC submitted its BHC application 
one month earlier, however, TARP funds could not have been 
allocated to the company unless it became a BHC; it was not 
clear at that time that funding for non-BHCs would be provided 
under the AIFP.
---------------------------------------------------------------------------
    \49\ GMAC conversations with Panel staff (Feb. 16, 2010); GMAC, 
LLC, GMAC Files Application With Federal Reserve to Become Bank Holding 
Company (Nov. 20, 2008) (online at media.gmacfs.com/
index.php?s=43&item=288) (hereinafter ``GMAC Files BHC Application''); 
Federal Deposit Insurance Corporation, Temporary Liquidity Guarantee 
Program Frequently Asked Questions (Nov. 17, 2009) (online at 
www.fdic.gov/regulations/resources/TLGP/faq.html) (hereinafter 
``Temporary Liquidity Guarantee Program FAQs'') (stating that eligible 
institutions include any U.S. BHC or financial holding company); U.S. 
Department of the Treasury, Process-Related FAQs for Capital Purchase 
Program (Mar. 3, 2009) (online at www.financialstability.gov/
roadtostability/CPPappdocs_faq1.htm) (stating that eligible 
institutions include ``any bank, savings association, bank holding 
company and savings and loan holding company organized under the laws 
of the United States''). As an ILC, GMAC Bank (renamed Ally Bank in May 
2009) would have had access to CPP funds regardless of whether GMAC 
became a BHC. However, even if GMAC Bank was eligible to receive CPP 
funds, its parent, GMAC, was not eligible until it became a BHC. See 
U.S. Department of the Treasury, TARP Capital Purchase Program: Term 
Sheet--Privately Held Institutions (online at 
www.financialstability.gov/docs/CPP/Term%20Sheet%20-
%20Private%20C%20Corporations.pdf) (accessed Feb. 22, 2010) (stating 
that ``[q]ualifying Financial Institution (`QFI') means any (i) top-
tier Bank Holding Company'').
---------------------------------------------------------------------------
    GMAC's management maintains that converting to a BHC also 
addressed a weakness in the company's business model.\50\ In 
GMAC's view, the financial crisis had taught them that their 
reliance on the wholesale funding and securitization markets 
was untenable in the long run. GMAC's management believed that 
a more sustainable business model could be created by becoming 
a ``classic bank'' with access to deposits.\51\
---------------------------------------------------------------------------
    \50\ GMAC conversations with Panel staff (Feb. 16, 2010).
    \51\ GMAC conversations with Panel staff (Feb. 16, 2010). When GMAC 
announced that it would apply for BHC status, its press release made no 
reference to the desire to access deposits, instead couching the 
application as an effort to ``obtain increased flexibility and 
stability'' with ``expanded opportunities for funding and for access to 
capital.'' GMAC Files BHC Application, supra note 49.
---------------------------------------------------------------------------
    In fact, GMAC Bank would have been able to accept certain 
types of deposits even if it had remained an ILC.\52\ As Daniel 
Tarullo, member of the Board of Governors of the Federal 
Reserve System, has testified, ILCs ``have virtually all of the 
deposit-taking powers of commercial banks; and may engage in 
the full range of other banking services, including commercial, 
mortgage, credit card, and consumer lending activities, as well 
as cash management services, trust services, and payment-
related services, such as Fedwire, automated clearinghouse, and 
check-clearing services.'' \53\ The primary restriction that 
GMAC Bank faced as an ILC was that it was not permitted to 
offer demand deposits.\54\
---------------------------------------------------------------------------
    \52\ In addition, GMAC did not need to become a BHC to gain access 
to the Federal Reserve's discount window because GMAC Bank (its bank 
subsidiary) was already a ``depository institution.'' See Federal 
Reserve Banks, The Federal Reserve Discount Window (Feb. 19, 2010) 
(online at www.frbdiscountwindow.org/
discountwindowbook.cfm?hdrID=14&dtlID=43#eligibility) (``By law, 
depository institutions that maintain reservable transaction accounts 
or nonpersonal time deposits (as defined in Regulation D) may establish 
borrowing privileges at the Discount Window''); Senate Committee on 
Banking, Housing, and Urban Affairs, Written Testimony of Daniel K. 
Tarullo, member, Board of Governors of the Federal Reserve System, 
Strengthening and Streamlining Prudential Bank Supervision, at 11-12 
(Aug. 4, 2009) (online at banking.senate.gov/public/
index.cfm?FuseAction=Files.View&FileStore_id=0656fee8-e81c-4081-b99b-
7a7c1571fb4d) (hereinafter ``Written Testimony of Daniel Tarullo'') 
(``ILCs are state-chartered banks that have full access to the federal 
safety net, including FDIC deposit insurance and the Federal Reserve's 
discount window and payments systems'').
    \53\ Written Testimony of Daniel Tarullo, supra note 52, at 12.
    \54\ See 12 U.S.C. Sec. 1841(c)(2)(H)(i)(I).
---------------------------------------------------------------------------
            b. BHC Approval
    The Board expedited GMAC's BHC application, citing the 
``emergency conditions'' caused by the ``unusual and exigent 
circumstances affecting the financial markets.'' \55\ After its 
review, the Board, in an unusual 4-1 vote,\56\ approved the 
GMAC proposal on December 24, 2008 finding that GMAC had 
satisfied the requisite criteria under the BHCA \57\ and 
determining that the ``performance of the proposed activities 
by GMAC can reasonably be expected to produce benefits to the 
public . . . that outweigh possible adverse effects, such as 
undue concentration of resources, decreased or unfair 
competition, conflicts of interests, or unsound banking 
practices.'' \58\ The Board stated that it considered the six 
relevant statutory factors in reaching its decision.\59\ It 
also stated that it took into account Treasury's actions to 
assist GM ``and thereby help ensure the viability of a major 
business partner of GMAC and GMAC Bank.'' \60\ The Board also 
found that GMAC Bank was ``well capitalized'' under regulatory 
guidelines.\61\ Upon the Board's approval of the BHC 
application, GMAC Bank converted into a Utah state-chartered 
commercial non-member bank. As a BHC, GMAC is subject to the 
comprehensive, consolidated supervision of the Federal Reserve, 
including risk-based and leverage capital requirements and 
information reporting requirements.
---------------------------------------------------------------------------
    \55\ Board of Governors of the Federal Reserve System, Order 
Approving Formation of Bank Holding Companies and Notice to Engage in 
Certain Nonbanking Activities, at 2 (Dec. 24, 2008) (online at 
www.federalreserve.gov/newsevents/press/orders/orders20081224a1.pdf). 
Typically, Section 3(b)(1) of the BHCA requires the Board to provide 
notice of an application to the appropriate federal or state 
supervisory authority for the banks to be acquired and provide the 
supervisor with a period of time (usually 30 days) to submit views and 
recommendations on the proposal. 12 U.S.C. Sec. 1842(b)(1); 12 CFR 
Sec. 225.15(b), 12 CFR Sec. 225.16(b)(3).
    \56\ The breakdown of this vote is unusual since the votes have 
typically been unanimous in recent years. See, e.g., Board of Governors 
of the Federal Reserve System, Order Approving the Formation of a Bank 
Holding Company, Sandhills Bancshares, Inc. (Oct.1, 2009) (online at 
www.federalreserve.gov/newsevents/press/orders/orders20091001a1.pdf); 
Board of Governors of the Federal Reserve System, Order Approving 
Formation of Bank Holding Companies, The Goldman Sachs Group Inc. 
(Sept. 21, 2008) (online at www.federalreserve.gov/newsevents/press/
orders/orders20080922a1.pdf); Board of Governors of the Federal Reserve 
System, Order Approving Formation of Bank Holding Companies and Notice 
to Engage in Certain Nonbanking Activities, American Express Company 
(Nov. 10, 2008) (online at www.federalreserve.gov/newsevents/press/
orders/orders20081110a1.pdf) (all 5-0 votes by the Board).
    \57\ 12 U.S.C. Sec. 1841(a)(2); 12 CFR Sec. 225.2(e); see also 12 
CFR Sec. 225.31(d) (Regulation Y).
    \58\ Board of Governors of the Federal Reserve System, GMAC LLC; IB 
Finance Holding Company, LLC: Order Approving Formation of Bank Holding 
Companies and Notice to Engage in Certain Nonbanking Activities, 
Federal Reserve Bulletin, Vol. 95, Legal Developments: Fourth Quarter, 
2008 (May 29, 2009) (online at www.federalreserve.gov/pubs/bulletin/
2009/legal/q408/order6.htm) (hereinafter ``Order Approving GMAC's BHC 
Formation''). In this case, the Board provided notice to GMAC Bank's 
primary federal and state supervisors, the FDIC, and the Commissioner 
of the Utah Department of Financial Institutions (UDFI), and the Board 
noted that they expressed no objection to the application's approval.
    \59\ The BHCA establishes the factors that the Board considers when 
reviewing the formation of a BHC or the acquisition of a bank. 12 
U.S.C. Sec. 1842(c)(1)-(6). These standards, and in particular the 
language contained in Section 1842, suggest that the Board has a 
substantial amount of discretionary power in approving BHC 
applications.
    \60\ Order Approving GMAC's BHC Formation, supra note 58.
    \61\ Order Approving GMAC's BHC Formation, supra note 58. At the 
end of 2008, GMAC's solvency ratio was below what is generally 
considered to be adequately solvent to meet short- and long-term 
obligations. GMAC Form 10-K for 2008, supra note 10, at 107-108.
---------------------------------------------------------------------------
    When the Board granted GMAC's BHC application, it addressed 
the existence of certain nonbanking operations that are 
explicitly permitted under the BHCA, such as credit extension, 
servicing, and leasing.\62\ The Board concluded that the 
``conduct of the proposed nonbanking activities within the 
framework of Regulation Y and Board precedent can reasonably be 
expected to produce public benefits that would outweigh any 
likely adverse effects.'' \63\ Additionally, even if GMAC 
currently engages in some nonbanking activities that do not 
conform to the requirements of the BHCA, it has at least two 
years to bring these activities into conformity with the 
statute.\64\
---------------------------------------------------------------------------
    \62\ See Order Approving GMAC's BHC Formation, supra note 58 
(citing 12 CFR Sec. 225.28(b)(1)-(3).
    \63\ Order Approving GMAC's BHC Formation, supra note 58. According 
to Regulation Y, the Board must also find that a proposed activity is 
``so closely related to banking, or managing or controlling banks as to 
be a proper incident thereto.'' The Board's conclusion that the 
``proposed nonbanking activities'' are ``within the framework of 
Regulation Y'' implies that it determined that these proposed 
activities are sufficiently ``related to banking'' so as to satisfy the 
regulation. 12 CFR Sec. 225.21(a)(2).
    \64\ Order Approving GMAC's BHC Formation, supra note 58 (citing 12 
U.S.C. Sec. 1843(a)(2) (``Section 4 of the BHCA by its terms also 
provides any company that becomes a bank holding company two years 
within which to conform its existing nonbanking investments and 
activities to the section's requirements, with the possibility of three 
one-year extensions'')). While GMAC has a period of time to conform its 
existing nonbanking activities to the BHCA, its public statements 
suggest that it may convert to a financial holding company, allowing it 
to ``engage in a broader range of financial and related activities than 
those that are permissible for bank holding companies, in particular 
securities, insurance, and merchant banking activities.'' GMAC Form 10-
K for 2009, supra note 12, at 6. According to GMAC, as a BHC, it is 
``eligible to convert to a financial holding company subject to 
satisfying certain regulatory requirements applicable to [GMAC] and to 
Ally Bank (and any depository institution subsidiary that [it] may 
acquire in the future).'' Id.
---------------------------------------------------------------------------
    As a condition of approval for GMAC's application, neither 
GM nor Cerberus was allowed to maintain a controlling interest 
in GMAC, and GMAC was required to enter into passivity 
agreements with both companies.\65\ GM was required to reduce 
its ownership stake to less than 10 percent and transfer that 
interest to an independent trust, to be approved by the Board 
and Treasury. The Board noted that it has permitted trusts 
historically only ``as an interim measure in extraordinary and 
unusual circumstances when warranted by the public interest to 
allow an orderly divestiture of shares to conform with the 
requirements of the BHC Act.'' It approved of the trust 
structure in this case because ``the divestiture plan is part 
of a proposal negotiated with Treasury to provide temporary 
assistance to GM and GMAC.'' Cerberus agreed to reduce its GMAC 
equity interest to less than 25 percent of the voting equity, 
with no single investor owning or controlling more than 5 
percent.\66\ Pursuant to these agreements, GM and Cerberus 
executed these reductions in ownership in May 2009. GM also 
committed to remove any voting representatives from GMAC's 
board of directors, but it requested the right to appoint a 
nonvoting observer. Cerberus reduced its director 
representation from five directors to one.
---------------------------------------------------------------------------
    \65\ GM and Cerberus were previously not subject to the BHCA 
because GMAC's subsidiary insured depository institution, GMAC Bank, 
was an industrial loan company, exempt from the definition of ``bank'' 
under the BHCA. Board of Governors of the Federal Reserve System, 
Letter to B. Robbins Kiessling, Esq., advising that General Motors 
Corporation would not control GMAC LLC, both of Detroit, Michigan, 
under the Bank Holding Company Act (Mar. 24, 2009) (online at 
www.federalreserve.gov/boarddocs/legalint/BHC_ChangeInControl/2009/
20090324b.pdf) (hereinafter ``March 24 Letter to B. Robbins Kiessling, 
Esq.''); Board of Governors of the Federal Reserve System, Letter to 
Joseph P. Vitale, Esq., advising that Stephen A. Feinberg and the 
entities he controls or advises would not control GMAC LLC, Detroit, 
Michigan, under the Bank Holding Company Act (Mar. 24, 2009) (online at 
www.federalreserve.gov/boarddocs/legalint/BHC_ChangeInControl/2009/
20090324.pdf) (hereinafter ``March 24 Letter to Joseph P. Vitale, 
Esq.'').
    \66\ March 24 Letter to Joseph P. Vitale, Esq., supra note 65.
---------------------------------------------------------------------------
    In connection with its BHC application, at the end of 2008 
GMAC made exchange and cash tender offers to restructure GMAC 
and ResCap's capital structures. These steps were taken in 
order to satisfy the Federal Reserve's requirements that GMAC, 
among other things, attain a minimum amount of total regulatory 
capital of $30 billion.\67\ In its public statements, GMAC 
signaled to the market that meeting this target in the debt 
exchange was a necessary condition for the Federal Reserve to 
approve its BHC application.\68\ In order to satisfy this 
condition, GMAC needed the overall participation rate in the 
offers to be approximately 75 percent on a pro-rata basis.\69\
---------------------------------------------------------------------------
    \67\ GMAC, LLC, GMAC Announces That the Results of Its Exchange 
Offers Are Insufficient To Meet Regulatory Capital Requirements To 
Become a Bank Holding Company (Dec. 10, 2008) (online at 
media.gmacfs.com/index.php?s=43&item=293) (hereinafter ``GMAC Announces 
Results of Exchange Offers''). Capital adequacy is one of the factors 
that the Federal Reserve Board shall consider when reviewing the 
formation of a BHC or the acquisition of a bank. See 12 U.S.C. 
Sec. 1842(c)(2).
    \68\ See, e.g., GMAC Announces Results of Exchange Offers, supra 
note 67 (stating that the ``Federal Reserve has required GMAC to, among 
other things, achieve a minimum amount of total regulatory capital of 
$30 billion in connection with its application.''); GMAC, LLC, GMAC 
Makes Final Amendments to the Exchange Offers After Reaching Agreement 
With a Substantial Portion of Bondholders (Dec. 12, 2008) (online at 
media.gmacfs.com/index.php?s=43&item=294) (referencing ``the estimated 
overall participation that would be required to satisfy the condition 
for a minimum amount of regulatory capital in connection with GMAC's 
application to become a bank holding company'').
    \69\ GMAC Announces Results of Exchange Offers, supra note 67.
---------------------------------------------------------------------------
    GMAC's bondholders were resistant to the exchange, however, 
and did not initially tender the principal amount of bonds 
necessary for the BHC conversion.\70\ Only 58 percent of the 
GMAC notes and 37 percent of the ResCap notes were tendered as 
of December 24, 2008, the date of GMAC's BHC approval.\71\ 
Ultimately, however, the Federal Reserve approved GMAC's BHC 
application despite the shortfall in the amount of tendered 
bonds on the grounds that GMAC's capital ratio was nonetheless 
adequate.\72\ It is impossible, in retrospect, to determine 
what would have happened if GMAC had continued to press its 
bondholders in the absence of the Federal Reserve's intervening 
BHC application approval.
---------------------------------------------------------------------------
    \70\ Although GMAC's equity holders were left (all else being 
equal) relatively whole (although they were substantially diluted upon 
Treasury's series of TARP investments, they were not wiped out 
completely), the GMAC bondholders were required to take significant 
haircuts in connection with GMAC's application to become a BHC. One 
investor, William Gross of Pimco, resisted the offer on the grounds 
that it would require bondholders to forgo 50 percent of what GMAC owed 
them. Leslie Wayne, New York Times, GMAC Hopes Bondholders Approve Bank 
Deal (Dec. 23, 2008) (online at www.nytimes.com/2008/12/24/business/
24gmac.html). The exchange offer was fraught with difficulty, as many 
bondholders refused to tender. GMAC Announces Results of Exchange 
Offers, supra note 67 (noting that ``[b]ased on the results of the GMAC 
and ResCap offers to date, GMAC would not obtain a sufficient amount of 
total regulatory capital in connection with the GMAC and ResCap offers 
to meet the requirements set forth by the Federal Reserve for GMAC to 
become a bank holding company under the Bank Holding Company Act of 
1956'').
    \71\ GMAC, LLC, GMAC Receives Significant Participation and Extends 
Early Delivery Time of its Notes Exchange Offers (Dec. 16, 2008) 
(online at media.gmacfs.com/index.php?s=43&item=295).
    \72\ Federal Reserve conversations with Panel staff (Feb. 19, 
2010).
---------------------------------------------------------------------------
    In connection with the renaming of GMAC Bank to Ally Bank 
in May 2009 and the FDIC's decision to increase the amount of 
brokered deposits that the bank could raise, Ally Bank launched 
a major brand-building and deposit-generation initiative.\73\ 
As of December 31, 2009, the deposit base at Ally Bank was 
$28.8 billion, an increase of 50 percent from the previous 
year.\74\
---------------------------------------------------------------------------
    \73\ Congressional Oversight Panel, Written Testimony of Ron Bloom, 
senior advisor to the Secretary of the Treasury, and Jim Millstein, 
chief restructuring officer, U.S. Department of the Treasury, COP 
Hearing on GMAC Financial Services, at 9 (Feb. 25, 2010) (online at 
cop.senate.gov/documents/testimony-022510-treasury.pdf) (hereinafter 
``Written Testimony of Ron Bloom and Jim Millstein''). Treasury, among 
others, has seemingly endorsed Ally Bank's increasing role in GMAC's 
business model, noting that GMAC has ``access to deposits now through 
Ally Bank that they hadn't had before, which lowers their cost of 
capital.'' Transcript of COP Hearing on GMAC, supra note 12 (Testimony 
of Jim Millstein).
    \74\ GMAC Form 10-K for 2009, supra note 12, at 82.
---------------------------------------------------------------------------
            c. GMAC's Section 23(a) Exemption
    After it became a BHC, GMAC requested on two occasions that 
the Board grant Ally Bank an exemption from Section 23(a) of 
the Federal Reserve Act.\75\ Section 23(a) restricts the amount 
of ``covered transactions'' between a bank and its 
affiliates.\76\ ``Covered transactions'' are transactions 
between a bank and an affiliate, including the purchase of 
assets and extensions of credit. Transactions between a bank 
and a third party are also considered ``covered transactions'' 
if the transactions' proceeds are used to benefit an affiliate 
of the bank. Section 23(a) authorizes the Board to grant an 
exemption if it finds that doing so is in the public interest 
and consistent with the statute's purposes.\77\
---------------------------------------------------------------------------
    \75\ 12 U.S.C. Sec. 371c; 12 CFR part 223.
    \76\ Section 23(a) limits the ``amount of `covered transactions' 
between a bank and any single affiliate to 10 percent of the bank's 
capital stock and surplus and . . . the amount of covered transactions 
between a bank and all its affiliates to 20 percent of the bank's 
capital stock and surplus.'' Letter from Robert deV. Frierson, deputy 
secretary of the Board, Board of Governors of the Federal Reserve 
System, to Richard K. Kim, partner, Corporate Department, Wachtell, 
Lipton, Rosen, & Katz (May 21, 2009) (online at www.federalreserve.gov/
boarddocs/legalint/FederalReserveAct/2009/20090521/20090521.pdf) 
(hereinafter ``May 21 Letter from Robert deV. Frierson'').
    \77\ 12 U.S.C. Sec. 371c(f)(2); 12 CFR Sec. 223.43(a).
---------------------------------------------------------------------------
    The purpose of the provision is to preserve the safety and 
soundness of banks that receive FDIC backing and to promote 
competition by reducing the likelihood that banks would favor 
certain customers over others.\78\ Section 23(a) is considered 
a critical component of the firewall separating banking and 
commerce, a principle that stands at the center of banking 
law.\79\ One expert referred to Section 23(a) as the ``Magna 
Carta'' of banking law.\80\ Exemptions are granted rarely.\81\
---------------------------------------------------------------------------
    \78\ See Jonathan R. Macey, Geoffrey P. Miller, and Richard Scott 
Carnell, Banking Law and Regulation, 3d edition 472 (2001). The Federal 
Reserve Board has indicated that the ``twin purposes of section 23(a) 
are (i) to protect against a depository institution suffering losses in 
transactions with affiliates and (ii) to limit the ability of an 
institution to transfer to its affiliates the subsidy arising from the 
institution's access to the federal safety net.'' Board of Governors of 
the Federal Reserve System, Transactions Between Member Banks and 
Affiliates, 67 Fed. Reg. 76560, 76560 (Dec. 12, 2002) (final rule). The 
safety net consists of deposit insurance, the Federal Reserve's 
discount window, and other banking regulatory tools designed to protect 
financial markets and participants.
    \79\ For example, the Senate Report on the Gramm-Leach-Bliley Act 
stated that the law intended to preserve the separation of banking and 
commerce. Senate Committee on Banking, Housing, and Urban Affairs, 
Report on the Financial Services Modernization Act of 1999, S.Rep. 106-
44, at 21 (Apr. 28, 1999) (online at www.gpo.gov/fdsys/pkg/CRPT-
106srpt44/pdf/CRPT-106srpt44.pdf) (``This authority provides the Board 
with some flexibility to accommodate the affiliation of depository 
institutions with insurance companies, securities firms, and other 
financial services providers while continuing to be attentive not to 
allow the general mixing of banking and commerce in contravention of 
the purposes of this Act''); see also Arthur E. Wilmarth, Jr., Subprime 
Crisis Confirms Wisdom of Separating Banking and Commerce, Banking & 
Financial Services Policy Report, at 3 (May 2008) (hereinafter ``Wisdom 
of Separating Banking and Commerce'').
    \80\ Analyst conversations with Panel staff (Mar. 1, 2010).
    \81\ Prior to the onset of the financial crisis, the Board granted 
only a small number of Section 23(a) exemptions. In the past, typical 
23(a) exemptions dealt with one-off sales/purchases of assets as 
between the bank and its affiliates (e.g., purchase of the premises 
from the parent, purchase by the bank of an aircraft from an affiliate, 
etc.), corporate reorganizations, and allowing banks to establish 
securities lending or borrowing programs with their securities 
affiliates. Other examples include blanket exemptions given during 
times of significant upheaval or crisis, such as the period following 
the attacks of September 11, 2001. Wisdom of Separating Banking and 
Commerce, supra note 79, at 9.
---------------------------------------------------------------------------
    Section 23(a) applies to dealer loans and retail loans made 
by Ally Bank because GM and GMAC are both affiliates of Ally 
Bank. GMAC applied for an exemption because it sought to engage 
in transactions in excess of the limitations imposed by Section 
23(a).\82\
---------------------------------------------------------------------------
    \82\ May 21 Letter from Robert deV. Frierson, supra note 76.
---------------------------------------------------------------------------
    On December 24, 2008, the Board granted GMAC's request for 
an exemption for retail loans,\83\ and on May 21, 2009, it 
granted GMAC's extended request for an exemption for both 
retail and dealer loans. In granting this extended exemption, 
the Board stated that ``covered transactions'' would ``benefit 
the public because they would allow [Ally] Bank to extend 
credit to a greater number of retail customers and provide 
dealers with greater access to financing, thereby avoiding 
further disruption in the credit market for automobile 
purchases.'' \84\ The exemption does not expire.
---------------------------------------------------------------------------
    \83\ Letter from Robert deV. Frierson, deputy secretary of the 
Board, Board of Governors of the Federal Reserve System, to Richard K. 
Kim, partner, Corporate Department, Wachtell, Lipton, Rosen, & Katz 
(Dec. 24, 2008) (online at www.federalreserve.gov/boarddocs/legalint/
federalreserveact/2008/20081224/20081224.pdf).
    \84\ May 21 Letter from Robert deV. Frierson, supra note 76; see 
also GMAC Form 10-Q for Q3 2009, supra note 22, at 95.
---------------------------------------------------------------------------
    To address concerns about the impact of the exemption on 
competitiveness and on the safety and soundness of Ally Bank, 
the Board required GMAC to satisfy certain conditions.\85\ 
These conditions apply only to funds originated by Ally Bank. 
In other words, if GMAC makes loans using funds from other 
sources--such as the securitization market--it does not need to 
comply with these conditions. Regardless of the source of 
funds, GMAC must abide by BHC-specific regulations and is 
subject to ongoing oversight by the Federal Reserve.
---------------------------------------------------------------------------
    \85\ May 21 Letter from Robert deV. Frierson, supra note 76.
---------------------------------------------------------------------------
    The Board also noted that it granted the exemption ``in 
light of the unique circumstances surrounding'' GMAC and 
Treasury's provision of ``substantial capital support'' to GMAC 
``to allow it to continue its financing of GM automobile 
purchases and to expand its activities to include financing 
Chrysler automobiles.'' \86\ While the Board historically has 
required a parent company to provide a collateralized guarantee 
when it transfers assets to an affiliate, it did not obligate 
GMAC to provide collateral here because ``GMAC's financial 
position will be strengthened by an additional equity 
investment by Treasury.'' As a result, the Board determined 
that ``Treasury's support helps ensure that GMAC will be in a 
position to honor its obligations under the guarantee.'' The 
ongoing consequences and implications of these determinations 
are reflected in the rest of the report.
---------------------------------------------------------------------------
    \86\ May 21 Letter from Robert deV. Frierson, supra note 76; March 
24 Letter to B. Robbins Kiessling, Esq., supra note 65; March 24 Letter 
to Joseph P. Vitale, Esq., supra note 65.
---------------------------------------------------------------------------
            d. Impact of BHC Approval
    The Board's decision to approve GMAC's BHC application 
produced a number of results. The market appears to have had 
mixed reactions to the Board's approval of GMAC's BHC 
application. The value of some of GMAC's debt increased over 
the course of one week after the BHC approval.\87\ That said, 
Standard & Poor's (S&P) downgraded certain debt ratings for 
GMAC and ResCap, voicing concerns that ``the exchange and the 
application for BHC status illustrate the gravity of the 
company's financial position.'' \88\
---------------------------------------------------------------------------
    \87\ GMAC's BHC approval had a dramatic effect on the price of 
GMAC's outstanding debt. For example, the price of GMAC's $2 billion, 
7.25 percent senior unsecured note with a March 2, 2011 maturity 
increased from 40.8 on December 1, 2008 to 87.9 on January 2, 2009. The 
price of another issue, GMAC's 7 percent senior unsecured $1 billion 
note with a maturity of February 2, 2012, increased from 33 on December 
1, 2008 to 80.3 on January 5, 2009. Bloomberg Data (accessed Mar. 9, 
2010).
    \88\ Standard & Poor's, GMAC LLC, Residential Capital LLC Ratings 
Lowered to `SD' From `CC', Taken Off Credit Watch (Dec. 31, 2008).
---------------------------------------------------------------------------
    Perhaps most significantly, the government's intervention 
and ``guarantee'' of GMAC's debt raise substantial moral hazard 
concerns. The bondholders who participated in the debt exchange 
received significant haircuts, meaning that they incurred some 
loss.\89\ Once the Board had approved GMAC's BHC application 
and Treasury had provided GMAC with TARP funds, however, the 
bondholders who chose not to exchange their debt ranked senior 
to the United States and were likely to receive full payment on 
their notes. The bondholders learned that in the face of a 
potential government rescue, sitting on the sidelines and 
holding out may very well result in higher returns and greater 
value.
---------------------------------------------------------------------------
    \89\ For further discussion about the debt exchange, see note 68, 
supra.
---------------------------------------------------------------------------
    GMAC's conversion to a BHC failed to stop the tide of 
losses. Upon the release of its 2008 financial results in 
February 2009, then-GMAC CEO Alvaro G. de Molina commented that 
``[t]he past year was clearly an extraordinary period for GMAC. 
Our business, like many others, was significantly affected by 
the U.S. recession, the global capital and credit market 
disruption, falling auto sales and a mortgage market in 
turmoil.'' \90\ GMAC reported net income of $3.4 billion for 
the 2008 year (which was due solely to an exceptional one-time 
gain on the debt exchange in the fourth quarter of 2008), 
compared to a net loss of $8.0 billion for the 2009 year.\91\
---------------------------------------------------------------------------
    \90\ GMAC, LLC, GMAC Financial Services Reports Preliminary Fourth 
Quarter and Full-Year 2008 Financial Results (Feb. 3, 2009) (online at 
media.gmacfs.com/index.php?s=43&item=305) (hereinafter ``GMAC Reports 
Preliminary Q4 and Full-Year 2008 Results''). Treasury has never argued 
that GMAC itself was systemically important, although in December 2008 
some communications indicated a belief in Treasury that GMAC's 
failure--independent of its effects on the domestic automobile 
industry--could have thrown an already precarious financial system into 
further disarray during the depths of the financial crisis. For 
example, there was mention of potential losses that could be incurred 
by holders of GMAC debt, representing a number of other financial 
institutions across the industry. Treasury conversations with Panel 
staff (Feb. 2, 2010). Chrysler Financial was also adversely affected by 
the deterioration in the credit markets, the changed landscape of the 
automotive industry in late 2008, and the maturity of outstanding debt. 
The situation was more ominous for Chrysler Financial, however, because 
its debt situation was even worse. Unlike GMAC, Chrysler Financial 
faced the maturity of all of its outstanding debt in July 2009. In the 
early spring of 2009, Treasury concluded that Chrysler Financial would 
be unable to meet its financing requirements by July 2009. In order to 
prevent the collapse of Chrysler, Treasury claimed that the government 
acted to orchestrate the continued existence of a viable financing 
source for Chrysler dealers and consumers by folding Chrysler 
Financial's core operations into GMAC. For further discussion of GMAC's 
assumption of Chrysler Financial's business, see Section E.1, infra.
    \91\ GMAC Form 10-K for 2009, supra note 12, at 29. In the first 
quarter of 2009, the company still reported as GMAC, LLC and GMAC Bank 
before changing to GMAC, Inc. and Ally Bank, respectively. Effective 
June 30, 2009, GMAC LLC was converted from a Delaware limited liability 
company into a Delaware corporation, and was renamed ``GMAC Inc.'' The 
Tier 1 risk-based capital ratio represents the percentage of risk-based 
capital to total risk-weighted assets and is used by regulators to 
measure a financial institution's capital adequacy. According to the 
FDIC guidelines, a financial institution is considered ``well 
capitalized'' if the Tier 1 risk-based capital ratio is equal to or 
greater than 6 percent and ``adequately capitalized'' (i.e., minimum 
capitalization ratio) if the ratio is equal to or greater than 4 
percent. Based upon the most recent available information, GMAC, Inc.'s 
Tier 1 risk-based capital ratio was 14.1 percent (at the end of 2009), 
and Ally Bank's Tier 1 risk-based capital ratio was 22.1 percent (for 
the third quarter of 2009).
---------------------------------------------------------------------------

3. GMAC's Relationship with GM

            a. Captive Era
    GMAC's current relationship with GM is shaped by the shared 
historical relationship between the two entities since 1919. 
Until 2006, GMAC was a wholly owned subsidiary of GM, 
functioning as GM's captive financing arm with the interests of 
both entities very closely aligned. During the time that GMAC 
functioned as a captive, GM and GMAC shared the objective of 
maximizing profits by selling and leasing as many cars as 
possible. GMAC's role was to provide GM dealers with the 
financing necessary to acquire and maintain automobile 
inventories and to provide GM consumers with a financing source 
to purchase or lease automobiles. GMAC's relationship with GM 
has been significantly affected by subvention--the way in which 
GM pays for incentive programs that it offers through GMAC 
exclusively. As GMAC has stated:

          General Motors may elect to sponsor incentive 
        programs (on both retail contracts and leases) by 
        supporting financing rates below standard rates at 
        which GMAC purchases retail contracts. Such marketing 
        incentives are also referred to as rate support or 
        subvention. General Motors pays the present value 
        difference between the customer rate and GMAC's 
        standard rates either directly or indirectly to GM 
        dealers. GMAC purchases these contracts at a discount, 
        which is deferred and recognized as a yield adjustment 
        over the life of the contract. GM may also provide 
        incentives on leases by supporting residual values 
        (established at lease inception) in excess of GMAC's 
        standard residual values and by reimbursing the Company 
        to the extent vehicle remarketing proceeds are less 
        than contract residuals. Such lease incentives are also 
        referred to as residual support. . .\92\
---------------------------------------------------------------------------
    \92\ GMAC, LLC, Form 10-K for the Fiscal Year Ended December 31, 
2004, at 11 (online at www.sec.gov/Archives/edgar/data/40729/
000095012405001563/k91417e10vk.htm). While GMAC made this statement in 
its 2004 Annual Report, its more recent annual reports have repeated 
this discussion, indicating that such subvention agreements have 
continued between GM and GMAC.

    Under the arrangements with GM, while GMAC generally 
incurred the risk of loss if the value of a leased vehicle upon 
resale fell below the projected residual value of the vehicle 
at the time the lease contract was signed, GM would reimburse 
GMAC if the resale proceeds were less than the residual value 
set forth in the lease contract at lease termination.\93\
---------------------------------------------------------------------------
    \93\ GMAC Form 10-K for 2005, supra note 36, at 23.
---------------------------------------------------------------------------
    In addition, GMAC carved out a particularly critical niche 
in automotive finance by providing the vast majority of 
floorplan financing to GM dealers,\94\ which, as noted above, 
ensures that car dealers will have inventory in place when 
sales opportunities arise.
---------------------------------------------------------------------------
    \94\ For further discussion regarding GMAC's importance to GM and 
the need for GMAC to continue operating in the floorplan lending arena 
in particular, see Section E, infra.
---------------------------------------------------------------------------
            b. Post-captive Era
    While GMAC may no longer be a captive in the legal sense 
after it became an independent finance company in 2006, it 
essentially functions as a captive in many ways as a result of 
the contractual codification of its historical relationship 
with GM.\95\ As part of the 2006 sale, GMAC and GM entered into 
several service agreements that ``codified the mutually 
beneficial historic relationship between the companies.'' \96\ 
One of these agreements was the United States Consumer 
Financing Services Agreement (USCFSA), which, among other 
things, provided that GM would use GMAC exclusively whenever it 
offered vehicle financing and leasing incentives to 
customers.\97\ The parties agreed to maintain this relationship 
for ten years and, as consideration for this arrangement, GMAC 
pays GM an annual exclusivity fee and agrees to meet specified 
targets with respect to consumer retail and lease financings of 
new GM vehicles.\98\
---------------------------------------------------------------------------
    \95\ In conversations with Panel staff, industry analysts also 
presented the same view of GMAC's role in the automotive finance 
industry.
    \96\ GMAC Form 10-K for 2008, supra note 10, at 40.
    \97\ GMAC Form 10-K for 2008, supra note 10, at 40.
    \98\ In 2009, GMAC paid GM a total of $122 million for services 
provided. This includes $75 million for the exclusivity arrangement 
under the U.S. Consumer Financing Services Agreement for the GM-
supported U.S. retail business, $15 million for the GM-supported 
Canadian retail business, $10 million for the GM-supported retail 
business in international operations, marketing royalties of $15 
million in connection with the use of the GM name in GMAC's insurance 
products, and rent for GMAC's primary executive and administrative 
offices located in the Renaissance Center in Detroit, Michigan. For 
further information about GMAC's exclusivity arrangement and royalty 
agreement with GM, see GMAC Form 10-K for 2009, supra note 12, at 180, 
183.
---------------------------------------------------------------------------
    On December 29, 2008, after the Federal Reserve approved 
GMAC's application to become a BHC, GM and GMAC agreed to 
modify certain terms and conditions of the USCFSA.\99\ These 
amendments include the following:
---------------------------------------------------------------------------
    \99\ GMAC Form 10-K for 2008, supra note 10, at 40.
---------------------------------------------------------------------------
     The parties agreed that for a two-year period, GM 
could offer retail financing incentive programs through an 
alternative financing source under certain conditions (and 
sometimes with the limitation that the alternative financing 
source's pricing meets certain restrictions).\100\ Following 
that two-year period, GM would be able to offer any incentive 
programs on a graduated basis through alternative financing 
sources, along with GMAC, provided that the pricing satisfies 
certain requirements.\101\
---------------------------------------------------------------------------
    \100\ GMAC Form 10-K for 2008, supra note 10, at 40.
    \101\ GMAC Form 10-K for 2008, supra note 10, at 40.
---------------------------------------------------------------------------
     The parties agreed to eliminate the requirement 
that GMAC satisfy certain lending and underwriting targets in 
order to remain the exclusive underwriter of special 
promotional loan programs offered by GM.\102\ GM offered GMAC 
the right to finance these special programs for retail 
consumers for a five-year period.\103\
---------------------------------------------------------------------------
    \102\ March 24 Letter to B. Robbins Kiessling, Esq., supra note 65.
    \103\ March 24 Letter to B. Robbins Kiessling, Esq., supra note 65.
---------------------------------------------------------------------------
     The parties eliminated the exclusivity arrangement 
with respect to promotional programs for GM dealers, and this 
change will be phased out over time.\104\
---------------------------------------------------------------------------
    \104\ March 24 Letter to B. Robbins Kiessling, Esq., supra note 65.
---------------------------------------------------------------------------
     The parties agreed that GMAC would no longer have 
an obligation to lend to a particular wholesale or retail 
customer, provide operating lease financing products, or be 
required to pay a penalty or receive lower payments or 
incentives for refusing to lend to a customer or for failing to 
satisfy individual or aggregate lending targets.\105\ GMAC can 
also make loans to any third party and will use its own 
underwriting standards in making loans, including GM-related 
loans.\106\
---------------------------------------------------------------------------
    \105\ GMAC Form 10-K for 2008, supra note 10, at 40; March 24 
Letter to B. Robbins Kiessling, Esq., supra note 65.
    \106\ March 24 Letter to B. Robbins Kiessling, Esq., supra note 65.
---------------------------------------------------------------------------
    The modified USCFSA is in effect until December 24, 
2013.\107\ In addition, the subvention agreements between GM 
and GMAC have been continued through these contractual 
agreements, and the same accounting and disclosure methods are 
used to account for such agreements.\108\
---------------------------------------------------------------------------
    \107\ GMAC Form 10-K for 2008, supra note 10, at 40.
    \108\ See, e.g., GMAC Form 10-K for 2008, supra note 10, at 162; 
GMAC Form 10-K for 2009, supra note 12, at 43-44.
---------------------------------------------------------------------------
    GMAC has noted that its profitability and the financial 
condition of its operations remain heavily dependent upon the 
performance, operations, and prospects of GM.\109\ Despite the 
contractual modifications discussed above, GMAC notes that 
``[a] primary objective of the [United States Consumer] 
Financing Services Agreement continues to be supporting 
distribution and marketing of GM products.'' \110\ While GMAC 
currently has a relationship with Chrysler after taking over a 
substantial component of Chrysler Financial's business, this 
does not necessarily mean that the captive issue disappears; 
GMAC's operations continue to have many attributes of a captive 
relationship, except that it now has those relationships with 
both GM and Chrysler. As GMAC CEO Michael Carpenter discussed 
recently, GMAC continues to enjoy an extremely close 
relationship with GM, which he described as GMAC's 
partner.\111\ According to Mr. Carpenter, ``the real difference 
between being a partner versus a captive is that, as a partner, 
the economic decisions that the manufacturer makes, in terms 
of, if you will, subsidizing the sale of the automobile by 
using financing, becomes obvious and transparent as opposed to 
buried.'' \112\ At the Panel's recent GMAC hearing, Mr. 
Carpenter and CFO Robert Hull confirmed that GMAC continues to 
enjoy several advantages in the marketplace, including 
subvention agreements with GM, extensive knowledge of the 
dealership world, and integration with the dealers and 
manufacturers from a systems point of view.\113\ GM also 
remains contractually obligated to cover some of GMAC's lease 
losses and to support the residual values of the vehicles on 
GMAC's books.
---------------------------------------------------------------------------
    \109\ GMAC Form 10-K for 2009, supra note 12, at 15-16.
    \110\ GMAC Form 10-K for 2009, supra note 12, at 2, 44.
    \111\ GMAC, Inc., GMAC--Q4 2009 GMAC Inc. Earnings Conference Call, 
at 4 (Feb. 4, 2010) (online at www.gmacfs.com/us/en/about/investor/
upcoming_events.html) (hereinafter ``GMAC Q4 2009 Earnings Conference 
Call'').
    \112\ GMAC Q4 2009 Earnings Conference Call, supra note 111, at 15.
    \113\ Transcript of COP Hearing on GMAC, supra note 12 (Testimony 
of Michael Carpenter and Robert Hull).
---------------------------------------------------------------------------
    Both in GMAC's captive and non-captive states, GM and GMAC 
are so intertwined that providing assistance to one is 
essentially providing assistance to the other, meaning that the 
government's support for GMAC is essentially additional 
assistance to GM.
            c. Other Issues Raised by GM/GMAC Relationship
    The captive finance company model has created a variety of 
complications for GM and GMAC. At a certain level, the captive 
company model contributed to GMAC's poor performance in 
mortgage financing. Prior to GM's rating downgrade, and while 
it was still a captive, GMAC relied on its parent's high credit 
rating to obtain cheap credit, which it used in its mortgage 
operations. In addition, the funds at its ILC were FDIC-
insured, and GMAC therefore had the ability to leverage 
government-guaranteed funds to serve its mortgage 
operations.\114\ This structure lacked transparency and allowed 
the captive to gain leverage either from the health of the 
manufacturing parent or the FDIC insurance of the bank. GMAC's 
forays into home mortgages were ultimately disastrous, and when 
Treasury provided TARP funds to GMAC--given the destabilizing 
losses at ResCap--its investment was made in light of the 
business model that led GMAC astray. There is a possibility 
that Treasury's intervention will distort the competitive 
playing field for other captives. This could be detrimental to 
systemic and commercial stability, inasmuch as the economic 
incentives in the relationships between captives and parents 
can be difficult to unwind.\115\
---------------------------------------------------------------------------
    \114\ Restrictions on affiliate transfers apply to ILCs as well as 
BHCs, and so GMAC Bank would have only been able to fund GM subject to 
the affiliate transfer restrictions. Because GMAC Bank was an ILC, 
however, GMAC, as GMAC Bank's parent, was not subject to supervisory 
oversight. See O. Emre Ergungor and James B. Thomson, Industrial Loan 
Companies (Oct. 1, 2006) (online at www.clevelandfed.org/research/
Commentary/2006/1001.pdf).
    \115\ GMAC Q4 2009 Earnings Conference Call, supra note 111, at 15 
(``I think the only--I think the real difference between being a 
partner versus a captive is that, as a partner, the economic decisions 
that the manufacturer makes, in terms of, if you will, subsidizing the 
sale of the automobile by using financing, becomes obvious and 
transparent as opposed to buried. And I actually think in the long term 
that is actually positive for the auto companies, because it forces 
them to make an economic decision in a very rigorous way'').
---------------------------------------------------------------------------
    As discussed above, although GMAC is no longer a subsidiary 
of GM, the TARP funds provided to GMAC have been cited by at 
least one trading partner as giving rise to subsidy concerns 
under applicable WTO rules. Thus, another consequence of the 
GMAC/GM model, in which GM and GMAC (whether captive or 
otherwise) are almost inextricably entwined, is that funds 
provided to GMAC have also been viewed as a subsidy to GM 
itself. The Panel takes no position on whether funds provided 
to either GM or GMAC could in fact constitute a subsidy under 
WTO rules. However, one trading partner has included the aid to 
GMAC in that analysis, raising the question as to whether any 
trading partner could be successful in arguing that support for 
GMAC could constitute an actionable subsidy under World Trade 
Organization (WTO) rules.\116\
---------------------------------------------------------------------------
    \116\ Some authors have already considered the relevance of WTO 
rules in this context, noting that when the United States first began 
discussing a variety of measures to assist the domestic automotive 
industry, the President of the European Commission, Jose Manuel 
Barroso, warned that the Europeans would ask the WTO if the aid to the 
automotive companies constituted illegal state aid. According to these 
authors, under the WTO Agreement on Subsidies and Countervailing 
Measures (ASCM), a subsidy is defined as a ``financial contribution'' 
made by a government that confers a benefit on the receiving party. Put 
another way, any government assistance must give the company an 
advantage that they would not have under normal market conditions. For 
example, because the interest rate on the loans to GM and Chrysler was, 
in all likelihood, substantially below that which GM and Chrysler would 
have been able to get in the market at the time, the loans could be 
seen to have conferred upon GM and Chrysler such an advantage. 
Accordingly, under the WTO subsidy rules, the loans and guarantees to 
the auto industry could be viewed as subsidies. Lastly, the loans and 
guarantees could meet the specificity requirement of the WTO, because 
they are not available to a wide spectrum of industrial enterprises. 
Claire Brunel and Gary Clyde Hufbauer, Money for The Auto Industry: 
Consistent with WTO Rules?, at 6-10 (Feb. 2009) (online at www.iie.com/
publications/pb/pb09-4.pdf) (hereinafter ``Money for The Auto Industry: 
Consistent with WTO Rules?''). The U.S. Government's equity investments 
further complicate the analysis, because not only the loans, but also 
the investments, must be evaluated according to the WTO standards. For 
a more detailed discussion of the various treaties in the context of 
aid to the automotive industry, see Rolf H. Weber and Mirina Grosz, 
Journal of World Trade, Governments' Interventions into the Real 
Economy under WTO Law Revisited: New Tendencies of Governmental Support 
of the Automobile Industry (Oct. 2009) (discussing a variety of topics, 
including environmental effects, applicable rules, and legal analysis).
---------------------------------------------------------------------------
    In September 2009, the People's Republic of China launched 
a countervailing duty investigation into the assistance given 
the U.S. automobile companies.\117\ Among other things, the 
Chinese automotive industry cited aid to GMAC as a portion of 
its case. The legal theories are complicated, but the Chinese 
industry, at least, sees the GMAC bailout as part of a larger 
subsidy to the auto industry. It is not clear whether any other 
foreign auto industry will be interested in making such a 
claim. The politics are difficult, and as most countries with 
large automotive industries were engaged in providing some form 
of assistance to their own automobile companies at the time, 
maintaining the case might be politically untenable, even if 
reciprocity is not a factor in the analysis.\118\ The 
possibility remains, however, that other trading partners may 
view the support for GMAC as part of a case regarding 
actionable subsidies to the U.S. automobile companies.\119\
---------------------------------------------------------------------------
    \117\ Ministry of Commerce, the People's Republic of China, China 
Launches Anti-Dumping Probe into U.S. Auto, Chicken Products (Sept. 14, 
2009) (online at english.mofcom.gov.cn/aarticle/counselorsreport/
americaandoceanreport/200909/20090906515261.html); see also Ministry of 
Commerce, the People's Republic of China, Anti-dumping and Anti-Subsidy 
Investigation Application (Sept. 9, 2009) (online at 
www.chinaustradelawblog.com/uploads/file/Petition(1)(1).pdf).
    \118\ GMAC, of course, also has a substantial international 
presence, and its business plan is the same in its international 
operations. See Section C.4, infra. For comparison, Peugeot and Renault 
appear to have captive finance arms that operate much like the U.S. 
manufacturing captive finance arms. See Banque PSA Finance, Annual 
Results 2009 (Feb. 8, 2010) (online at www.banquepsafinance.com/docs/
rapports/fr/rapports162.pdf); RCI Bankque, History (online at 
www.rcibanque.com/en/grou_historique.html) (accessed March 10, 2010). 
In its auto bailout, however, the French government offered loans 
directly to the automotive companies. See Money for The Auto Industry: 
Consistent with WTO Rules?, supra note 116, at 5.
    \119\ Money for The Auto Industry: Consistent with WTO Rules?, 
supra note 116, at 9. This discussion only touches upon a very few of 
the possible legal regimes that may be implicated by government aid to 
industry generally, whether in the United States or elsewhere. For 
example, the European Commission state aid doctrine holds that state 
aid, which confers an improper benefit upon a domestic industry must be 
notified to and approved by the European Commission. A number of cases 
relating to actions taken during the financial crisis are currently 
working their way through the European Commission. The European 
Commission has taken the position that despite the crisis, it is 
important to maintain rules regarding anti-competitive practices, but 
to expedite consideration of the aid if necessary. See generally The 
Scottish Parliament, State Aid Regulations (Update) (Oct. 18, 2002) 
(online at www.scottish.parliament.uk/business/research/pdf_res_notes/
rn01-43.pdf); see also European Commission, The Contribution of 
Competition Policy to Economic Recovery (online at ec.europa.eu/
competition/recovery/index.html) (accessed Mar. 8, 2010). There may be 
other laws and doctrines addressing these issues, but they are beyond 
the scope of this report.
---------------------------------------------------------------------------

4. Global Automotive Finance

    GMAC's GAF operations played a significant role in its 
declining performance. The GAF operations offer an array of 
wholesale and retail automotive financing products and 
services. This business unit provides vehicle financing through 
purchases of retail automotive and lease contracts primarily 
with GM customers, finances the purchase of new and used 
vehicles by GM dealers through wholesale financing, provides 
floorplan financing for GM dealers to purchase vehicles to rent 
or lease to others, provides wholesale vehicle inventory 
insurance to GM dealers, and provides automotive extended 
service contracts through GM dealers.\120\
---------------------------------------------------------------------------
    \120\ GMAC Form 10-Q for Q3 2009, supra note 22, at 38.
---------------------------------------------------------------------------
    Through its GAF operations, GMAC supports the sale of GM 
vehicles through floorplan financing new and used vehicles 
manufactured or distributed by GM and, less frequently, other 
automobile manufacturers before sale or lease to the retail 
consumer. Wholesale automotive financing represents a 
significant component of GMAC's GAF business and is the primary 
source of funding for GM dealers' purchases of new and used 
vehicles.\121\ In 2009, GMAC financed 3.9 million new GM 
vehicles (representing a 78 percent share of GM sales to 
dealers), and financed approximately 249,000 new non-GM 
vehicles.\122\ In 2008, GMAC financed 5.4 million new GM 
vehicles (representing 81 percent of GM sales to dealers), and 
financed approximately 196,000 new non-GM vehicles.\123\
---------------------------------------------------------------------------
    \121\ GMAC Form 10-K for 2009, supra note 12, at 3. Wholesale 
automotive financing's 10 percent contribution to the GAF segment's 
total financing revenues (which include total financing revenue and 
other interest income), on average, between 2007 and 2009, 
significantly understates the importance of this business. While this 
segment's contribution on a net revenue basis is not disclosed, lower 
financing and credit costs in the wholesale business indicate a more 
substantial contribution on a net revenue basis. Further, wholesale 
financing often serves as a gateway for other product offerings to the 
dealer community.
    \122\ GMAC Form 10-K for 2009, supra note 12, at 46.
    \123\ GMAC Form 10-K for 2008, supra note 10, at 46.
---------------------------------------------------------------------------
    Consumer retail financing represents a larger portion of 
the company's revenue (producing, on average, 32 percent of the 
GAF segment's total financing revenues between 2007 and 
2009).\124\ GMAC's share of GM retail sales was 20 and 32 
percent for 2009 and 2008, respectively.\125\ Mr. Hull stated 
in a conference call with investors that GMAC financed loans 
for about 17 percent of GM customers in the first quarter of 
2009.\126\ During the fourth quarter of 2009, GMAC originated 
$894 million of new Chrysler retail loans, compared to $721 
million in the third quarter of 2009, and its U.S. retail 
penetration for Chrysler reached 25.5 percent by the end of 
2009.\127\ Through operating leases, GMAC financed the leases 
for 624,000 new vehicles, 561,000 new vehicles, 309,000 new 
vehicles, and 6,000 new vehicles in 2006, 2007, 2008, and 2009, 
respectively.\128\ Due to the deteriorating economic conditions 
and, in particular, the declines in demand and used vehicle 
sale prices in 2008, GAF operations recognized impairment of 
$1.2 billion on vehicle operating leases.\129\ While the 
greater portion of GMAC's revenue source has historically 
derived from consumer as opposed to wholesale automotive 
financing, this does not necessarily reflect the relative 
importance of these sectors to the automotive industry.\130\
---------------------------------------------------------------------------
    \124\ GMAC Form 10-K for 2009, supra note 12, at 36, 39, 42. Total 
financing revenues include total financing revenue and other interest 
income.
    \125\ GMAC Form 10-K for 2009, supra note 12, at 2, 43.; GMAC Form 
10-K for 2008, supra note 10, at 12. For further discussion of the 
decrease in this percentage through 2008, see Section E.1(a), infra.
    \126\ GMAC, LLC, Q1 2009 GMAC LLC Earnings Conference Call, at 10 
(May 5, 2009) (online at phx.corporate-ir.net/
External.File?item=UGFyZW50SUQ9NDU0M3xDaGlsZElEPS0xfFR5cGU9Mw==&t=1).
    \127\ GMAC, Inc., GMAC Financial Services Reports Preliminary 
Fourth Quarter and Full-Year 2009 Financial Results (Feb. 4, 2010) 
(online at media.gmacfs.com/index.php?s=43&item=383) (hereinafter 
``GMAC Reports Preliminary Q4 and Full-Year 2009 Results'').
    \128\ GMAC Form 10-K for 2009, supra note 12, at 43; GMAC Form 10-K 
for 2008, supra note 10, at 39.
    \129\ GMAC Form 10-K for 2008, supra note 10, at 46. GMAC did not 
recognize operating lease impairments in 2009, due to improvements in 
the used vehicle market.
    \130\ For further discussion of the importance of particular 
components of GMAC's automotive finance business to the automotive 
industry, see Section E.1(a).
---------------------------------------------------------------------------
    The financial crisis and the resulting slowdown in the 
credit markets had widespread economic implications beyond the 
housing sector, including a substantial impact on the 
automotive industry and credit markets in general. Weak 
economic conditions and the deterioration in the housing market 
exerted pressure on consumer automotive finance customers, 
resulting not only in a depressed automobile market, but also 
in higher delinquencies, repossessions, and losses. These 
conditions affected both GMAC's ability to fund its operations 
and the demand for its financial products.
    GMAC relied heavily on the capital markets (and the 
securitization markets in particular) for its funding. 
Beginning in 2008 (and particularly after the events of 
September 2008 including the collapse of Lehman Brothers), 
there was a significant decline in the availability of consumer 
credit and a severe reduction in overall liquidity in the 
consumer finance industry, including substantial disruption in 
the automotive asset-backed securities (ABS) markets.
    New vehicle demand also decreased as the unemployment rate 
increased, consumer demand fell and gasoline prices spiked. As 
a result, global vehicles sales declined rapidly across the 
board in 2008 and through much of 2009.\131\ Automotive loan 
and lease production significantly contracted across the 
industry, particularly in the fourth quarter of 2008, due to 
stressed economic conditions and their impact on consumer 
spending habits, as well as increased interest rates and 
tightening of financing terms. The majority of automobile 
purchases in the United States are financed, including an 
estimated 80-90 percent of consumer purchases and substantially 
all dealer inventory purchases.\132\ It has been estimated that 
2 million to 2.5 million vehicle sales were lost because either 
dealers or customers could not obtain credit.\133\ These 
conditions adversely impacted GMAC and many of its 
competitors.\134\
---------------------------------------------------------------------------
    \131\ IHS Global Insights, U.S. Executive Summary, at 2, 9 (Aug. 
2009) (noting that U.S. automobile sales fell to a 26-year low, from a 
high point of 17.3 million cars and light trucks in 2000 to 13.2 
million in 2008. Sales fell much further in the first half of 2009 as a 
result of deteriorating economic conditions).
    \132\ Written Testimony of Ron Bloom and Jim Millstein, supra note 
73, at 2; Ron Bloom Testimony before the Senate Banking Committee, 
supra note 2. For further discussion of the nature and landscape of the 
automotive finance business, see Section B, infra.
    \133\ Office of the Special Inspector General for the Troubled 
Asset Relief Program (SIGTARP), Quarterly Report to Congress, at 112 
(July 21, 2009) (online at www.sigtarp.gov/reports/congress/2009/
July2009_Quarterly_Report_to_Congress.pdf) (citing SIGTARP interviews 
with Auto Task Force, June 1, 2009) (hereinafter ``July 2009 SIGTARP 
Report'').
    \134\ GMAC Form 10-K for 2008, supra note 10, at 3.
---------------------------------------------------------------------------
    Without the liquidity provided by the securitization 
markets, GMAC made a strategic decision to preserve floorplan 
lending at the expense of its retail lending business.\135\ In 
mid-October 2008, GMAC announced a more conservative policy for 
consumer automotive financing in the United States that 
included limiting purchases to consumers with credit scores of 
700 or above.\136\ GMAC stated that reduced access to funding 
``prompted GMAC to implement a more conservative purchase 
policy for consumer automotive financing in the United States 
which significantly affected origination volumes in the 
[fourth] quarter [of 2008].''\137\ Following its approval to 
become a BHC and the receipt of its initial TARP investment in 
December 2008, GMAC lifted these restrictions and offered 
retail financing for consumers with a credit score of 621 or 
above.\138\
---------------------------------------------------------------------------
    \135\ GMAC conversations with Panel staff (Feb. 1, 2010).
    \136\ GMAC, LLC, GMAC Financial Services Statement on Automotive 
Finance Purchase Policy (Oct. 13, 2008) (online at media.gmacfs.com/
index.php?s=43&item=280).
    \137\ GMAC Reports Preliminary Q4 and Full-Year 2008 Results, supra 
note 90.
    \138\ GMAC, LLC, GMAC to Expand Retail Auto Financing (Dec. 30, 
2008) (online at media.gmacfs.com/index.php?s=43&item=300) (hereinafter 
``GMAC to Expand Retail Auto Financing'').
---------------------------------------------------------------------------
    These factors, coupled with the deterioration in the credit 
markets in general, caused GMAC's share of the GM retail market 
in the fourth quarter of 2008 to fall to approximately five 
percent.\139\ Declines in new vehicle financing originations 
due to tighter underwriting standards and higher interest 
rates, continued credit market disruption, and lower automotive 
industry sales, coupled with low consumer confidence and the 
company's strategic decision in late 2008 to curtail leasing 
substantially, adversely affected GMAC's revenue. GAF 
operations recorded a net loss of $2.1 billion for the year 
ended December 31, 2008 (losing money for the first time in its 
90-year history), compared to net income of $1.5 billion for 
the year ended December 31, 2007.\140\ GAF operations, however, 
were consistently profitable during 2009, with net income of 
$546 million.\141\
---------------------------------------------------------------------------
    \139\ GMAC conversations with Panel staff (Feb. 2, 2010).
    \140\ GMAC Form 10-K for 2008, supra note 10, at 35. Congressional 
Oversight Panel, Written Testimony of Michael A. Carpenter, chief 
executive officer, GMAC Financial Services, COP Hearing on GMAC 
Financial Services, at 4 (Feb. 25, 2010) (online at cop.senate.gov/
documents/testimony_022510_carpenter.pdf) (hereinafter ``Written 
Statement of Michael Carpenter'').
    \141\ GMAC Form 10-K for 2009, supra note 12, at 36; Written 
Statement of Michael Carpenter, supra note 140, at 2; Congressional 
Oversight Panel, Written Testimony of Robert S. Hull, chief financial 
officer, GMAC Financial Services, COP Hearing on GMAC Financial 
Services, at 5 (Feb. 25, 2010) (online at cop.senate.gov/documents/
testimony-022510-hull.pdf) (hereinafter ``Written Statement of Robert 
Hull'').
---------------------------------------------------------------------------
    GMAC's difficulties had a significant effect on GM's 
vehicle sales overall, since, as GM notes, many of its 
competitors have ``captive finance subsidiaries that were 
better capitalized than GMAC and thus were able to offer 
consumers subsidized financing and leasing offers.'' \142\ 
According to GMAC, it continues to face competition from 
captive automotive finance companies, banks, savings and loan 
associations, credit unions, finance companies, mortgage 
banking companies, and insurance companies, many of whom 
``benefit from lower cost structures and frequently have fewer 
regulatory constraints.'' \143\
---------------------------------------------------------------------------
    \142\ General Motors, Corp., Form 10-Q for the Quarter Ended March 
31, 2009, at 108 (May 8, 2009) (online at www.sec.gov/Archives/edgar/
data/40730/000119312509105365/0001193125-09-105365-index.htm).
    \143\ GMAC Form 10-K for 2009, supra note 12, at 4, 21.
---------------------------------------------------------------------------

5. Mortgage Operations

    The major contributor to GMAC's faltering results was its 
mortgage segment. GMAC's mortgage operations, which focus 
primarily on the origination, purchase, servicing, sale, and 
securitization of residential mortgage loans and mortgage-
related products in the United States (with some international 
operations), include ResCap, the mortgage operations of Ally 
Bank, and the Canadian mortgage operations of ResMor Trust.
    As noted above, GMAC, like other financial institutions, 
has been negatively impacted by the events and conditions in 
the mortgage banking industry and the broader economy. 
According to ResCap, its core mortgage subsidiary, beginning in 
2007, ``the mortgage and capital markets * * * experienced 
severe stress due to credit concerns and housing market 
contractions in the United States and foreign markets in which 
we operate, predominantly in the United Kingdom and continental 
Europe, and to the residential homebuilders domestically.'' 
\144\
---------------------------------------------------------------------------
    \144\ Residential Capital, LLC, Form 10-Q for the Quarter Ended 
March 31, 2009, at 63 (May 11, 2009) (online at www.sec.gov/Archives/
edgar/data/1332815/000119312509105708/d10q.htm) (hereinafter ``ResCap 
Form 10-Q for Q2 2009'').
---------------------------------------------------------------------------
    GMAC's profitability and financial condition have been 
especially affected by ResCap due to its significant presence 
in the mortgage origination and servicing industry. Through 
ResCap, GMAC became the sixth largest residential mortgage 
originator and the fifth largest servicer in the United States 
(as ranked by Inside Mortgage Finance), originating 
approximately $55 billion in residential mortgage loans in 2008 
and servicing approximately $365 billion in residential 
mortgage loans as of December 31, 2008.\145\ In 2009, GMAC 
originated or purchased approximately $66.1 billion in mortgage 
loans.\146\ In 2009, ResCap sold $54.8 billion in mortgage 
loans to government-sponsored enterprises (GSEs) such as Fannie 
Mae and Freddie Mac (87.0 percent of the total loans 
sold),\147\ $6.9 billion to other investors through whole-loan 
sales.\148\ While it did not make any non-GSE (also known as 
non-agency, or nonconforming) securitizations in 2008, it 
completed $1.3 billion of nonagency securitizations in 
2009.\149\ As GMAC notes, the ``change in the U.S. mortgage 
market [since the second half of 2007] . . . limited [its] 
ability to securitize many nonconforming loan products'' and 
the ``lack of liquidity also reduced the level of whole-loan 
transactions of certain nonconforming mortgages.'' \150\
---------------------------------------------------------------------------
    \145\ GMAC Form 10-K for 2008, supra note 10, at 53.
    \146\ GMAC Form 10-K for 2009, supra note 12, at 4.
    \147\ ResCap's sales of prime conforming mortgage loans take the 
form of securitizations guaranteed by Fannie Mae or Freddie Mac, and 
its sales of government mortgage loans take the form of securitizations 
guaranteed by Ginnie Mae. GMAC Form 10-K for 2009, supra note 12, at 4.
    \148\ GMAC Form 10-K for 2009, supra note 12, at 4.
    \149\ GMAC Form 10-K for 2009, supra note 12, at 4; GMAC Form 10-K 
for 2008, supra note 10, at 56.
    \150\ GMAC Form 10-K for 2008, supra note 10, at 56.
---------------------------------------------------------------------------
    ResCap has been most adversely affected by rising numbers 
of mark-to-market write-downs,\151\ the disappearance of 
practically all secondary securitization markets (with the 
exception of government-sponsored or insured markets), 
increased loan delinquencies, and reduced originations. 
``Market demand for asset-backed securities, and those backed 
by mortgage assets in particular * * * significantly contracted 
and in many markets * * * virtually disappeared,'' ResCap 
states. ``Further, market demand by whole-loan purchasers * * * 
also contracted. These unprecedented market conditions have 
adversely impacted [ResCap], as well as [its] competitors.'' 
\152\ Cerberus' January 22, 2008 letter to investors about 
(among other things) GMAC emphasized the significance of the 
weakening economy, noting that the mortgage markets were 
``hardest hit'' as ``mortgage securities have taken an 
unprecedented beating'' (making it ``very difficult to find 
buyers for any mortgage-backed security, other than paper 
eligible to be sold to Fannie Mae or Freddie Mac'') and housing 
prices continued to fall.\153\ The housing price depreciation 
and increased number of delinquencies and defaults contributed 
to declines in the fair market valuations of ResCap mortgage 
loans held for sale (HFS) and of securitized interests that it 
continues to hold, reducing the value of the collateral 
underlying ResCap's portfolio and leading to higher provisions 
for loan losses.\154\ GMAC states that ``many of ResCap's 
nonprime \155\ assets were liquidated at a loss or marked 
substantially lower to reflect the severe illiquidity and 
depressed valuations in the prevailing market environment.'' 
\156\ As the housing bubble burst, many mortgage loans 
(including a substantial number of subprime loans) became 
delinquent, entered into default, or were foreclosed. ResCap 
stated that its results were negatively impacted ``by domestic 
economic conditions, including increases in delinquencies on 
our mortgage loans held for investment portfolio and a 
significant deterioration in the securitization and residential 
housing markets.'' \157\ GMAC management indicated that the 
majority of ResCap's losses stem from both domestic and 
international mortgage loans on its balance sheet.\158\ The 
mortgage segment reported a net loss from continuing operations 
of $7.1 billion in 2009, versus losses of $4.0 billion in 2008 
and $4.1 billion in 2007.\159\ The decline in the rate of 
growth in mortgage debt outstanding also reduced the number of 
mortgage loans available for ResCap to originate or securitize, 
which led to a reduction in ResCap's revenue, profits and 
business prospects.
---------------------------------------------------------------------------
    \151\ ResCap wrote down its whole loans and mortgage-related 
securities according to Financial Accounting Standard (FAS) 157, 
implemented in September 2006, which provided a hierarchy of valuation 
techniques for determining the fair value of assets, based on assets' 
observable and unobservable valuation factors. The Financial Accounting 
Standards Board (FASB) amended its mark-to-market guidance in April 
2009. FASB Staff Position (FSP) FAS 157-4 provided eight factors for 
determining whether a market is not active enough to require mark-to-
market accounting. Another April 2009 change, FSP FAS 115-2, provided 
that permanent impairment attributable to market forces does not reduce 
earnings or regulatory capital. For further discussion concerning the 
impact of the new mark-to-market accounting rules, see Congressional 
Oversight Panel, August Oversight Report: The Continued Risks of 
Troubled Assets, at 24-25, nn. 48-49 (Aug. 11, 2009) (online at 
cop.senate.gov/documents/cop-081109-report.pdf) (hereinafter ``August 
Oversight Report'').
    \152\ ResCap Form 10-Q for Q2 2009, supra note 144, at 65.
    \153\ Cerberus Institutional Partners, L.P., Letter to Investors, 
at 1 (Jan. 22, 2008) (online at online.wsj.com/public/resources/
documents/WSJ-LB-cerberus080214.pdf) (hereinafter ``Letter to 
Investors'').
    \154\ ResCap Form 10-Q for Q2 2009, supra note 144, at 71. ResCap's 
liquidity has also been adversely affected by margin calls under 
certain of its secured credit facilities that are dependent in part on 
the lenders' valuation of the collateral securing the relevant 
financing. See Residential Capital, LLC, Form 10-K for the Fiscal Year 
Ended December 31, 2008, at 33 (Feb. 27, 2009) (online at www.sec.gov/
Archives/edgar/data/1332815/000119312509039301/d10k.htm) (hereinafter 
``ResCap Form 10-K for 2009''). Each of these credit facilities allows 
the lender, to varying degrees, to revalue the collateral to values 
that the lender considers to reflect market values. If a lender 
determines that the value of the collateral has decreased, it may 
initiate a margin call requiring ResCap to post additional collateral 
to cover the decrease. When ResCap is subject to such a margin call, it 
must provide the lender with additional collateral or repay a portion 
of the outstanding borrowings with minimal notice. Any such margin 
calls harm ResCap's liquidity, results of operation, financial 
condition and business prospects. See id.
    \155\ In response to the market downturn, ResCap has 
``substantially eliminated production of loans that do not conform to 
the underwriting guidelines of Fannie Mae, Freddie Mac, and Ginnie 
Mae.'' GMAC Form 10-Q for Q3 2009, supra note 22, at 67.
    \156\ GMAC, LLC, GMAC Financial Services Reports Preliminary First 
Quarter Results (May 2, 2007) (online at media.gmacfs.com/
index.php?s=43&item=217).
    \157\ ResCap Form 10-K for 2009, supra note 154, at 68.
    \158\ GMAC conversations with Panel staff (Feb. 2, 2010).
    \159\ GMAC Form 10-K for 2009, supra note 12, at 51, 139. These 
figures exclude net losses from discontinued mortgage operations of 
$1.2 billion in 2009, $1.5 billion in 2008 and $250 million in 2007.
---------------------------------------------------------------------------
    In addition, the decline in ResCap's profitability and 
financial condition has been exacerbated by repurchase 
agreements associated with mortgage loans. Beginning in 2007, 
ResCap was no longer able to issue certain nonprime 
securitizations in the absence of various representations for 
early payment defaults.\160\ As a result, ResCap agreed that 
its sales of mortgage loans through whole-loan sales or 
securitizations would require it to make representations and 
warranties about the mortgage loans to the purchaser or 
securitization trust, and it ``may be required to repurchase 
mortgage loans as a result of borrower fraud or if a payment 
default occurs on a mortgage loan shortly after its 
origination.''\161\ Upon the finding of a breach of a 
representation, ResCap ``will either correct the loans in a 
manner conforming to the provisions of the sale agreement, 
replace the loans with similar loans that conform to the 
provisions, or purchase the loans at a price determined by the 
related transaction documents, consistent with industry 
practice.'' \162\ According to Mr. Carpenter, ``the way this 
works is if a Fannie Mae or a Freddie Mac reaches the 
conclusion that they believe there was inadequate underwriting 
on loans, they have the right to put back those loans to us, or 
claim a credit from us.'' \163\ ResCap purchased $1.3 billion 
in mortgage loans under these provisions in 2007 and $988 
million in 2008.\164\ ResCap's mortgage repurchase reserve 
expense for 2009 was $1.5 billion, and, ``like others in the 
mortgage industry,'' it continues to experience ``a material 
increase in repurchase requests.'' \165\ Since repurchases only 
happen if there was something wrong with the origination, 
ResCap's continued exposure to repurchases clearly indicates 
the imperfections and deficiencies in its model of loan pricing 
and origination.
---------------------------------------------------------------------------
    \160\ GMAC Form 10-K for 2008, supra note 10, at 87.
    \161\ GMAC Form 10-K for 2009, supra note 12, at 19.
    \162\ GMAC Form 10-K for 2008, supra note 10, at 189.
    \163\ Transcript of COP Hearing on GMAC, supra note 12 (Testimony 
of Michael Carpenter).
    \164\ GMAC Form 10-K for 2008, supra note 10, at 189.
    \165\ GMAC Form 10-K for 2008, supra note 10, at 19-20.
---------------------------------------------------------------------------
    In response to the economic downturn and an analysis of the 
nature and performance history of the collateral, credit rating 
agencies downgraded asset-backed and mortgage-backed 
securities, which significantly reduced the liquidity available 
to finance ResCap's operations.\166\ Despite GM's 
disentanglement from GMAC in 2006, several credit rating 
agencies, including S&P and Moody's Investors Service, 
continued to rate GMAC below investment grade while maintaining 
ResCap at only one step above investment grade. ``The 
challenging market environment--including pressure on home 
prices and weakening consumer credit--severely depressed the 
value of ResCap's large nonprime asset portfolio, resulting in 
significant operating losses at its U.S. Residential Finance 
Group,'' ResCap stated.\167\ ResCap incurred a total of $7.2 
billion in losses between the beginning of 2007 and the middle 
of 2008, which caused Moody's to downgrade ResCap by seven 
notches (S&P also made a downgrade), dramatically weakening 
ResCap's capital base.
---------------------------------------------------------------------------
    \166\ ResCap Form 10-Q for Q2 2009, supra note 144, at 64.
    \167\ GMAC Q4 2006 Earnings, supra note 32.
---------------------------------------------------------------------------
    While ResCap was a notable competitor in subprime and 
nonconforming mortgage lending and was widely known for its 
involvement in subprime lending, the company is a ``broad-based 
market participant'' in the mortgage industry and serves a 
broader spectrum of borrowers, according to GMAC.\168\ GMAC 
made more than $50 billion in subprime mortgage loans over the 
three-year period ending in 2007, according to data compiled by 
Inside Mortgage Finance. In each of those years, GMAC ranked 
among the 25 largest subprime lenders (including being ranked 
12th among subprime lenders in 2006), but it has retained a 
substantial mortgage loan origination business involving prime 
conforming and government mortgage loans. One of ResCap's main 
issues with respect to its subprime exposure is that while it 
started moving away from and reduced its exposure to the 
subprime market in late 2006 (and has not participated in 
subprime origination since 2008), it ``still held substantial 
exposure when dislocation occurred in the fourth quarter [of 
2006].'' \169\ As a result, ResCap was forced to sell many of 
its subprime mortgage-related assets at a substantial loss. In 
2007, then-ResCap CEO Bruce Paradis acknowledged that, for its 
part, ResCap moved too slowly in reducing its subprime exposure 
in the face of the subprime mortgage downturn, along with being 
``too slow to reduce infrastructure and modify business 
processes in the face of new market conditions.'' \170\ 
Industry analysts have suggested, however, that ResCap's 
subprime lending and exposure were not unusually bad, but very 
comparable to the challenges faced by other major mortgage 
lenders.\171\
---------------------------------------------------------------------------
    \168\ Industry analyst conversations with Panel staff.
    \169\ GMAC, LLC and Residential Capital, LLC, 2007 Investor Forum 
(online at www.slideshare.net/finance8/rescap-chief-executive-officer-
bruce-paradis-gmac-llc-and-residential-capital-llc-2007-investor-forum) 
(hereinafter ``2007 Investor Forum'') (accessed Mar. 8, 2010).
    \170\ 2007 Investor Forum, supra note 169.
    \171\ Industry analyst conversations with Panel staff.
---------------------------------------------------------------------------
    By early 2008, ResCap's net worth had dropped from $7.6 
billion on December 31, 2006 to $5.8 billion, just $400 million 
above the minimum amount it needed to maintain in order to 
comply with debt covenants. From net income of $705.1 million 
in 2006, ResCap recorded a net loss of $4.3 billion in 2007 and 
a net loss of $5.6 billion in 2008.
    GMAC has been forced to reorganize its operations and its 
capital structure on several different occasions to respond to 
deteriorating economic conditions and the collapse of ResCap's 
portfolio. As severe weakness in the housing market and 
mortgage industry persisted, GMAC announced a major 
restructuring of ResCap operations in October 2007. This plan 
included a streamlining of operations, a revised cost 
structure, and a 25 percent reduction in ResCap's workforce (in 
addition to the elimination of 2,000 positions undertaken in 
the first half of 2007). In June 2008, as ResCap faced 
approximately $4 billion of maturing debt obligations, GMAC 
refinanced more than $60 billion in debt (involving more than 
50 institutions from around the world). This refinancing 
included several key steps designed to increase the amount of 
available funding and to enhance liquidity, such as GMAC 
obtaining a new $11.4 billion secured credit facility with a 
three-year maturity, GMAC renewing a one-year $10 billion 
commercial paper facility, ResCap extending the maturity on 
virtually all of its bank facilities equaling approximately 
$11.6 billion, and ResCap obtaining a new $2.5 billion 
repurchase facility. GMAC also increased its own capital 
reserves with a new three-year credit line, in addition to 
providing ResCap with a two-year $3.5 billion credit line, $750 
million of which Cerberus and GM guaranteed.
    On September 3, 2008, ResCap announced another 
restructuring plan to streamline its operations, reduce costs, 
and refocus its lending and servicing activities. The 
restructuring plan included closing all GMAC Mortgage retail 
offices, terminating originations through the wholesale broker 
channel, curtailing business lending, and selling its GMAC Home 
Services business. As ResCap Chairman and CEO Tom Marano 
stated, ``[c]onditions in the mortgage and credit markets have 
not abated and, therefore, we need to respond aggressively by 
further reducing both operating costs and business risk.'' 
\172\ These actions reduced ResCap's workforce by approximately 
3,300 employees, or 37 percent.\173\ In conjunction with the 
GMAC Home Services business sale, 1,000 employees were 
transferred effective January 1, 2009, and an additional 500 
employees were notified of their termination prior to December 
31, 2008, with a termination date in the first quarter of 
2009.\174\
---------------------------------------------------------------------------
    \172\ GMAC, LLC, GMAC Financial Services and ResCap Announce 
Further Streamlining of Mortgage Operation (Sept. 3, 2008) (online at 
media.gmacfs.com/index.php?s=43&item=273).
    \173\ ResCap Form 10-K for 2009, supra note 154, at 55.
    \174\ ResCap Form 10-K for 2009, supra note 154, at 55.
---------------------------------------------------------------------------
    Both the industry analysts who talked to Panel staff and 
the witnesses at the Panel's recent GMAC hearing have asserted 
that GMAC's major mistake was taking advantage of and 
leveraging its relatively high credit rating to move away from 
its core mission of automotive financing and diversify into 
other areas such as mortgage lending.\175\ While other mortgage 
lenders including New Century Financial and American Home 
Mortgage Investment have become bankrupt and Bank of America 
purchased Countrywide Financial in early 2008, GMAC kept its 
mortgage subsidiary alive by channeling much of its capital (as 
well as liquidity support) into ResCap as its condition 
worsened.\176\ GMAC, unlike other TARP recipients such as 
Citigroup, does not provide a separate section in its SEC 
filings devoted to its use of TARP funds. Mr. Hull, however, 
testified at the Panel's recent GMAC hearing that the company 
has used its TARP assistance ``to create capital, so we could 
borrow, so we could go to the markets and get more liquidity to 
give it to that kind of origination,'' signaling that the TARP 
funds have ``gone to the originations for autos and mortgages 
over the course of time.'' \177\ The Panel notes that GMAC has 
supported ResCap with a total of $6.60 billion, including $2.94 
billion of cash contributions and $3.66 billion of debt 
forgiveness since 2007.\178\ Given ResCap's limited available 
capital and liquidity, its ongoing existence and viability have 
remained highly doubtful without continued contributions from 
its parent. GMAC's contributions to ResCap would not have been 
possible, however, had GMAC not received TARP assistance.
---------------------------------------------------------------------------
    \175\ Panel staff conversations with industry analysts; Transcript 
of COP Hearing on GMAC, supra note 12 (Testimony of Christopher Whalen 
and Michael Ward).
    \176\ For further discussion of GMAC's articulated justification 
for not letting ResCap go bankrupt, see Section H.2., infra.
    \177\ Transcript of COP Hearing on GMAC, supra note 12 (Testimony 
of Robert Hull).
    \178\ Residential Capital, LLC, 2007 Annual Report, Form 10-K-A, at 
49 (Feb. 27, 2008) (online at www.sec.gov/Archives/edgar/data/1332815/
000095013708002852/c22171e10vk.htm); ResCap Form 10-K for 2009, supra 
note 154, at 55; GMAC Reports Preliminary Q4 and Full-Year 2009 
Results, supra note 127. GMAC confirmed that these numbers have been 
previously reported publicly. The Panel's cash calculation does not 
include $1.44 billion in loans GMAC contributed to ResCap at fair value 
in 2009. In addition, the Panel's calculations do not reflect other 
types of internal support that GMAC has provided to ResCap, including 
preferred membership interests, gains on extinguishment of debt, 
accounting contributions, and intercompany loans.
---------------------------------------------------------------------------
    Mr. Carpenter calls ResCap ``a millstone around the 
company's neck.'' \179\ ResCap remains heavily dependent on 
GMAC in order to meet its liquidity and capital requirements, 
including approximately $2.1 billion in principal amount of 
bonds slated to mature in 2010.\180\ GMAC management has 
indicated that if ResCap were to need additional support, it 
``would provide that support so long as it was in the best 
interests'' of its stakeholders.\181\ ResCap is also highly 
leveraged relative to its cash flow and continues to recognize 
substantial losses resulting in a significant deterioration in 
capital.\182\ As of December 31, 2009, ResCap's liquidity 
portfolio (the cash readily available to cover operating 
demands) totaled $354 million, with cash and cash equivalents 
totaling $765 million.\183\ Given ResCap's liquidity and 
capital needs, combined with the volatility in the marketplace, 
GMAC recently stated that ``there is substantial doubt about 
ResCap's ability to continue as a going concern.'' \184\ Until 
recently, ResCap's continued operations have substantially 
impeded GMAC's short- and long-term financial health, including 
its ability to access the capital markets and raise third-party 
financing.\185\ In its press release detailing its receipt of 
the latest round of TARP assistance, GMAC indicated that it 
continues to ``explore strategic alternatives for ResCap and 
the mortgage business.'' \186\
---------------------------------------------------------------------------
    \179\ GMAC Q4 2009 Earnings Conference Call, supra note 111; GMAC 
conversations with Panel staff (Feb. 16, 2010).
    \180\ GMAC Form 10-K for 2009, supra note 12, at 12.
    \181\ GMAC Form 10-Q for Q3 2009, supra note 22, at 8.
    \182\ GMAC Form 10-Q for Q3 2009, supra note 22, at 7.
    \183\ GMAC Form 10-K for 2009, supra note 12, at 16.
    \184\ GMAC Form 10-K for 2009, supra note 12, at 16.
    \185\ Treasury conversations with Panel staff (Feb. 2, 2010); 
Treasury conversations with Panel staff (Jan. 29, 2010). GMAC has 
recently accessed the capital markets ``for the first time since 
2007,'' and in February 2010, was successful in raising $2.0 billion of 
5-year unsecured debt funding. Written Statement of Michael Carpenter, 
supra note 140, at 2.
    \186\ GMAC Form 10-K for 2009, supra note 12, at 4. For further 
discussion on GMAC's strategy with respect to ResCap, see Section C.5, 
infra.
---------------------------------------------------------------------------

          D. History/Timeline of Various Stages of Investment


1. GMAC Before December 24, 2008

    In December 2008, the U.S. automotive industry was on the 
brink of bankruptcy. Declining car sales, coupled with high 
costs, had crippled an industry that once stood at the 
forefront of global innovation. The Big Three lagged far behind 
their foreign competitors. The CEOs of GM, Ford, and Chrysler 
flew to Washington to appeal to lawmakers for $25 billion in 
public funds. The companies were unable to muster sufficient 
congressional support to get a bill through the Senate, and on 
December 19, President Bush announced a government-funded 
rescue package for the automotive industry: the AIFP.\187\ The 
AIFP called for an investment of $13.4 billion in GM and 
Chrysler by mid-January 2009 and additional funding for GM up 
to $4 billion.\188\ In announcing the plan, then-Treasury 
Secretary Henry Paulson stated that EESA provided him with the 
authority to make the investment, even as he acknowledged that 
``the purpose of [the TARP] program and the enabling 
legislation is to stabilize our financial sector.'' \189\
---------------------------------------------------------------------------
    \187\ Then-Secretary Paulson did not use the name ``Automotive 
Industry Financing Plan'' at the time of the announcement. See 
generally U.S. Department of the Treasury, Secretary Paulson Statement 
on Stabilizing the Automotive Industry (Dec. 19, 2008) (online at 
www.financialstability.gov/latest/hp1332.html) (hereinafter ``Sec. 
Paulson Statement on the Automotive Industry''). Nonetheless, the 
investments to GM and Chrysler were made under this program. See 
generally U.S. Department of the Treasury, Troubled Asset Relief 
Program Transactions Report for Period Ending February 1, 2010, at 15 
(Feb. 3, 2010) (online at www.financialstability.gov/docs/
transaction-reports/2-3-10%20Transactions%20Report%20as%20of%202-1-
10.pdf).
    \188\ See U.S. Department of the Treasury, Indicative Summary of 
Terms for Secured Term Loan Facility [GM], Appendix A (Dec. 19, 2008) 
(online at www.treas.gov/press/releases/reports/
gm%20final%20term%20&%20appendix.pdf); see U.S. Department of the 
Treasury, Indicative Summary of Terms for Secured Term Loan Facility 
[Chrysler], Appendix A (Dec. 19, 2008) (online at www.treas.gov/press/
releases/reports/chrysler%20final%20term%20&%20appendix.pdf).
    \189\ Sec. Paulson Statement on the Automotive Industry, supra note 
187 (``Treasury will make these loans using authority provided for the 
Troubled Asset Relief Program. While the purpose of this program and 
the enabling legislation is to stabilize our financial sector, the 
authority allows us to take this action. Absent Congressional action, 
no other authorities existed to stave off a disorderly bankruptcy of 
one or more auto companies''); Congressional Oversight Panel, September 
Oversight Report: The Use of TARP Funds in the Support and 
Reorganization of the Domestic Auto Industry, at Section G.1 (Sept. 9, 
2009) (online at cop.senate.gov/documents/cop-090909-report.pdf) 
(hereinafter ``September Oversight Report'').
---------------------------------------------------------------------------
    General economic conditions, including the slowdown in the 
capital and credit markets, the problems in the automotive 
industry, and the accelerating crisis in the housing market, 
dramatically affected GMAC's revenues and operations.\190\ GMAC 
reported a net loss of $2.5 billion for the third quarter of 
2008,\191\ bringing its losses over five consecutive quarters 
to $7.9 billion. GMAC's mortgage operations incurred 
substantial losses due to the depreciation in housing prices, 
mortgage loan defaults and delinquencies, and write-downs on 
mortgage loans and mortgage-related assets. For GMAC's 
principal mortgage business, ResCap, the third quarter of 2008 
marked a period of continued turmoil as it reported a net loss 
of $1.9 billion for the third quarter of 2008, and its 
operations only slightly improved for the fourth quarter of 
2008, when it reported a net loss of $981 million.\192\ At the 
same time, the fourth quarter of 2008, with dramatic changes to 
the landscape of the automotive industry, marked the worst 
period for GMAC's automotive finance operations. Coming off of 
a net loss of $294 million for the third quarter of 2008, 
GMAC's automotive finance operations reported a net loss of 
$1.3 billion in the fourth quarter of 2008.\193\
---------------------------------------------------------------------------
    \190\ For further discussion of GMAC's operations and the reasons 
for its deteriorating economic condition, see Section C, supra.
    \191\ GMAC, LLC, GMAC Financial Services Reports Preliminary Third 
Quarter 2008 Financial Results (Nov. 5, 2008) (online at 
media.gmacfs.com/index.php?s=43&item=286) (hereinafter ``GMAC Reports 
Preliminary Q3 2008 Results'').
    \192\ GMAC Reports Preliminary Q3 2008 Results, supra note 191; 
GMAC Reports Preliminary Q4 and Full-Year 2008 Results, supra note 90.
    \193\ GMAC Reports Preliminary Q3 2008 Results, supra note 191; 
GMAC Reports Preliminary Q4 and Full-Year 2008 Results, supra note 90.
---------------------------------------------------------------------------

2. Timeline of TARP Investments: December 2008-December 2009

            a. December 2008 Investment
    On the same day it submitted its application to become a 
BHC,\194\ GMAC submitted an application to Treasury to 
participate in the CPP.\195\ While GMAC's management believed 
the BHC application would assist its transition to a stronger 
long-term business model, management hoped the CPP application 
would help it to survive the immediate ``liquidity crunch.'' 
\196\
---------------------------------------------------------------------------
    \194\ For further discussion of GMAC's BHC application and 
approval, see Section C.2, supra.
    \195\ GMAC Files BHC Application, supra note 49 (noting that GMAC 
``submitted an application to the U.S. Treasury to participate in the 
Capital Purchase Program created under the Emergency Economic 
Stabilization Act of 2008, conditional upon becoming a bank holding 
company''). For further discussion of GMAC's BHC application and 
approval, see Section C.2, supra.
    \196\ GMAC conversations with Panel staff (Feb. 16, 2010). Treasury 
also stated that it is preferable for a company of this size to be 
subject to more supervision. Treasury conversations with Panel staff 
(Feb. 2, 2010).
---------------------------------------------------------------------------
    On December 24, 2008, four days after President Bush 
announced the AIFP, the Federal Reserve Board approved GMAC's 
application to become a BHC.\197\ As part of this approval, the 
Federal Reserve required GMAC to raise $7 billion in new 
equity.\198\ The government immediately took two separate steps 
to help GMAC reach this goal.
---------------------------------------------------------------------------
    \197\ For further information about the Board's approval of GMAC's 
BHC application, see Section C.2, supra. See also GMAC, LLC, GMAC 
Receives $5.0 Billion Investment from the U.S. Treasury (Dec. 29, 2008) 
(online at media.gmacfs.com/index.php?s=43&item=299) (hereinafter 
``GMAC Receives $5 Billion Investment'').
    \198\ Office of the Special Inspector General for the Troubled 
Asset Relief Program, Quarterly Report to Congress, at 84 (Apr. 21, 
2009) (online at www.sigtarp.gov/reports/congress/2009/
April2009_Quarterly_Report_to_Congress.pdf) (hereinafter ``April 2009 
SIGTARP Report''). As part of the process of granting approval to 
GMAC's BHC application, the Federal Reserve imposed a number of 
additional requirements, considered GMAC's business plans, and 
evaluated its actions to strengthen its risk-management infrastructure. 
Under the ongoing supervision of the Federal Reserve after approval of 
the application, GMAC was required to submit a more detailed business 
plan that was acceptable to the Federal Reserve. Federal Reserve 
conversations with Panel staff (Feb. 19, 2010).
---------------------------------------------------------------------------
    First, on December 29, 2008, Treasury announced that it 
would purchase $5 billion in GMAC Fixed Rate Cumulative 
Perpetual Preferred stock with an 8 percent dividend (the 
Senior Preferreds) under the AIFP.\199\ It also received 
warrants for an additional $250 million in preferred equity 
with a 9 percent dividend (the Preferred Warrants).\200\ These 
purchases were completed on December 30, 2008, and Treasury 
exercised the Preferred Warrants immediately.\201\ As a result 
of this transaction, Treasury held $5.25 billion in Senior 
Preferreds.
---------------------------------------------------------------------------
    \199\ U.S. Department of the Treasury, Treasury Announces TARP 
Investment in GMAC (Dec. 29, 2008) (online at 
www.financialstability.gov/latest/hp1335.html) (hereinafter ``Treasury 
Announces TARP Investment in GMAC''); see also U.S. Department of the 
Treasury, USG Capital Outstanding in GMAC (Dec. 30, 2009) (online at 
treas.gov/images/usg_capital.gif) (hereinafter ``USG Capital 
Outstanding in GMAC''). Specifically, the preferred securities were 
Fixed Rate Cumulative Perpetual Preferred Membership Interests, Series 
D-l. U.S. Department of the Treasury, Contract [GMAC], Schedule A (Dec. 
29, 2008) (online at www.financialstability.gov/docs/AIFP/
Posted%20to%20AIFP%20Website%20-%20GMAC%202008.pdf) (hereinafter 
``Treasury GMAC Contract''). In contrast, the CPP Preferred pays 
quarterly dividends at a rate of five percent per year for the first 
five years, and nine percent thereafter. U.S. Department of the 
Treasury, Factsheet on Capital Purchase Program (Mar. 17, 2009) (online 
at www.financialstability.gov/roadtostability/CPPfactsheet.htm) 
(hereinafter ``CPP Factsheet'').
    As a firm that has received exceptional TARP assistance, GMAC is 
subject to EESA's general corporate governance standards and executive 
compensation restrictions, as amended by the American Recovery and 
Reinvestment Act of 2009 (ARRA), as well as the rulings of Special 
Master Feinberg.
    \200\ Treasury Announces TARP Investment in GMAC, supra note 199; 
see also USG Capital Outstanding in GMAC, supra note 199. Specifically, 
the preferred securities were Fixed Rate Cumulative Perpetual Preferred 
Membership Interests, Series D-l. Treasury GMAC Contract, supra note 
199. In contrast, the CPP Preferred pays quarterly dividends at a rate 
of five percent per year for the first five years, and nine percent 
thereafter. CPP Factsheet, supra note 199.
    \201\ Treasury conversations with Panel staff (Jan. 7, 2010).
---------------------------------------------------------------------------
    Second, GMAC made an equity rights offering to its existing 
shareholders to raise the remaining $2 billion. Treasury agreed 
to provide GM with a secured loan of up to $1 billion to 
participate in this rights offering. Treasury stated that this 
loan would ``support GMAC's reorganization as a BHC.'' \202\ 
The rights offering closed on January 16, 2009, with Treasury 
lending GM $884 million to participate in the offering \203\ 
and FIM Holdings, an investment consortium led by Cerberus, 
purchasing $366 million in new equity.\204\ The terms of the 
agreement gave Treasury the right to exchange its loan for the 
shares purchased by GM.\205\
---------------------------------------------------------------------------
    \202\ Treasury Announces TARP Investment in GMAC, supra note 199; 
see Section C.2, supra.
    \203\ April 2009 SIGTARP Report, supra note 198, at 84; September 
Oversight Report, supra note 189, at 54 n.267.
    \204\ GMAC Form 10-K for 2008, supra note 10, at 194; April 2009 
SIGTARP Report, supra note 198; see Office of the Special Inspector 
General for the Troubled Asset Relief Program, Additional Insight on 
Use of Trouble Asset Relief Program Funds, at Appendix D (Dec. 10, 
2009) (online at sigtarp.gov/reports/audit/2009/
Additional_Insight_on_Use_of_Troubled_Asset_Relief_Program_Funds.pdf) 
(``At the time of the initial Treasury investment, the Federal Reserve 
required GMAC to raise $2 billion of new equity. GMAC raised $1.1 
billion through private investments . . . .''); GMAC Receives $5 
Billion Investment, supra note 197.
    \205\ April 2009 SIGTARP Report, supra note 198, at 84. Treasury 
exercised that right on May 29, 2009 and received a 35 percent equity 
stake in GMAC. Government Accountability Office, Office of Financial 
Stability (Troubled Asset Relief Program) Fiscal Year 2009 Financial 
Statements, GAO-10-301, at 62, 74, (Dec. 2009) (online at www.gao.gov/
new.items/d10301.pdf) (hereinafter ``OFS FY 2009 Financial 
Statements''); see Section D.2.(b), infra.
---------------------------------------------------------------------------
    Treasury purchased the Senior Preferreds under the 
AIFP.\206\ Treasury suggested that it provided the investments 
under the AIFP because GMAC is a ``financing company that 
supports GM.'' \207\ Treasury stated that the investment was 
``part of an auto industry-focused TARP program that will 
include the $17.4 billion in assistance for domestic automakers 
announced earlier this month.'' \208\ Treasury did not indicate 
why it did not make its investments under the CPP, despite the 
fact that GMAC had become a BHC by that time.
---------------------------------------------------------------------------
    \206\ U.S. Department of the Treasury, Section 105(a) Trouble Asset 
Relief Program Report to Congress for the Period December 1, 2008 to 
December 31, 2008, at 4 (Jan. 5, 2009) (online at 
www.financialstability.gov/docs/105CongressionalReports/
105Report_010609.pdf) (hereinafter ``Section 105(a) TARP Report to 
Congress for December 2008'').
    \207\ Section 105(a) TARP Report to Congress for December 2008, 
supra note 206, at 1.
    \208\ Treasury Announces TARP Investment in GMAC, supra note 199 
(referring to Treasury's investments in GM and Chrysler on Dec. 19, 
2008).
---------------------------------------------------------------------------
    Given that Treasury had $700 billion in TARP funds at its 
disposal, it had the power in December 2008 to consider a wide 
range of options for addressing GMAC's situation.\209\ It is 
not clear whether Treasury considered alternative options 
before it made the $5.25 billion equity investment in 
GMAC.\210\ It is certain, however, that once it determined that 
GMAC would not be forced into bankruptcy and that the company 
and its shareholders would not be required to bear the full 
cost of their mistakes, its future options were severely 
constrained. After Treasury made this initial investment, 
permitting the company to fail in the future would require 
wiping out Treasury's stake.\211\
---------------------------------------------------------------------------
    \209\ See September Oversight Report, supra note 189, at 3, 86-87 
(discussing Treasury as a ``tough negotiator'' when it invested 
taxpayer funds in the automotive companies and describing the 
imposition of conditions on institutions that receive ``exceptional 
assistance'').
    \210\ Ron Bloom, senior advisor to the Secretary of the Treasury, 
testified that the administration considered bankruptcy in April and 
May 2009. He did not state whether bankruptcy was considered before 
Treasury made the December 2008 investment. See Transcript of COP 
Hearing on GMAC, supra note 12 (Testimony of Ron Bloom). GMAC maintains 
that it considered bankruptcy at this time and that this option was 
ultimately not chosen because it would have required prohibitively 
large financing and would have caused severe disruption for GM dealers. 
GMAC conversations with Panel staff (Mar. 3, 2010); see Section G.3, 
infra.
    \211\ For an extended discussion of the bankruptcy option, see 
Section G.3, infra. That GMAC avoided bankruptcy is particularly 
noteworthy in light of the fact that GM and Chrysler did not. See 
Section G, infra.
---------------------------------------------------------------------------
    In contrast to the conditions Treasury placed on its 
support to Chrysler and GM, discussed below,\212\ Treasury's 
GMAC investment was not conditioned on the approval of a 
specific business plan. It was, however, made on the 
understanding that the Federal Reserve required GMAC to make 
two substantial changes in its ownership and management 
structure as part of its application to become a BHC. First, 
the Federal Reserve required GM and Cerberus to reduce their 
stakes in the company.\213\ Second, GMAC was required to 
restructure its board of directors to include seven members; 
two of these seven would be appointed by a trust approved by 
Treasury.\214\ The board changes were required to occur no 
later than March 24, 2009.\215\
---------------------------------------------------------------------------
    \212\ See Section G, infra.
    \213\ See Section C.2, infra.
    \214\ April 2009 SIGTARP Report, supra note 198, at 84; see U.S. 
Department of the Treasury, Treasury Announces Restructuring of 
Commitment To GMAC (Dec. 30, 2009) (online at ustreas.gov/press/
releases/tg501.htm) (hereinafter ``December 2009 Restructuring 
Announcement'') (stating that Treasury had the right to appoint two 
directors prior to the December 2009 investment).
    \215\ April 2009 SIGTARP Report, supra note 198, at 84; see 
December 2009 Restructuring Announcement, supra note 214 (stating that 
Treasury had the right to appoint two directors prior to the December 
2009 investment).
---------------------------------------------------------------------------
    On December 30, 2008, one day after GMAC received the 
federal government's investment, GMAC President Bill Muir 
declared that ``the actions of the federal government to 
support GMAC are having an immediate and meaningful effect on 
our ability to provide credit to automotive customers.'' \216\ 
He stated that the government's support would permit GMAC to 
``relax the [credit] constraints we put in place a few months 
ago due to the credit crisis.'' \217\
---------------------------------------------------------------------------
    \216\ GMAC to Expand Retail Auto Financing, supra note 138.
    \217\ GMAC to Expand Retail Auto Financing, supra note 138; see 
Section C.2, supra (discussing GMAC's decision to restrict financing to 
consumers with a credit score of 700 or above).
---------------------------------------------------------------------------
            b. May 2009 Investment
    In early 2009, the Federal Reserve conducted ``stress 
tests'' of the nation's largest BHCs (also known as the 
Supervisory Capital Assessment Program, or SCAP) to ensure that 
they would be adequately capitalized even if economic 
conditions worsened beyond expectations. GMAC's participation 
in the stress tests is discussed in more detail in Section F 
below.\218\ At the conclusion of the stress tests in May 2009, 
the Federal Reserve announced that GMAC needed an additional 
$11.5 billion in capital, $9.1 billion of which had to be in 
the form of fresh capital.\219\ Treasury understood that GMAC, 
in contrast to the other financial institutions that were found 
to need capital under the stress tests, would not be able to 
meet its required capital targets by tapping private 
markets.\220\ GMAC itself acknowledged that there is 
``uncertainty regarding our ability to raise the additional 
capital required as a result of the recently completed 
Supervisory Capital Assessment Program and uncertainty around 
the ultimate form, amount, and terms of such capital.'' \221\ 
This uncertainty was due principally to the pending 
bankruptcies of GM and Chrysler.\222\ At the time, it was 
unclear how much residual values would suffer as a result of 
the bankruptcy process, how dealers would be treated, and 
whether GM and Chrysler would experience a ``customer 
backlash'' that would impact future car sales.\223\
---------------------------------------------------------------------------
    \218\ See Section F, infra.
    \219\ Treasury conversations with Panel staff (Jan. 8, 2010). The 
balance of $2.4 billion could be obtained through other methods, such 
as conversion of preferred stock.
    \220\ Treasury conversations with Panel staff (Feb. 2, 2010).
    \221\ GMAC, LLC, Form 10-Q for the Quarter Ended March 31, 2009, at 
90 (May 11, 2009) (online at www.sec.gov/Archives/edgar/data/40729/
000119312509105735/0001193125-09-105735-index.htm).
    \222\ GMAC conversations with Panel staff (Feb. 1, 2010). GMAC 
management also stated that private markets wanted to see a return to 
profitability prior to providing financing to GMAC.
    \223\ Sell-side analyst conversations with Panel staff (Feb. 17, 
2010); Treasury conversations with Panel staff (Feb. 2, 2010).
---------------------------------------------------------------------------
    On May 21, 2009, Treasury made a ``down payment'' of $3.5 
billion of the $9.1 billion fresh capital requirement to 
support GMAC in meeting its capital target, plus a $4 billion 
investment to permit GMAC to acquire part of the business of 
Chrysler Financial,\224\ for a total contribution of $7.5 
billion.\225\ In return for its $7.5 billion, Treasury received 
Mandatory Convertible Preferred Stock (MCP) with a face value 
of $7.875 billion.\226\ Treasury acknowledged that GMAC would 
need additional capital support--the term sheet for this 
investment (the May Term Sheet) provided that Treasury would 
invest ``up to $5.6 billion'' at a later date.\227\
---------------------------------------------------------------------------
    \224\ Treasury made a $1.5 billion loan to Chrysler Financial on 
January 16, 2009. U.S. Department of the Treasury, Chrysler LB 
Receivables Trust: Summary of Terms (Jan. 16, 2009) (online at 
www.treas.gov/press/releases/reports/
011608%20term%20sheet%20chrysler%20fin.pdf). Chrysler Financial has 
repaid the $1.5 billion loan.
    \225\ U.S. Department of the Treasury, Treasury Announces 
Additional Investment in GMAC LLC (May 21, 2009) (online at 
www.treas.gov/press/releases/tg154.htm) (hereinafter ``Treasury 
Announces Additional Investment in GMAC''); Treasury conversations with 
Panel staff (Jan. 8, 2010). At the time, press reports suggested that 
the administration's decision to provide GMAC with new capital was 
contingent--at least in part--on GMAC's willingness to take over this 
business. See Mike Ramsey and Jason Kelly, Cerberus Said to Study 
Chrysler Financial as Stand-Alone Lender, Bloomberg (May 19, 2009) 
(online at www.bloomberg.com/apps/news?sid=aMkCt0PgMVLI&pid=20601087). 
Treasury looked at a variety of different alternatives for Chrysler 
Financial, including merging it with GMAC. It decided against this 
approach because it would have involved GMAC taking over all of 
Chrysler Financial's legacy assets. Treasury stated that its ultimate 
solution--financing GMAC's acquisition of only part of Chrysler 
Financial's business--was preferable because it gave GMAC control over 
the credit quality of future originations, but not responsibility for 
losses on legacy assets. Treasury conversations with Panel staff (Feb. 
2, 2010).
    \226\ Treasury received $7.5 billion face value in Fixed Rate 
Cumulative MCP together with warrants for a further $375 million, which 
it exercised immediately. U.S. Department of the Treasury, Contract 
[GMAC], at 173 (May 21, 2009) (online at www.financialstability.gov/
docs/AIFP/Posted%20to%20AIFP%20Website%20-%20GMAC%202009.pdf) 
(hereinafter ``Treasury GMAC Contract''). Treasury conversations with 
Panel staff (Jan. 7, 2010). The May Securities Purchase Agreement and 
Treasury's accompanying press release refer to the preferred interests 
as ``mandatorily convertible preferred interests.'' Treasury Announces 
Additional Investment in GMAC, supra note 225 (emphasis added). 
However, Treasury's December 2009 press release refers to the stock as 
``Mandatory Convertible Preferred Stock.'' December 2009 Restructuring 
Announcement, supra note 214. The contract for the December 2009 
investment also refers to the stock as ``mandatorily convertible 
preferred stock.'' Id., at 482. In May 2009, the terms of the MCP 
specified that GMAC could convert the stock at any time, except that if 
the conversion would result in Treasury owning more than 49 percent of 
the company, then GMAC would need Treasury's approval or an order from 
the Federal Reserve. The terms of this MCP were revised in exchange for 
Treasury's additional investment in December 2009. After the December 
2009 investment, GMAC could only convert the MCP if it received prior 
written approval from Treasury or an order from the Federal Reserve. 
Additional terms of the December 2009 investment are discussed in more 
detail in Section D.2.(c), infra.
    \227\ Treasury GMAC Contract, supra note 226, at 60.
---------------------------------------------------------------------------
    Additionally, on May 29, 2009, Treasury exercised its 
option to exchange the $884 million loan it had made to GM to 
participate in the December 2008 rights offering for GMAC 
common stock; this amounted to about 35 percent of GMAC's 
common stock.\228\ After these transactions closed, Treasury 
owned $13.1 billion in preferred stock ($5.25 billion in Senior 
Preferreds acquired in the December 2008 investment and $7.875 
billion in MCP acquired in May 2009) and 35 percent of GMAC's 
common stock.
---------------------------------------------------------------------------
    \228\ OFS FY 2009 Financial Statements, supra note 205, at 62, 74. 
Treasury has stated that one of the concerns it had about taking GMAC 
into bankruptcy was ``execution risk''--that three complex bankruptcies 
would be much harder to execute successfully than two. In this context, 
it is worth noting that when it converted the loan into GMAC common 
shares on the eve of the GM bankruptcy, Treasury took an action that 
reinforced GMAC's support while reducing its exposure to GM. These 
actions may or may not have heightened execution risk, but they put 
Treasury into a position where its interests as an equity holder might 
have increased its reluctance to put GMAC into bankruptcy. See Section 
G.3, infra.
---------------------------------------------------------------------------
    Although Treasury had initially created the Capital 
Assistance Program (CAP) to provide capital to financial 
institutions in connection with the stress tests,\229\ Treasury 
attributed its May 2009 investment--an investment made pursuant 
to the stress test results--to the AIFP.\230\ Treasury 
subsequently stated that it used the AIFP because its previous 
capital injections in GMAC had been under the AIFP, because 
GMAC was closely tied to the automotive industry, and because 
it did not view the CAP to have advantages to the terms it has 
under the existing investment.\231\ Further, Treasury noted 
that no other banks were being funded via the CAP.\232\ The 
terms of the MCP received under the AIFP are also more 
advantageous to Treasury than the terms of the MCP that would 
have been received under the CAP: while the CAP MCP was 
convertible at GMAC's option at any time, GMAC may not convert 
the AIFP MCP without receiving written approval from Treasury 
or, unless conversion is required by the Federal Reserve 
Board.\233\
---------------------------------------------------------------------------
    \229\ U.S. Department of the Treasury, Capital Assistance Program 
(March 3, 2009) (online at www.financialstability.gov/roadtostability/
capitalassistance.html) (hereinafter ``Capital Assistance Program'').
    \230\ Treasury Announces Additional Investment in GMAC, supra note 
225.
    \231\ Treasury conversations with Panel staff (Jan. 8, 2010 and 
Feb. 2, 2010).
    \232\ Treasury conversations with Panel staff (Jan. 8, 2010 and 
Feb. 2, 2010); see Section F, infra.
    \233\ Treasury GMAC Contract, supra note 226, at 485 with U.S. 
Department of the Treasury, Capital Assistance Program: Summary of 
Mandatorily Convertible Preferred Stock (``Convertible Preferred'') 
Terms (online at www.treas.gov/press/releases/reports/
tg40_captermsheet.pdf) (accessed Mar. 8, 2010).
---------------------------------------------------------------------------
    Some of the terms of the CAP were more onerous for 
recipients, however, than the terms of the AIFP. A white paper 
on the CAP indicated that any investments under the program 
were required to be placed in a trust, and the trustees would 
be obligated to aim to ``protect and create value for the 
taxpayer as a shareholder over time.'' \234\ The CAP also 
imposed conditions on recipient institutions that were not 
imposed on institutions that received funding under the AIFP. 
Every institution applying for funds under the CAP was required 
to submit a plan to Treasury indicating how it intended to use 
the funds to ``preserve and strengthen their lending 
capacity.'' \235\ The institution was required to detail how it 
would use the funds to ``increase lending above levels relative 
to what would have been possible without government support.'' 
\236\ After submitting this initial plan as part of the 
application process, a recipient institution would then need to 
submit monthly reports to Treasury on its lending ``broken out 
by category.'' \237\ Treasury would make all documentation--the 
initial plan, as well as the monthly reports--available to the 
public.\238\
---------------------------------------------------------------------------
    \234\ U.S. Department of the Treasury, Treasury White Paper: The 
Capital Assistance Program and its Role in the Financial Stability 
Plan, at 3 (online at www.treas.gov/press/releases/reports/
tg40_capwhitepaper.pdf) (hereinafter ``CAP White Paper'') (accessed 
Mar. 8, 2010) (``In addition, any capital investments made by Treasury 
under this plan will be placed in a separate trust set up to manage the 
government's investments in US financial institutions''). In subsequent 
conversations with Panel staff, Treasury stated that it considered a 
trust structure as a possibility, but that the decision to place CAP 
investments in a trust was never finalized. Treasury conversations with 
Panel staff (Feb. 2, 2010). Mr. Bloom testified that Treasury concluded 
that a trust ``does not enhance our position.'' Transcript of COP 
Hearing on GMAC, supra note 12 (Testimony of Ron Bloom).
    \235\ See Capital Assistance Program, supra note 229.
    \236\ Capital Assistance Program, supra note 229 (accessed Mar. 8, 
2010). According to Treasury, GMAC has been providing these reports to 
Treasury, even though it received funding under the AIFP. See 
Transcript of COP Hearing on GMAC, supra note 12 (Testimony of Jim 
Millstein). The terms of the May and December 2009 investments 
stipulate that GMAC ``shall use its reasonable best efforts to account 
for the lending and financing activities it undertakes through the use 
of its available capital.'' See Treasury GMAC Contract, supra note 226, 
at 46, 159. Treasury does not make these reports public. Treasury 
conversations with Panel staff (Mar. 2, 2010).
    \237\ Capital Assistance Program, supra note 229.
    \238\ Capital Assistance Program, supra note 229.
---------------------------------------------------------------------------
    In addition, the CAP included a deadline of November 9, 
2009, and each institution that was included in the stress 
tests was required to raise the required capital buffer by that 
date. According to Treasury's guidelines for the CAP program, 
if the stress tests should ``indicate the need for a bank to 
establish an additional capital buffer to withstand more 
stressful conditions, the bank will have a six month window to 
raise that capital privately or to access the capital made 
available by the Treasury under the CAP.'' \239\ On November 9, 
Treasury announced that it would close the CAP without making 
any investments and that GMAC--the sole institution that 
depended upon Treasury's assistance to meets its SCAP target--
was ``expected to access'' TARP funds through the AIFP.\240\ 
Treasury provided no additional funding to GMAC on that date.
---------------------------------------------------------------------------
    \239\ CAP White Paper, supra note 234, at 2.
    \240\ See U.S. Department of the Treasury, Treasury Announcement 
Regarding the Capital Assistance Program (Nov. 9, 2009) (online at 
www.financialstability.gov/latest/tg_11092009.html) (hereinafter 
``Treasury Announcement Regarding the CAP'').
---------------------------------------------------------------------------
            c. December 2009 Investment
    Nine of the 10 BHCs that were identified as needing to 
raise additional capital as a result of the stress tests met or 
exceeded their capital raising requirements without government 
assistance.\241\ GMAC was the lone BHC that could not meet the 
required capital target on its own. As Treasury Secretary 
Timothy Geithner stated in his December testimony before the 
Panel, raising money in the private markets ``was never going 
to be possible for GMAC. They are in a unique and difficult 
situation.'' \242\ GMAC's initial inability to raise additional 
money from the capital markets stemmed largely from the 
uncertainty surrounding GM's bankruptcy. Treasury maintains 
that after the GM bankruptcy, GMAC continued to struggle to 
raise money from the private markets because it was the only 
private BHC in the stress tests--the other 18 banks had an 
existing shareholder base--and because its debt holders would 
have demanded a majority of the company's equity in exchange 
for their conversion.\243\ As a result, GMAC was the only 
participant that sought additional TARP funds from Treasury to 
meet the capital buffer needs identified in the stress tests.
---------------------------------------------------------------------------
    \241\ OFS FY 2009 Financial Statements, supra note 205, at 47.
    \242\ Congressional Oversight Panel, Transcript: COP Hearing with 
Treasury Secretary Timothy Geithner (Dec. 10, 2009) (publication 
forthcoming) (online at cop.senate.gov/hearings/library/hearing-121009-
geithner.cfm) (Testimony of Timothy Geithner).
    \243\ Treasury stated that without its assistance, GMAC could have 
raised some of the required capital through conversions; the principal 
challenge was satisfying the SCAP requirement that GMAC raise $3.8 
billion in fresh capital--for GMAC to do this, it would have 
essentially needed to ``give the company to bondholders,'' which would 
have wiped out Treasury's prior investment. Treasury conversations with 
Panel staff (Feb. 2, 2010).
---------------------------------------------------------------------------
    On December 30, 2009, Treasury provided GMAC with $3.8 
billion in new capital.\244\ This amount was $1.8 billion less 
than the remaining $5.6 billion shortfall on the capital buffer 
calculated in May by the Federal Reserve.\245\ The additional 
funds were provided in the form of $2.54 billion in Trust 
Preferred Securities (TruPs) and $1.25 billion in MCP.\246\ 
Treasury also received warrants to purchase $127 million of 
TruPs and $63 million of MCP, which it exercised upon 
closing.\247\ At the same time, Treasury converted $5.25 
billion of its Senior Preferreds to MCP, which have a more 
advantageous conversion rate. It also converted $3 billion of 
its MCP to common stock, increasing its ownership stake from 35 
percent to 56 percent.\248\ Treasury also took the opportunity 
to recut the conversion terms of its existing securities.\249\ 
With its enlarged ownership stake, Treasury has the right to 
appoint four of the nine seats on GMAC's board of 
directors.\250\ In total, Treasury now holds $2.67 billion in 
TruPs and $11.4 billion in MCP. As with the December 2008 and 
May 2009 investments, this investment was made under the 
AIFP.\251\
---------------------------------------------------------------------------
    \244\ December 2009 Restructuring Announcement, supra note 214. The 
transaction closed and was funded on December 30, 2009. Treasury 
conversations with Panel staff (Jan. 6, 2010). Treasury stated that it 
timed the transaction to close in fiscal year 2009 in order to help the 
company become SCAP compliant before year end. Treasury conversations 
with Panel staff (Jan. 8, 2010).
    \245\ December 2009 Restructuring Announcement, supra note 214; 
Treasury Announcement Regarding the CAP, supra note 240 (``[GMAC's] 
capital need is expected to be lower than anticipated at the time the 
SCAP results were announced''); U.S. Department of the Treasury, 
Questions for the Record for U.S. Department of the Treasury Assistant 
Secretary Herbert M. Allison Jr., at 9 (Oct. 22, 2009) (online at 
cop.senate.gov/documents/testimony-102209-allison-qfr.pdf) (hereinafter 
``QFRs for Assistant Secretary Herbert M. Allison''); OFS FY 2009 
Financial Statements, supra note 205, at 62 (``GMAC is in discussions 
with the Treasury-OFS regarding additional financing to complete GMAC's 
post-SCAP capital needs up to the amount of $5.6 billion, as previously 
discussed in May'').
    \246\ December 2009 Restructuring Announcement, supra note 214.
    \247\ December 2009 Restructuring Announcement, supra note 214.
    \248\ December 2009 Restructuring Announcement, supra note 214. 
Cerberus holds a 14.9 percent stake of the company, third-party 
investors hold 12.2 percent, a trust ``managed . . . for the benefit of 
General Motors'' holds 9.9 percent, and an ``affiliate of General 
Motors LLC'' holds 6.7 percent. GMAC, Inc., GMAC Financial Services 
Announces Key Capital and Strategic Actions (Dec. 30, 2009) (online at 
media.gmacfs.com/index.php?s=43&item=377) (hereinafter ``GMAC Announces 
Capital and Strategic Actions'').
    \249\ See December 2009 Restructuring Announcement, supra note 214 
(``Treasury will acquire a `reset' feature on the entirety of its MCP 
holdings such that the conversion price under which its MCP can be 
converted into common equity will be adjusted in 2011, if beneficial to 
Treasury, based on the market price of private capital transactions 
occurring in 2010''); see also Treasury GMAC Contract, supra note 226, 
at 478 (``The Series F-2 shall be convertible to common stock, in whole 
or in part, at the applicable Conversion Rate at the option of the 
holder upon specified corporate events, including any public offering 
of GMAC's common stock, certain sales, mergers or changes of control at 
GMAC''). This feature preserves Treasury's ability to assess whether it 
is advantageous to Treasury to convert considering all the facts and 
circumstances available at the time.
    \250\ December 2009 Restructuring Announcement, supra note 214. The 
increase in ownership stake from 35 percent to 56 percent gave Treasury 
the right to appoint two additional directors.
    \251\ December 2009 Restructuring Announcement, supra note 214.
---------------------------------------------------------------------------
    When GMAC announced this investment in a press release on 
December 30, 2009, it also announced that it was making a $2.7 
billion capital contribution to ResCap and a $1.3 billion 
capital contribution to Ally Bank.\252\ For ResCap, the capital 
contribution permitted the ``reclassification of certain 
international mortgage assets and businesses from held for 
investment (HFI) to held for sale (HFS),'' which resulted in a 
pre-tax charge of $1.3 billion.\253\ Its reclassification of 
domestic assets and businesses incurred a pre-tax charge of 
$700 million.\254\ With the capital contribution in Ally Bank, 
GMAC purchased high-risk mortgage assets at ``fair value'' of 
$1.4 billion, resulting in a pre-tax charge of $1.3 
billion.\255\ GMAC then contributed these high-risk assets to 
ResCap.\256\ In total, GMAC recognized a pre-tax charge of $3.8 
billion: $3.3 billion from the mortgage-related charges at 
ResCap and Ally Bank and $500 million from increasing ResCap's 
repurchase reserve liability.\257\
---------------------------------------------------------------------------
    \252\ GMAC, Inc., Form 8-K for the Period Ending December 31, 2009, 
at Ex. 99.2 (Jan. 5, 2010) (online at www.sec.gov/Archives/edgar/data/
40729/000119312510001220/dex992.htm) (hereinafter ``Form 8-K for Q4 
2009''); GMAC Announces Capital and Strategic Actions, supra note 248.
    \253\ GMAC Announces Capital and Strategic Actions, supra note 248. 
See also Form 8-K for Q4 2009, supra note 252, at Ex. 99.2.
    \254\ GMAC Announces Capital and Strategic Actions, supra note 248. 
See also Form 8-K for Q4 2009, supra note 252, at Ex. 99.2.
    \255\ GMAC Announces Capital and Strategic Actions, supra note 248. 
Prior to GMAC's purchase of these assets, Ally Bank reclassified them 
from HFI to HFS. See Form 8-K for Q4 2009, supra note 252, at Ex. 99.2.
    \256\ GMAC Announces Capital and Strategic Actions, supra note 248. 
See also Form 8-K for Q4 2009, supra note 252, at Ex. 99.2; GMAC 
conversations with Panel staff (Feb. 1, 2010) (discussing its efforts 
to ``ringfence'' ResCap).
    \257\ Form 8-K for Q4 2009, supra note 252, at Ex. 99.2.
---------------------------------------------------------------------------
    Treasury stated that the investment honored its 
``commitments made in May to GMAC in a manner which protects 
taxpayers to the greatest extent possible. These actions offer 
the best chance for GMAC to complete its overall restructuring 
plan and return to the private capital markets for its debt 
financing and capital needs in 2010.'' \258\ Treasury also 
noted that the investment would help to ``provide stability to 
the American auto industry'' \259\ and would demonstrate the 
government's commitment to honoring its promises.\260\
---------------------------------------------------------------------------
    \258\ December 2009 Restructuring Announcement, supra note 214.
    \259\ See December 2009 Restructuring Announcement, supra note 214; 
Treasury conversations with Panel staff (Jan. 8, 2010).
    \260\ Treasury conversations with Panel staff (Jan. 8, 2010).
---------------------------------------------------------------------------
    Treasury used a ``staged'' investment strategy--providing 
one investment in May 2009 and a second investment in December 
2009--as a means of tying future assistance to a satisfactory 
review of certain of GMAC's plans.\261\ The May Term Sheet 
states that any additional Treasury investment would be 
contingent upon its approval of GMAC's capital plan.\262\ GMAC 
submitted the capital plan to the Federal Reserve Bank of 
Chicago on June 8, 2009, and the plan was approved after input 
from both the Federal Reserve and Treasury.\263\
---------------------------------------------------------------------------
    \261\ These conditions were similar, though not identical, to the 
conditions Treasury imposed on GM and Chrysler when it first provided 
the automotive industry with assistance in December 2008. See Section 
H, infra.
    \262\ The Term Sheet also specified that if liquidity was 
``separately addressed,'' then GMAC would also need Treasury's approval 
of its ``Liquidity Plan.'' Treasury GMAC Contract, supra note 226, at 
60. In addition, Treasury's announcement of its May 2009 investment 
states that ``[a]s a participant in the SCAP program, GMAC will 
announce an approved Capital Plan on June 8. This plan will outline how 
GMAC will meet the full $9.1 billion in new capital need identified in 
the SCAP program.'' Treasury Announces Additional Investment in GMAC, 
supra note 225.
    \263\ GMAC, Inc., Form 10-Q for the Quarter Ended June 30, 2009, at 
110 (Aug. 7, 2009) (online at www.sec.gov/Archives/edgar/data/40729/
000119312509169238/0001193125-09-169238-index.htm); GMAC conversations 
with Panel staff (Feb. 16, 2010). In addition, Treasury used the 
December 2009 investment as an opportunity to acquire some control over 
the future conversion of its MCP stock. Because converting Treasury's 
sizeable MCP stock would substantially dilute any existing 
shareholders, the right to determine the timing of this conversion 
provided Treasury with additional control over GMAC's capital 
decisions. In a decision not characteristically taken in an arm's 
length capital infusion situation, Treasury determined that it did not 
need to review GMAC's business plan prior to making the December 2009 
investment, giving the new CEO and Board of Directors time to formulate 
GMAC's go-forward business plan. Treasury conversations with Panel 
staff (Feb. 2, 2010).
---------------------------------------------------------------------------

               FIGURE 7: FLOWCHART OF INVESTMENTS \264\ 

[GRAPHIC] [TIFF OMITTED] 54875A.005

---------------------------------------------------------------------------
    \264\ These figures reflect the corresponding warrants that were 
exercised immediately. U.S. Department of the Treasury, Troubled Asset 
Relief Program Transactions Report for Period Ending February 25, 2010 
(Mar. 4, 2010) (online at www.financialstability.gov/docs/transaction-
reports/3-1-10%20Transactions%20Report%20as%20of%202-25-10.pdf) 
(hereinafter ``Treasury Transactions Report'').
---------------------------------------------------------------------------

3. Government Support from Programs Other Than the TARP

            a. The FDIC's Temporary Liquidity Guarantee Program
    In the second quarter of 2009, GMAC received approval to 
issue debt up to $7.4 billion under the FDIC's TLGP.\265\ 
Pursuant to the program, it issued $4.5 billion of unsecured 
long-term debt during the second quarter, which included $3.5 
billion of senior fixed-rate notes and $1.0 billion of senior 
floating rate notes. Both types of notes are due in December 
2012.\266\ On October 30, 2009, GMAC issued an additional $2.9 
billion of unsecured debt in the form of senior fixed-rate 
notes. These notes are due in October 2012.\267\
---------------------------------------------------------------------------
    \265\ GMAC Form 10-Q for Q3 2009, supra note 22, at 64.
    \266\ GMAC Form 10-K for 2009, supra note 12, at 83.
    \267\ GMAC Form 10-Q for Q3 2009, supra note 22, at 64.
---------------------------------------------------------------------------
            b. The Federal Reserve's Discount Window and Term Auction 
                    Facility
    Ally Bank was eligible to borrow at the Federal Reserve's 
discount window, and becoming a BHC made GMAC eligible to 
participate in the Term Auction Facility (TAF), a Federal 
Reserve program that auctions funds to depository 
institutions.\268\ The program aims to ``ensure that liquidity 
provisions can be disseminated efficiently even when the 
unsecured interbank markets are under stress'' by providing 
funds ``against a broader range of collateral than open market 
operations,'' according to the Federal Reserve.\269\ On 
December 31, 2009, according to GMAC, ``Ally Bank had pledged 
collateral in an amount sufficient to generate total capacity 
of $7.8 billion of which $5.0 billion was outstanding and $2.8 
billion was unused capacity.'' \270\
---------------------------------------------------------------------------
    \268\ See Federal Reserve Bank of New York, Term Auction Facility 
Questions and Answers (Jan. 12, 2009) (online at 
www.federalreserve.gov/monetarypolicy/taffaq.htm#q3).
    \269\ Federal Reserve Bank of New York, Term Auction Facility 
Questions and Answers (Jan. 12, 2009) (online at 
www.federalreserve.gov/monetarypolicy/taffaq.htm#q1).
    \270\ GMAC Form 10-K for 2009, supra note 12, at 83.
---------------------------------------------------------------------------
            c. The Federal Reserve's Term Asset-Backed Securities Loan 
                    Facility
    The Federal Reserve launched the Term Asset-Backed 
Securities Loan Facility (TALF) on November 25, 2008. The 
program intends to support lending by financing credit through 
ABS.\271\
---------------------------------------------------------------------------
    \271\ A more extensive discussion of the TALF and its impact on 
lending can be found in the Panel's May report. Congressional Oversight 
Panel, May Oversight Report: Reviving Lending to Small Businesses and 
Families and the Impact of the TALF (May 7, 2009) (online at 
cop.senate.gov/documents/cop-050709-report.pdf).
---------------------------------------------------------------------------
    GMAC made two offerings of TALF-eligible securities in 
2009,\272\ the first in September and the second in 
November.\273\ Backed by retail automotive loans, the 
transactions totaled $2.2 billion. GMAC stated that it expected 
to ``continue pursuing the execution of TALF-eligible 
transactions during the first quarter of 2010,'' \274\ and in 
February 2010 made a $1.4 billion offering of securities, of 
which $900 million of were TALF-eligible, backed by wholesale 
automotive loans.\275\
---------------------------------------------------------------------------
    \272\ GMAC Form 10-K for 2009, supra note 12, at 83.
    \273\ GMAC, Inc., GMAC Financial Services Reports Preliminary Third 
Quarter 2009 Financial Results (Nov. 4, 2009) (online at 
media.gmacfs.com/index.php?s=43&item=371) (hereinafter ``GMAC Reports 
Preliminary Q3 2009 Results'').
    \274\ GMAC Form 10-K for 2009, supra note 12, at 83.
    \275\ Data provided to the Panel by GMAC.
---------------------------------------------------------------------------
            d. The Federal Reserve's Commercial Paper Funding Facility
    GMAC has participated in the Federal Reserve's Commercial 
Paper Funding Facility (CPFF) since the program became 
operational on October 27, 2008. As a participant, GMAC has 
sold asset-backed commercial paper to the Federal Reserve 
through its New Center Asset Trust (NCAT). By December 31, 
2008, GMAC had approximately $8 billion of outstanding asset-
backed commercial paper, 95 percent ($7.6 billion) of which was 
financed by the CPFF.\276\
---------------------------------------------------------------------------
    \276\ GMAC Form 10-K for 2008, supra note 10, at 80.
---------------------------------------------------------------------------
    On November 25, 2008, Moody's and S&P downgraded some of 
the ABS owned by NCAT.\277\ On January 23, 2009, after NCAT was 
unable to secure a ratings upgrade, GMAC began a wind-down of 
NCAT's operations. As a consequence of entering this wind-down 
process, NCAT could no longer issue commercial paper.\278\ The 
downgrade also prevented NCAT from participating in the 
CPFF.\279\ As of December 31, 2009, GMAC had approximately $2.9 
billion outstanding under NCAT.\280\
---------------------------------------------------------------------------
    \277\ GMAC Form 10-K for 2008, supra note 10, at 80. The commercial 
paper was downgraded below A-1/P-1. GMAC, Inc., Form 10-Q for the 
Quarter Ended June 30, 2009, at 101 (Aug. 7, 2009) (online at 
www.sec.gov/Archives/edgar/data/40729/000119312509169238/d10q.htm) 
(hereinafter ``GMAC Form 10-Q for the Q3 2009'').
    \278\ GMAC Form 10-K for 2008, supra note 10, at 80.
    \279\ GMAC Form 10-Q for the Q3 2009, supra note 277, at 101.
    \280\ GMAC Form 10-K for 2009, supra note 12, at 88.
---------------------------------------------------------------------------

4. Impact of the TARP on Executive Compensation

    Mr. Carpenter was appointed CEO of GMAC in November 2009. 
Subsequently, a pay package was developed by the GMAC 
Compensation Committee and submitted to Special Master for TARP 
Executive Compensation Kenneth Feinberg for approval.\281\ The 
Special Master set the compensation for Mr. Carpenter in a 
determination letter dated December 20, 2009 as follows in 
Figure 8:
---------------------------------------------------------------------------
    \281\ GMAC is subject to executive compensation levels set by 
Treasury's Special Master Feinberg because the company is classed by 
Treasury regulations as one of a group of companies that has received 
``exceptional assistance'' under the TARP.

              FIGURE 8: COMPENSATION OF MR. CARPENTER \282\
------------------------------------------------------------------------
              Base salary
---------------------------------------    Restricted      Target total
                        Deferred stock    stock units      compensation
         Cash               units
------------------------------------------------------------------------
$950,000                   $5,415,000       $3,135,000       $9,500,000
------------------------------------------------------------------------
\282\ U.S. Department of the Treasury, Supplemental Determination
  Regarding 2009 Compensation Payments for the Chief Executive Officer
  (Dec. 23, 2009) (online at www.financialstability.gov/docs/
  20091223%20GMAC%20Supplemental%20Determination%20Letter.pdf).

    A portion of Mr. Carpenter's salary comprises deferred 
stock units (DSUs), which vest immediately, but are subject to 
restrictions on the timing of payout: ``DSUs cannot be paid out 
until at least two years after the date of grant. After the 
two-year time restriction has passed, the DSUs will be paid out 
in installments beginning immediately and continuing over the 
next three years.'' Another portion of Mr. Carpenter's salary 
comprises restricted stock units (RSUs), which ``vest in full 
three years after they are granted.'' After the vesting 
requirement is met, payouts will be made only ``when the 
Company starts to repay its TARP obligations. Payouts will be 
made on an incremental basis.'' \283\
---------------------------------------------------------------------------
    \283\ GMAC Form 10-K for 2009, supra note 12, at 224-225.
---------------------------------------------------------------------------
    The Panel believes that the levels of compensation set for 
the CEO of GMAC (and of other companies classed as receiving 
``exceptional assistance'' under the TARP) raise significant 
questions, which the Panel will continue to study. These 
include whether particular levels of compensation are either 
necessary or appropriate, the nature of the incentives the 
compensation creates, and the manner in which Treasury is 
exercising its authority under the EESA compensation 
restrictions as amended by the American Recovery and 
Reinvestment Act of 2009 (ARRA).

                E. Justification for the Rescue of GMAC

    Treasury presents a twofold justification for its 
intervention in GMAC: first, GMAC's significance to the 
automotive industry and to GM and Chrysler in particular; and 
second, GMAC's inclusion in the stress tests, pursuant to which 
Treasury committed to provide funds for BHCs that could not 
raise funds privately. Treasury has declined to say whether 
either one of these factors in the absence of the other would 
have led to the same result, explaining that it was dealing 
with the facts as they existed at the time of the intervention 
and that Treasury staff cannot speculate on the outcome of 
hypothetical events.\284\
---------------------------------------------------------------------------
    \284\ Treasury conversations with Panel staff (Jan. 8, 2010); 
Treasury conversations with Panel staff (Jan. 29, 2010).
---------------------------------------------------------------------------

1. GMAC's Significance to the Financing of the Automotive Industry

            a. Automobile Companies' Reliance on GMAC
    Treasury's first justification for support of GMAC is the 
role played by GMAC in automotive industry financing.\285\ In 
answers to questions posed by the Panel, Assistant Secretary of 
the Treasury for Financial Stability Herb Allison stated that 
Treasury's assistance to GMAC has provided a ``reliable source 
of financing to both auto dealers and customers seeking to buy 
cars,'' helped ``stabilize our auto financing market,'' and 
contributed ``to the overall economic recovery.'' \286\ As 
discussed in more detail below, GMAC is a primary source of 
retail and wholesale financing for both GM and Chrysler. In 
conversations with Panel staff, Treasury stated that if 
Treasury had refused to support GMAC after providing assistance 
to GM and Chrysler, it would have undermined the government's 
investments in the automotive companies.\287\
---------------------------------------------------------------------------
    \285\ Treasury stated that its desire to ensure that GMAC's non-
automobile operations, including ResCap, continue operation played a 
``minimal, at most'' role in its decision to support GMAC. Treasury 
conversations with Panel staff (Jan. 29, 2010).
    \286\ QFRs for Assistant Secretary Herbert M. Allison, supra note 
245. See also July 2009 SIGTARP Report, supra note 133, at 112 
(``Treasury has stated that it believes its investment in GMAC will 
help provide a reliable source of financing to both auto dealers and 
customers seeking to buy cars, and that a recapitalized GMAC will offer 
strong credit opportunities, help stabilize the auto financing market, 
and contribute to the overall economic recovery'').
    \287\ Treasury conversations with Panel staff (Jan. 8, 2010); 
Treasury conversations with Panel staff (Jan. 29, 2010).
---------------------------------------------------------------------------
    According to Treasury, it is almost certain that GMAC and 
Chrysler Financial would have failed without Treasury's 
intervention.\288\ Relying on outside industry estimates, 
Treasury stated that the impact of letting GMAC and Chrysler 
Financial fail (together with credit conditions) would likely 
have been a further immediate decline of 1.5 to 2.5 million 
domestic automobile sales, primarily because of these 
companies' roles in providing floorplan financing to GM and 
Chrysler dealers.\289\ Treasury believes that such a decline in 
sales would, in turn, have immediately threatened the economic 
viability of GM and Chrysler.\290\
---------------------------------------------------------------------------
    \288\ Treasury conversations with Panel staff (Jan. 8, 2010).
    \289\ Treasury conversations with Panel staff (Feb. 2, 2010).
    \290\ Treasury conversations with Panel staff (Feb. 2, 2010); 
Written Testimony of Ron Bloom and Jim Millstein, supra note 73, at 3 
(``Without government assistance, GMAC would have been forced to 
suspend financing lines to creditworthy dealerships, leaving them 
unable to purchase automobile inventory for their lots. Without orders 
for cars, GM would have been forced to slow or shut down its factories 
indefinitely to match the drop in demand. Given its significant 
overhead, a slow-down or stoppage in production of this magnitude would 
have toppled GM'').
---------------------------------------------------------------------------
    GM similarly has taken the position that the continued 
solvency of GMAC was crucial for GM's ability to continue 
operating, especially in the context of the financial crisis. 
In December 2008, GM Chief Executive Rick Wagoner stated that 
``GMAC's difficulties were `hammering' the carmaker's ability 
to sell automobiles.'' \291\ The importance of GMAC for GM's 
sales is underscored in GM's public filings and discussions 
with the Panel staff, in which GM explained that GMAC's severe 
financial difficulties in late 2008 and the first quarter of 
2009 were an important independent contributing factor in its 
ability to sell automobiles. GM emphasized its historical and 
continued reliance on GMAC for financing and explained that 
when GMAC tightened its floorplan financing to GM dealers and 
radically rolled back its retail lending (including a complete 
cessation of lease finance by the end of 2008), vehicle sales 
declined.\292\ In discussions between the Panel staff and GM, 
the company repeated its contention that the continuation of 
financing from GMAC, especially floorplan financing, was 
essential for GM's continued ability to operate in 2008 and 
2009 and that a complete disruption of floorplan financing--as 
opposed to the relatively minor credit contraction that 
actually occurred--would have crippled the company.\293\
---------------------------------------------------------------------------
    \291\ Soyoung Kim and Karen Brettell, GM Shares Up, GMAC May be 
Eyeing $6 Billion Loans, Reuters (Dec. 26, 2008) (online at 
www.reuters.com/article/idUSTRE4BP27120081227).
    \292\ Motors Liquidation Co., Form 10-Q for the Quarter Ended March 
31, 2009, Part II, Item 1, at 108 (May 8, 2009) (online at www.sec.gov/
Archives/edgar/data/40730/000119312509105365/d10q.htm) (hereinafter 
``Motors Liquidation Form 10-Q for Q2 2009'') (explaining that ``[a]s a 
result'' of reduced consumer finance by GMAC in this period, ``the 
number of vehicles sold with a subsidized financing rate or under a 
lease contract declined rapidly in the second half of the year, with 
lease contract volume dropping to zero by the end of 2008. This had a 
significant effect on our vehicles sales overall, since many of our 
competitors have captive finance subsidiaries that were better 
capitalized than GMAC and thus were able to offer consumers subsidized 
financing and leasing offers''). In addition, GM stated that the 
declining availability of GMAC wholesale financing to GM dealers 
``caused and will likely continue to cause dealers to modify their 
plans to purchase vehicles from us.'' Id.
    \293\ GM conversations with Panel staff (Feb. 12, 2010).
---------------------------------------------------------------------------
    Treasury provides a similar rationale for the additional 
support it provided GMAC in order to assume the wholesale and 
retail financing of Chrysler dealers and customers from 
Chrysler Financial. On April 30, 2009, when Chrysler filed for 
bankruptcy, GMAC entered into an agreement with Chrysler that 
made GMAC the ``preferred provider of new wholesale financing 
for Chrysler dealer inventory.'' \294\ In its announcement of 
this agreement, GMAC stated that the government ``indicated 
that it intends to support GMAC in promoting the availability 
of credit for dealers and customers by making liquidity and 
capital available and by providing the capitalization that GMAC 
requires to support the Chrysler business.'' \295\ With GMAC 
moving quickly into the business of providing Chrysler 
financing, Chrysler Financial has begun to wind down the 
minimal portion of its operations not assumed by GMAC and aims 
to complete the process by December 31, 2011.\296\ GMAC's 
relatively rapid assumption of most of Chrysler Financial's 
floorplan lending business provides the justification for 
support of GMAC to encompass the credit needs of Chrysler 
dealers and car purchasers.
---------------------------------------------------------------------------
    \294\ GMAC LLC, GMAC Financial Services Enters Agreement to Provide 
Financing for Chrysler Dealers and Customers (Apr. 30, 2009) (online at 
gmacfs.mediaroom.com/index.php?s=43&item=324) (hereinafter ``GMAC to 
Provide Financing for Chrysler Dealers and Customers'').
    \295\ GMAC to Provide Financing for Chrysler Dealers and Customers, 
supra note 294.
    \296\ See letter from Kenneth R. Feinberg, special master for TARP 
executive compensation, to Tracy Hackman, vice president, general 
counsel and secretary, Chrysler Financial, Proposed Compensation 
Payments and Structures for Senior Executive Officers and Most Highly 
Compensated Employees, Annex A, at A5 (Oct. 22, 2009) (online at 
treas.gov/press/releases/docs/
20091022%20Chrysler%20Financial%20Letter.pdf). Treasury explained that 
it began to orchestrate the transfer of most of Chrysler Financial's 
business into GMAC because it realized in the Spring 2009 that by July 
2009, Chrysler Financial would be unable to meet its financing 
requirements. Treasury indicated that while parties explored merging 
Chrysler Financial with GMAC, such a solution would have been 
impractical because GMAC would assume all of Chrysler's debt 
obligations (and problems within its legacy portfolio). Instead, 
Treasury decided that it would allow the legacy portfolio to be placed 
in run-off and then capitalize the GMAC system that it believes has 
been shown to work. Treasury conversations with Panel staff (Feb. 2, 
2010).
---------------------------------------------------------------------------
    Industry analysts and market participants who were 
consulted by the Panel overwhelmingly agreed that GM and 
Chrysler were heavily reliant on GMAC and Chrysler Financial--
and, after May 2009, on GMAC alone--for the provision of 
floorplan financing for dealers who held their franchises.\297\ 
They underscored the considerable aggregate credit needs of 
GM's and Chrysler's vast network of dealers, the need for 
floorplan credit to be renewed continually to ensure that 
dealers would have funds to take inventory, and the 
considerable infrastructure and historical ties that GMAC had 
developed to meet these needs.\298\ Industry sources also 
generally agreed that while GMAC had historically been crucial 
in providing some consumer financing for GM, particularly 
subvented financing, GM was considerably less dependent overall 
on GMAC for consumer financing than for floorplan 
financing.\299\
---------------------------------------------------------------------------
    \297\ National Automobile Dealers Association conversations with 
Panel staff (Feb. 2, 2010); industry analyst conversations with Panel 
staff; market participants conversations with Panel staff.
    \298\ National Automobile Dealers Association conversations with 
Panel staff (Feb. 2, 2010); industry analyst conversations with Panel 
staff; market participants conversations with Panel staff.
    \299\ National Automobile Dealers Association conversations with 
Panel staff (Feb. 2, 2010); industry analyst conversations with Panel 
staff; market participants conversations with Panel staff.
---------------------------------------------------------------------------
    In addition to speaking to Treasury, GMAC, GM, and industry 
sources, the Panel reviewed data on automotive financing. The 
Panel's review of this data supports the automobile 
manufacturers' and Treasury's contentions that GMAC and 
Chrysler Financial provided important financing for the 
wholesale and consumer customers of GM and Chrysler. In 
general, GMAC and Chrysler Financial provided financing almost 
exclusively to dealers affiliated with GM and Chrysler, 
respectively, and to purchasers of automobiles manufactured by 
these companies; their role in financing GM's and Chrysler's 
competitors was negligible. GMAC and Chrysler Financial were, 
however, a significant source of GM's and Chrysler's financing 
needs--especially for floorplan financing but also in some 
segments of the consumer financing market.
    GMAC's financial statements demonstrate that it derives 
significant revenues from automotive financing. Before the 
financial crisis, around a third of GMAC's revenue came from 
its GAF operations, with net revenue of nearly $5 billion in 
2007.\300\ Those revenues are primarily derived from GM 
customers and dealers, as demonstrated in more detail by the 
charts below.
---------------------------------------------------------------------------
    \300\ GMAC Form 10-K for 2008, supra note 10, at 35.
---------------------------------------------------------------------------
    From the point of view of GM dealers, GMAC has provided the 
vast majority of floorplan financing received--typically 
between 80 and 85 percent of total GM international and North 
American sales \301\--and this percentage has remained 
relatively stable through both GMAC's transition to non-captive 
status and the stresses caused by the financial crisis and 
other recent shocks to the automotive industry and market. The 
balance of the floorplan financing needs of GM dealers was 
provided by national and regional banks.\302\ In contrast, 
GMAC's role in financing non-GM dealers was negligible, 
typically amounting to only three percent of GMAC's floorplan 
business and not a substantial proportion of floorplan 
financing for any other OEM's dealers.
---------------------------------------------------------------------------
    \301\ The proportion of GM U.S. sales supported by GMAC floorplan 
financing has historically been slightly higher: approximately 85 
percent at year-end 2008 and 91 percent at year-end 2009. See Written 
Statement of Robert Hull, supra note 141, at 3.
    \302\ See Written Testimony of Ron Bloom and Jim Millstein, supra 
note 73, at 4 (``For example, in December 2008, 75% of GM dealers 
received their financing from GMAC while the next five lenders made up 
only 8%. The remaining dealers were serviced by 200 banks, most of 
which provided financing for only a single dealer'').

                        FIGURE 9: GMAC FLOORPLAN FINANCING TO GM AND NON-GM DEALERS \303\
----------------------------------------------------------------------------------------------------------------
                                                     2005         2006         2007         2008         2009
----------------------------------------------------------------------------------------------------------------
Total GM Units.................................    6,260,000    6,122,000    6,093,000    5,404,000    3,876,000
Total GM Units NA..............................    3,798,000    3,464,000    3,161,000    2,540,000    1,374,000
Total GM Units Int'l...........................    2,462,000    2,658,000    2,932,000    2,864,000    2,502,000
Non GM Units...................................      180,000      145,000      199,000      196,000  \304\ 249,0
                                                                                                              00
Percent of GM Sales............................          82%          80%          82%          81%          78%
Percent of GM NA...............................          80%          76%          77%          76%          77%
Percent of GM Int'l............................          84%          86%          88%          85%         79%
----------------------------------------------------------------------------------------------------------------
\303\ See GMAC LLC and GMAC, Inc., Forms 10-K for the Fiscal Years Ended December 31, 2003-2009 (online at
  www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0000040729&type=10-K&dateb=&owner=exclude&count=40)
  (hereinafter ``GMAC Forms 10-K for FY 2003-2009'').
\304\ Of the 249,000 non-GM units GMAC financed through its wholesale financing, 131,000 were financings of
  Chrysler units compared to only 7,000 Chrysler units in 2008. See GMAC Form 10-K for 2009, supra note 12, at
  47.

   FIGURE 10: GMAC FLOORPLAN FINANCING TO GM AND NON-GM DEALERS \305\

---------------------------------------------------------------------------
    \305\ See GMAC Forms 10-K for FY 2003-2009, supra note 303. This 
chart includes North American and international sales.

[GRAPHIC] [TIFF OMITTED] 54875A.006


    The heavy reliance of GM dealers on GMAC for floorplan 
financing is typical of the industry; the majority of floorplan 
financing for dealers of a particular OEM has historically been 
provided by the OEM's captive (or former captive) finance 
company.\306\ A similar pattern is apparent with respect to 
Chrysler, where Chrysler Financial has historically provided 
between 70 and 75 percent of Chrysler dealers' floorplan 
financing.\307\ GMAC has rapidly replaced Chrysler Financial as 
the prime supplier of floorplan financing for Chrysler dealers, 
and by the end of 2009, it provided wholesale financing for 77 
percent of Chrysler dealership inventory in the United States, 
which is substantially the same proportion of floorplan 
financing that it provided before the financial crisis.\308\
---------------------------------------------------------------------------
    \306\ For example, Ford Motor Credit provided a roughly equivalent 
proportion of floorplan financing to Ford North American dealerships 
that GMAC provided to GM North American dealers. In 2006, Ford Motor 
Credit supplied 80 percent of floorplan credit; in 2007, 78 percent of 
floorplan credit; and in 2008, 77 percent of floorplan credit. See Ford 
Motor Company, Form 10-K for the Fiscal Year Ended December 31, 2008, 
at 10, 49, 52 (Feb. 26, 2009) (online at www.sec.gov/Archives/edgar/
data/37996/000114036109005071/form10k.htm); Ford Motor Company, Form 
10-K for the Fiscal Year Ended December 31, 2007, at 10, 46-50 (Feb. 
27, 2008) (online at www.sec.gov/Archives/edgar/data/37996/
000114036108005181/form10k.htm).
    \307\ See Figure 11, infra. Compared to GMAC, Chrysler Financial 
historically did a higher proportion of its floorplan financing 
business with dealers associated with its OEM, with average monthly 
non-Chrysler units financed generally constituting 20-25 percent of 
Chrysler Financial's floorplan business. See id.
    \308\ See Figure 11, infra. See also GMAC, Inc., GMAC Statement on 
Financing of Chrysler Dealers, Customers (Nov. 5, 2009) (online at 
media.gmacfs.com/index.php?s=43&item=372) (hereinafter ``GMAC Statement 
on Financing of Chrysler Dealers, Customers'') (reporting that as of 
November 2009, GMAC was providing wholesale financing for 85 percent of 
dealer inventory in Canada). Based on other metrics, such as floorplan 
loans outstanding and number of units financed, however, the transfer 
of Chrysler dealers' floorplan financing from Chrysler Financial to 
GMAC has been more gradual. See Note 341, infra.

                    FIGURE 11: CHRYSLER FINANCIAL (SUBSEQUENTLY GMAC) FLOORPLAN FINANCING TO CHRYSLER AND NON-CHRYSLER DEALERS \309\
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                 Q3 2009
                                                            2005       2006       2007       2008     Q1 2009      Q2 2009        \310\        Q4 2009
--------------------------------------------------------------------------------------------------------------------------------------------------------
Share of Chrysler U.S. Sales...........................        70%        73%        75%        75%        74%          Not           67%          77%.
                                                                                                                  Available
Average Monthly Chrysler Units Financed \311\..........    407,000    406,000    355,000    308,000    262,000          Not           Not           Not
                                                                                                                Available \3    Available    Available.
                                                                                                                        12\
Average Monthly Non-Chrysler Units Financed............     90,000     71,000     69,000     60,000     44,000          Not           Not           Not
                                                                                                                  Available     Available   Available.
--------------------------------------------------------------------------------------------------------------------------------------------------------
\309\ Unless otherwise noted, the table is based on data provided to the Panel from Chrysler Financial. All data contained in the table reflects
  financing of U.S. Chrysler dealers. Unit numbers have been rounded to the nearest thousand.
\310\ Third and fourth quarter 2009 figures represent GMAC's provision of floorplan financing to Chrysler dealers. See Written Statement of Robert Hull,
  supra note 141, at 3.
\311\ Unlike GMAC, Chrysler Financial did not track total units financed, but instead tracked average monthly units in dealer inventories that were
  supported by Chrysler Financial floorplan lending. An estimate of units financed per year cannot be derived from the monthly figures because vehicles
  often remain on dealer lots for more than one month and are thus reflected in more than one month's numbers.
\312\ Chrysler Financial stopped financing new floorplan loans in April 2009 with the transition of its floorplan financing business to GMAC. GMAC does
  not disclose comparable data.

    In contrast to floorplan financing, automobile credit 
companies face greater competition in the consumer finance 
market from national and regional banks and credit unions.\313\ 
Despite the relatively competitive environment, however, both 
GM and Chrysler relied on their credit companies for a 
substantial portion of their consumer financing.
---------------------------------------------------------------------------
    \313\ See Figure 2, supra.
---------------------------------------------------------------------------
    In 2006, despite its spin-off from its parent, GMAC still 
provided 38 percent of GM's consumer financing, a figure that 
included 48 percent of financing for its North American 
sales.\314\ GM relied on GMAC even more heavily, however, for 
particular types of consumer financing; as GM stated in its 
public filings, GMAC ``finances a significant percentage of our 
global vehicle sales and virtually all of our U.S. sales 
involving subsidized financing such as below-market interest 
rates.'' \315\ In fact, approximately 80 percent of GMAC's 
consumer financing has historically been subvented 
financing.\316\
---------------------------------------------------------------------------
    \314\ See Figure 12.
    \315\ Motors Liquidation Form 10-Q for Q2 2009, supra note 292, at 
108.
    \316\ GMAC Form 10-K for 2008, supra note 10, at 163.

                               FIGURE 12: GMAC CONSUMER AUTOMOBILE FINANCING \317\
----------------------------------------------------------------------------------------------------------------
                                                     2005         2006         2007         2008         2009
----------------------------------------------------------------------------------------------------------------
Total Units....................................    2,157,000    2,198,000    2,092,000    1,564,000    1,115,000
GM Units.......................................    2,085,000    2,130,000     1,984,00    1,468,000      840,000
Non GM Units...................................       72,000       68,000      108,000       96,000      111,000
Percent of GM Sales/Leases.....................          36%          38%          35%          32%           20
Percent of GM NA...............................          42%          48%          45%          38%           27
Percent of GM Int'l............................          26%          24%          23%          25%          14
----------------------------------------------------------------------------------------------------------------
\317\ See GMAC Forms 10-K for FY 2003-2009, supra note 303.

          FIGURE 13: GM RETAIL SALES BY FINANCING SOURCE \318\


    \318\ Data provided to the Panel by J.D. Power and Associates. 
    [GRAPHIC] [TIFF OMITTED] 54875A.007
    
    With respect to Chrysler, before the crisis, approximately 
70 percent of the consumer purchases at Chrysler dealers were 
provided by Chrysler Financial, with the rest coming from local 
banks and credit unions.\319\ Although GMAC rapidly assumed 
most of Chrysler Financial's floorplan financing of Chrysler 
dealers, GMAC's assumption of Chrysler Financial's consumer 
financing has been neither as swift nor as complete. During the 
fourth quarter of 2009, GMAC was the leading provider of 
consumer financing for Chrysler vehicles in the United States, 
providing financing for 25.5 percent of retail sales.\320\ 
While GMAC's share is increasing, it is still substantially 
below the pre-transition figure, and it is not clear whether 
Chrysler consumers have permanently shifted a portion of their 
financing business to GMAC's competitors.
---------------------------------------------------------------------------
    \319\ See Chrysler Bankruptcy Filing (April 30, 2009) In re 
Chrysler LLC, et al., Bankr. S.D.N.Y. (No. 09-50002-ajg) (online at 
graphics8.nytimes.com/packages/images/nytint/docs/chrysler-bankruptcy-
filing/original.pdf).
    \320\ Data provided to the Panel by J.D. Power and Associates 
(reporting 35 percent by fourth quarter 2009); Written Statement of 
Michael Carpenter, supra note 140, at 1 (reporting that GMAC financed 
25.5 percent of Chrysler retail sales in the United States); GMAC 
Reports Preliminary Q4 and Full-Year 2009 Results, supra note 127 
(reporting that GMAC financed 25.5 percent of Chrysler's U.S. retail 
sales in the fourth quarter of 2009 in October 2009, compared to 13.3 
percent in the third quarter of 2009).
    Chrysler Financial no longer engages in new dealer financing. See 
Chrysler Financial, Chrysler Financial Restructures Its Business 
Operations (June 30, 2009) (online at corp.chryslerfinancial.com/
news_business_restructure.html). Instead, it provides ``dealership 
insurance and consumer retail financing products.'' Id. During the 
wind-down process, it will also continue to ``service and collect on 
its on-going loan portfolio of about $45 billion.'' Id.
---------------------------------------------------------------------------

       FIGURE 14: CHRYSLER RETAIL SALES BY FINANCING SOURCE \321\

---------------------------------------------------------------------------
    \321\ Data provided to the Panel by J.D. Power and Associates.
    [GRAPHIC] [TIFF OMITTED] 54875A.008
    
    These data support the position that both GMAC and Chrysler 
Financial were important suppliers of credit for GM's and 
Chrysler's operations, especially with respect to floorplan 
financing. In line with the historical relationship between 
OEM's and their captive financing arms, GMAC and Chrysler 
Financial provided the vast majority of floorplan financing for 
their respective OEMs' dealers even after GMAC and Chrysler 
Financial lost their subsidiary status, while the provision of 
retail financing was much less consolidated.
            b. Could Financing Have Been Provided by Other Market 
                    Participants?
    The financial crisis disrupted the automotive financing 
market in several different ways, constraining the ability of 
all market participants to provide wholesale or retail 
financing.
    In December 2008 and January of 2009, the credit ratings of 
GMAC and Chrysler Financial were each downgraded,\322\ which, 
in turn, raised their borrowing costs. The securitization 
market, GMAC's primary source of funds for its automobile 
finance operations, dried up. While GMAC had a bank with access 
to the Federal Reserve's discount window and the TLGP beginning 
at the end of 2008, it was unable to use bank funds to finance 
loans to GM dealers until May 2009 because of restrictions on 
related-party transactions.\323\ The result was that GMAC 
rolled back its consumer lending in order to focus on providing 
floorplan lending, which GMAC believed was key to the survival 
of both itself and GM, and where it believed it could not 
easily be replaced.\324\ Thus, despite the challenging 
financial climate, GMAC slightly expanded, and Chrysler 
Financial maintained, their respective market shares in 
floorplan financing. GMAC did, however, respond to its 
difficulties in raising funds by raising interest rates on 
floorplan loans and tightening its floorplan financing 
standards \325\--actions that theoretically presented an 
opportunity for some dealers to seek third-party lending from 
other market participants.
---------------------------------------------------------------------------
    \322\ See Bloomberg Data (Fitch downgraded GMAC's Senior Unsecured 
Debt to ``RD'' from ``CCC'' on January 9, 2009); Standard and Poor's, 
DaimlerChrysler Financial Services Americas LLC Rating Lowered to `CCC-
'; on Watch Dev., at 2 (Dec. 23, 2008).
    \323\ GMAC conversations with Panel staff (Feb. 1, 2010); industry 
analysts conversations with Panel staff. In late December 2008, GMAC 
received an exemption from the related-party restrictions for its 
retail loans, but it did not receive an exemption for its dealer loans 
until May 2009. See Section C.2, supra. Representatives of the credit 
union industry, while conceding the need to bail out GMAC to avoid a GM 
bankruptcy, object to the GMAC's continuing receipt of bailout-related 
subsidies and liquidity and, most significantly, its open-ended ability 
to fund its automobile lending with deposits from Ally Bank. Panel 
discussions with credit industry representatives. They believe that 
these measures provide GMAC with an unfair competitive advantage in 
making retail loans to purchasers of GM automobiles. Id. This complaint 
raises the question of whether GMAC's access to federally-insured 
deposits through Ally Bank, the ``covered transactions'' exemptions it 
has received under Section 23A of the Federal Reserve Act, see Section 
C.2, supra, and its status as a hybrid BHC/quasi-captive automobile 
finance company are appropriate going forward in a non-emergency 
context, see Section H.2., infra.
    \324\ GMAC conversations with Panel staff (Feb. 1, 2010); industry 
analysts conversations with Panel staff.
    \325\ GMAC conversations with Panel staff (Feb. 16, 2010).
---------------------------------------------------------------------------
    Few bank competitors, however, stepped up as the captive 
finance companies struggled. The Panel staff's discussions with 
numerous market participants, market analysts, and experts in 
finance and economics suggest that if GMAC's floorplan lending 
were significantly disrupted in the end of 2008 and the first 
half of 2009, it was highly unlikely that, absent significant 
government backing, other market participants could have 
compensated for the loss of floorplan lending to preserve GM's 
operations absent significant government backing.
    The primary obstacle facing national and regional banks was 
that the industry had entered a risk-reduction mode, with 
depository banks curtailing their lending during the financial 
crisis because of their large and uncertain exposures to real 
estate-related assets; the dramatic slowdown in the economy; 
and their needs to write down assets and to boost capital 
ratios.\326\ In addition, banks were subject to some of the 
same pressures in funding their floorplan lending as the 
finance companies. Nine out of the top ten non-captive 
providers of floorplan financing were depository 
institutions.\327\ While financing companies, including GMAC, 
traditionally funded their operations through access to 
wholesale finance markets and funded their floorplan lending 
through the securitization markets, banks supported their 
floorplan lending by adding assets to their balance sheets, 
financed by funds raised in the wholesale finance market and 
consumer deposits from their affiliated banks.\328\ During the 
financial crisis, banks faced a significant disruption in their 
access to the wholesale finance market. Moreover, if banks 
lacked the appetite to increase substantially the amount of 
floorplan loans in their portfolios, they could not reduce 
their exposure by securitizing these loans. In 2008 and the 
first part of 2009, floorplan securitization almost completely 
evaporated until the TALF slowly began to revive the moribund 
floorplan securitization market.\329\ Another indication of 
banks' low appetite for forging new floorplan financing 
relationships with GM dealers is the fact that GMAC's share of 
floorplan financing actually increased from 80 percent to 85 
percent of GM-affiliated dealers even as GMAC was tightening 
its credit standards.\330\ This shift can be attributed to the 
fact that non-GMAC floorplan lenders were remaining at least as 
cautious as they were before, if not being more diligent or 
tightening their standards.\331\
---------------------------------------------------------------------------
    \326\ Written Testimony of Ron Bloom and Jim Millstein, supra note 
73, at 4 (``It is also important to remember that when the initial 
investment decision was being made, many large national banks faced 
significant threats to their own financial health (e.g., deteriorating 
legacy asset values, diminished access to capital, mounting losses). 
Finally, most banks lack the capacity to aggressively grow their 
automotive lending portfolios, given internal and regulatory limits on 
borrower and industry concentrations'').
    \327\ Treasury conversations with Panel staff (Feb. 2, 2010).
    \328\ Market participants discussions with Panel staff; industry 
analysts conversations with Panel staff.
    \329\ Floorplan securitizations declined from $12.3 billion in 2006 
to $5.6 billion in 2007 and $0 in 2008 before slightly recovering to 
$2.5 billion in 2009. Data provided to the Panel by the Securities 
Industry and Financial Markets Association (relying on data from 
Thomson Reuters).
    \330\ GMAC conversations with Panel staff (Feb. 1, 2010).
    \331\ Industry analysts conversations with Panel staff; market 
participants conversations with Panel staff.
---------------------------------------------------------------------------
    Banks feared that floorplan lenders were at risk of being 
saddled with loan collateral comprised of vehicles that were 
rapidly depreciating in value because the manufacturers were at 
risk of bankruptcy.\332\ These were the same factors that 
credit rating agencies used to justify downgrading the ratings 
of the existing securitizations of GMAC and Chrysler Financial 
and to refuse to grant AAA ratings to new securitizations.\333\ 
While industry groups believe that these fears were 
misplaced,\334\ banks feared that the vehicles branded by a 
bankrupt GM and Chrysler would remain unsold and depreciate 
because demand for vehicles would dry up and the warranties 
would not be honored.\335\ Banks also had additional fears. 
Because they were less familiar with the auto dealers, they 
were unsure which dealers would survive the downturn, and 
lacking the strong relationships with GM and Chrysler that GMAC 
and Chrysler Financial had, they were less certain about the 
impact of a GM and Chrysler bankruptcy.\336\
---------------------------------------------------------------------------
    \332\ Industry analysts conversations with Panel staff; market 
participants conversations with Panel staff.
    \333\ The rating agencies were also concerned that if either GM or 
Chrysler entered bankruptcy or was severely disabled, it would be 
unable to honor the buyback obligations that would be triggered upon 
default of the dealer. National Automobile Dealers Association 
conversations with Panel staff (Mar. 5, 2010).
    \334\ National Automobile Dealers Association conversations with 
Panel staff (Feb. 2, 2010 and Mar. 5, 2010) (explaining that there was 
typically sufficient collateral and credit protections for providers of 
floorplan financing, including the dealership's unsecured promise to 
pay, the dealer's personal guarantee, the intrinsic value of the 
collateral, and various enhancements and haircuts in the 
securitizations).
    \335\ In fact, some market participants have noted that they were 
reluctant to provide floorplan financing to any GM or Chrysler dealers 
at times in late 2008 and early 2009. Market participants conversations 
with Panel staff.
    \336\ Treasury conversations with Panel staff (Feb. 2, 2010); 
industry analysts conversations with Panel staff. For its part, GMAC 
denied that it had inside knowledge of dealer closings. GMAC 
conversations with Panel staff. GM had already contracted its 
dealership network from 7,367 in 2004 to 6,246 in 2008. See General 
Motors Corp., 2009-2014 Restructuring Plan, at 17 (Feb. 17, 2009) 
(online at www.financialstability.gov/docs/AIFP/
GMRestructuringPlan.pdf). Additionally, GM announced in May 2009 that 
it was planning to reduce further its dealer network to 3,600 by the 
end of 2010. See General Motors Corp., GM Statement Regarding Dealer 
Network Communications (May 15, 2009) (online at media.gm.com/content/
media/us/en/news/news_detail.brand_gm.html/content/Pages/news/us/en/
2009/May/0515_ReducingDealers).
    Complicating the picture is the fact that the sources of floorplan 
financing also often provided dealers with other credit products. While 
the floorplan financing was collateralized in large part by the 
dealer's inventory, the collateral for these other products was often 
based on the value of the dealer's property. Given the large decline 
and uncertainty in property values, dealers became increased credit 
risks, which would have been a factor in market participant's decisions 
whether to provide floorplan and other financing to dealers. Industry 
analysts conversations with Panel staff.
---------------------------------------------------------------------------
    In fact, by the time of the financial crisis, the wholesale 
financing market was substantially bifurcated, with the 
captives financing the vast majority of dealers, including 
relatively higher-risk dealers, and banks typically funding the 
lower-risk dealers.\337\ GMAC retained some of the incentives 
of a captive and was willing to provide less profitable 
floorplan financing--impacted by its increased costs of funds 
relative to banks--in order to ensure that GM continued to 
produce and market its cars.\338\
---------------------------------------------------------------------------
    \337\ Market participants conversations with Panel staff.
    \388\ GMAC conversations with Panel staff (Feb. 1, 2010).
---------------------------------------------------------------------------
    Banks and other financial institutions that did not 
previously have floorplan lending operations did not enter the 
segment significantly, and those banks that were already in the 
market did not expand their operations.\339\ There were also 
structural barriers to entry or further penetration of this 
segment of the market. Some market observers have stressed what 
they believed were GMAC's substantial advantages of human and 
institutional capital over their bank competitors as important 
barriers to entry.\340\ GMAC stressed that it had developed a 
substantial amount of operational and management expertise to 
support its proprietary floorplan finance operations, including 
sophisticated inventory control systems, and long-established 
ties to, knowledge of, and monitoring of dealers.\341\ While 
some market participants and analysts believed that these 
historical links functioned as a substantial barrier to further 
penetration of the market by banks, others believed that non-
captive companies could have gained the expertise, management 
systems, and capacity in the medium term and that some of these 
barriers, like the need to implement new information technology 
systems, were overstated.\342\ However, the prospect of this 
happening in the context of a dual financial and automotive 
industry crisis, where many were seeking to reduce their 
exposure to the industry, was remote.
---------------------------------------------------------------------------
    \339\ Industry analysts conversations with Panel staff; market 
participants conversations with Panel staff.
    \340\ Industry analysts conversations with Panel staff; market 
participants conversations with Panel staff.
    \341\ GMAC conversations with Panel staff (Feb. 16, 2010). See also 
Written Testimony of Ron Bloom and Jim Millstein, supra note 73, at 4 
(``In addition to size and capital constraints, providing new dealers 
with financing is complex and requires time that was not available. 
Moreover, GM estimates that it would have taken a new provider up to 
six months to create the infrastructure, systems, and human capital 
necessary to replace GMAC''); Transcript of COP Hearing on GMAC, supra 
note 12 (Testimony of Michael Carpenter) (``And I think the barrier to 
entry, if you will, is not money and cost of money--it's infrastructure 
and the knowledge--it's the knowledge of the automobile business, how 
automobiles are dealt with in the wholesale channel, the retail channel 
and the systems that are acquired and the relationships that are 
necessary to manage that business over time--represents a very 
significant barrier to entry. Now, is it a barrier to entry that a 
major bank could overcome over many years? Absolutely. It would cost a 
great deal of money and historically they have not shown the appetite 
to do it. So, if you look at where the, you know, which of these 
dealers actually get financing from banks, they fall into two 
categories. One is the local bank down the street, where the bank is 
taking a very different risk. We're a secured lender, they're taking a 
risk on the business, the character of the business person in the 
community. And the other characteristics are some of the largest--often 
public--dealerships which are of interest to the larger banks, just 
like any other major commercial credit'').
    \342\ In fact, one market participant stated that he believed his 
institution's inventory tracking, and dealer auditing and monitoring 
capabilities were on par with GMAC's and that transition from GMAC's 
systems would not have been burdensome. Market participant conversation 
with Panel staff.
---------------------------------------------------------------------------
    Market analysts and participants with whom the Panel staff 
spoke stated that some of the barriers to entry and concerns 
about credit could have been mitigated if the government had 
been willing to provide guarantees for financing or related 
incentives or credit enhancements. Alternatively, GMAC's 
floorplan financing business could have been transferred to 
another party voluntarily and in an orderly manner.\343\ Yet 
even these government-sponsored options may not have ensured 
the continuation of the supply of floorplan credit. Even with 
guarantees or a government-brokered transfer of existing 
business, market participants cited the political risk--the 
fear that the government would later change its policies--as 
another obstacle to the industry's participation in any such 
plan. The experience of the government's taking Chrysler into 
bankruptcy and the rapid shifts in federal financial regulatory 
policies amidst the financial crisis led to a distrust by Wall 
Street of federal intervention. Given the need for a rapid 
takeover, this lack of trust might have undermined any attempts 
to facilitate an orderly transition of business. To a certain 
extent Treasury was forced to address a problem of its own 
making, as government intervention in the automotive and 
financial services industries added to the existing uncertainty 
and may have constrained Treasury's ability to allow GMAC to 
fail and instead facilitate, through guarantees or incentives, 
a process by which existing and new market participants would 
have replaced GMAC's floorplan lending operations.\344\
---------------------------------------------------------------------------
    \343\ The relatively rapid and successful transition of Chrysler 
Financial's floorplan financing operations to GMAC beginning in May 
2009 would be an encouraging example. This experience, however, does 
not necessarily suggest that GMAC's floorplan operations could be as 
easily assumed by other market participants. GMAC's ability to absorb 
Chrysler Financial's floorplan lending operations was based on a number 
of important factors. First, GMAC's floorplan operations dwarfed those 
of Chrysler Financial, and the addition of Chrysler Financial's 
floorplan lending portfolio represented a significant but not 
overwhelming expansion of GMAC's business. In December 2008, GMAC 
managed about $26.5 billion of wholesale automobile loans. See Written 
Testimony of Ron Bloom and Jim Millstein, supra note 73, at 3. By 
comparison, on April 30, 2009--the eve of GMAC's assumption of Chrysler 
Financial's floorplan financing business--Chrysler Financial's U.S. and 
Canada floorplan lending portfolio in support of Chrysler dealers was 
about $8.4 billion. Data provided to the Panel by Chrysler Financial. 
In addition, there is reason to believe that the aggregate floorplan 
lending numbers overstate the burden GMAC faced, and, in fact, GMAC had 
the luxury of a relatively slow ramp up in providing floorplan 
financing for Chrysler dealers. First, as of September 30, 2009, GMAC's 
outstanding balance of wholesale financing of Chrysler dealers was 
approximately $3.3 billion, only a fraction of the $8.4 billion market. 
See GMAC Statement on Financing of Chrysler Dealers, Customers, supra 
note 308. Moreover, while the percentage of Chrysler dealers supported 
by GMAC approached pre-GMAC levels by end of the third quarter of 2009, 
see Figure 11, infra GMAC indicates that it provided floorplan 
financing for only 131,000 Chrysler units in 2009 out of a total 4.125 
million units financed in 2009, see Figure 10, infra [GMAC Floorplan 
Financing to GM and Non-GMAC Dealers]. Finally, GMAC was already 
identified as having a sufficient operational and financial 
infrastructure to meet the floorplan financing needs of Chrysler 
dealers--new market players did not have to step in and provide 
financing--and the transition was facilitated by Treasury's heavy 
subsidization of GMAC's effort to assume Chrysler Financial floorplan 
(and retail) lending operations. Treasury provided GMAC with $4.0 
billion in May 2009 designated expressly for that purpose. See Treasury 
Announces Additional Investment in GMAC, supra note 225.
    \344\ Industry analysts conversations with Panel staff.
---------------------------------------------------------------------------
    The industry analysts and market participants consulted by 
the Panel were consistent in stating that the likely result of 
the disappearance of GMAC from the floorplan lending market in 
late 2008 or early 2009 would have been an immediate and severe 
decline in the total availability of floorplan credit. As a 
result of this decline, credit would have been available at 
much higher prices, if at all, to already-struggling GM 
dealers, and less creditworthy, more thinly-capitalized dealers 
would have been forced into insolvency.\345\
---------------------------------------------------------------------------
    \345\ This conclusion is reflected in the opinion of Mr. de Molina, 
CEO of GMAC from March 1, 2008 to November 18, 2009, who stated: ``No 
one, either by itself or together, could have done it [replaced GMAC's 
floorplan financing of GM dealers] at the time . . . There was a 
concentration of risk that no one would take on. I don't know anyone 
who opposes that view.'' Panel staff conversation with Alvaro G. de 
Molina (Feb. 19, 2009). See also Transcript of COP Hearing on GMAC, 
supra note 12 (Testimony of Ron Bloom) (``Had Treasury allowed GMAC to 
fail, no single competitor or group of competitors could have stepped 
in to absorb GMAC's entire loan portfolio''); Transcript of COP Hearing 
on GMAC, supra note 12 (Testimony of Michael Ward) (``It's gone. I 
mean, if they didn't rescue GMAC--if GMAC did not exist, GM would have 
been Chapter 7'').
    Panel hearing witness Christopher Whalen stated in his written 
testimony that ``[t]here were private alternatives available to GM and 
Chrysler in the marketplace for floor plan lending'' that could have 
stepped in ``[w]ith a little bit of effort and imagination,'' ``albeit 
at a higher cost level.'' See Congressional Oversight Panel, Written 
Testimony of Christopher Whalen, senior vice president and managing 
director, Institutional Risk Analytics, COP Hearing on GMAC Financial 
Services, at 4, 8-9 (Feb. 25, 2010) (online at cop.senate.gov/
documents/testimony-022510-whalen.pdf) (hereinafter ``Testimony of 
Christopher Whalen''). During his oral testimony, however, Mr. Whalen, 
while stating that other market participants have been unable to 
compete with captives (and former captives) because of the economic 
advantages the last two enjoy by dint of their relationships with OEMs, 
agreed that GMAC's floorplan financing was crucial to the survival of 
GM because of the inability of market participants to step in 
adequately to fill GMAC's large market share at the time of Treasury's 
assistance. See Transcript of COP Hearing on GMAC, supra note 12 
(Testimony of Christopher Whalen, Senior Vice President and Managing 
Director, Institutional Risk Analytics).
---------------------------------------------------------------------------
    The story for consumer lending was different. The captive 
automotive finance companies were not as indispensable for 
consumer lending as for floorplan lending, and there was a wide 
array of players competing in the market.\346\ GMAC's temporary 
abandonment of the consumer financing market to concentrate on 
floorplan lending, which led its market share to plummet from 
over 30 to five to six percent in the fourth quarter of 2008 
\347\--and its more permanent complete withdrawal from the 
subprime automobile lending market--had a disruptive but not 
catastrophic effect on the availability of consumer financing 
for purchasers of GM automobiles. As discussed above, a much 
wider range of sources is available for consumer automotive 
financing.\348\ The degree to which the banks and other market 
participants stepped in (and could have filled the void if GMAC 
completely exited the market) is mixed. In response to the 
various stresses in the financial, credit, and automobile 
markets discussed above, national and regional banks were 
curtailing their consumer lending, including their lending to 
consumers to purchase and lease new and used automobiles.\349\ 
Consumer automotive lending was heavily dependent on the 
ability to securitize auto loans, and consumer automobile 
securitizations halved in 2008.\350\
---------------------------------------------------------------------------
    \346\ See General Motors, Corp., Form 10-K for the Fiscal Year 
Ended December 31, 2008, at 45 (Mar. 5, 2009) (online at www.sec.gov/
Archives/edgar/data/40730/000119312509045144/0001193125-09-045144-
index.htm) (hereinafter ``GM Form 10-K for 2008'') (disclosing risks to 
GMAC's continued ability to operate because it might fare poorly in the 
``highly competitive'' ``markets for automotive and mortgage financing, 
insurance, and reinsurance'' and further explaining that the ``market 
for automotive financing has grown more competitive as more consumers 
are financing their vehicle purchases, primarily in North America and 
Europe'').
    \347\ See Figure 13, supra.
    \348\ See Section E.1(a-b), infra.
    \349\ See Board of Governors of the Federal Reserve, Federal 
Reserve Statistical Release G.19: Consumer Credit (Jan. 8, 2010) 
(online at www.federalreserve.gov/releases/g19/) (hereinafter ``Federal 
Reserve Statistical Release G.19'') (showing that nonrevolving consumer 
credit--a category that includes automobile loans and that had grown at 
an average annualized rate of 5 percent from 2004-2008--declined at an 
annualized rate of 1.0 percent in the third quarter of 2008, 0.4 
percent in the fourth quarter of 2008, grew at 0.2 percent in the first 
quarter of 2009, and declined 1.9 percent in the second quarter of 
2009).
    \350\ Consumer auto securitizations declined from $72.7 billion in 
2007 to $35.7 billion in 2008 before partially recovering to $52.6 
billion in 2009. Data provided to the Panel by Security Industry and 
Financial Markets Association (relying on data from Thomson Reuters). 
But reliance on aggregated yearly data understates the depth of 
reduction in the consumer auto loan securitization market. Total auto 
securitization (a measure which, while also including wholesale and 
other types of securitizations, is mostly constituted by consumer 
securitization) failed to reach $3 billion in either the third or 
fourth quarters of 2008. See Security Industry and Financial Markets 
Association, US ABS Issuance 1996-2010 (online at www.sifma.org/
uploadedFiles/Research/Statistics/SIFMA_USABSIssuance.pdf) (relying in 
part on Thomson Reuters data).
---------------------------------------------------------------------------

 FIGURE 15: INTEREST RATE SPREADS AND LOAN-TO-VALUE RATIOS ON NEW CAR 
                              LOANS \351\

[GRAPHIC] [TIFF OMITTED] 54875A.009


    When GMAC exited the market for several months, credit for 
subprime consumer borrowers disappeared.\352\ Credit unions 
made a coordinated effort to pick up the slack and assumed some 
of the market share exited by GMAC.\353\ As shown in the charts 
above, for those who were approved, the terms were less 
favorable: interest rates--especially those offered by 
automobile finance companies--climbed, and lower limits on 
loan-to-value ratios were imposed.\354\ While demand for 
automobiles also decreased, the lack of availability of 
consumer automotive finance was an independent factor that hurt 
GM sales.
---------------------------------------------------------------------------
    \351\ See Federal Reserve Statistical Release G.19, supra note 349 
(accessed Mar. 8, 2010) (interest rate data adjusted to reflect spreads 
over 10-year Treasuries).
    \352\ Market participants conversations with Panel staff; industry 
analysts conversations with Panel staff.
    \353\ See Figure 13, supra; market participants (including credit 
union representatives) conversations with Panel staff.
    \354\ Treasury conversations with Panel staff (Jan. 29, 2010); 
Federal Reserve Statistical Release G.19, supra note 349 (accessed Mar. 
8, 2010); Written Testimony of Ron Bloom and Jim Millstein, supra note 
73, at 3 (reporting that loan approval rates to prime borrowers dropped 
from mid-80 percent to approximately 60 percent, loan-to-value ratios 
decreased from 95 percent to 85 percent, and interest rates increased 
from approximately 5 percent to over 8 percent). See also Figure 15, 
supra.
---------------------------------------------------------------------------
    But even assuming that there were adequate substitutes for 
consumer credit, the availability of financing for consumers 
would have been irrelevant if GM and Chrysler dealers had been 
unable to finance the purchase of their inventories.
    The TALF, the federal government's other major effort to 
support the automotive credit market by restarting the 
securitization markets, was not timed sufficiently to alter 
this analysis. The TALF was launched in the beginning of 2009 
by the Federal Reserve Bank of New York and backstopped by TARP 
funds.\355\ At that time, Treasury had already made financing 
decisions with respect to GMAC and Chrysler Financial, 
including the provision of bridge loans to the companies. The 
inability of GMAC, Chrysler Financial, and Ford Motor Credit 
Corporation (FMCC) to obtain AAA ratings on floorplan 
securitizations effectively closed the TALF to them for 
floorplan securitizations, and efforts to expand the TALF to 
lower-rated securitizations were not successful.\356\ It was 
not until August 2009 that TALF become available for any 
industry floorplan securitizations, and GMAC did not do a 
floorplan ABS issuance until 2010.\357\
---------------------------------------------------------------------------
    \355\ Automobile-industry loans eligible for securitization under 
TALF included floorplan financing for automobile dealers, prime and 
subprime consumer purchase loans, prime consumer lease loans; and loans 
supporting government, commercial, and rental fleets. Federal Reserve 
Bank of New York, Term Asset-Backed Securities Loan Facility: 
Frequently Asked Questions (Feb. 17, 2010) (online at 
www.newyorkfed.org/markets/talf_faq.html) (hereinafter ``Term Asset-
Backed Securities Loan Facility: FAQs'').
    \356\ Industry analysts conversations with Panel staff; National 
Automobile Dealers Association conversations with Panel staff (Feb. 2, 
2010 and Mar. 5, 2010).
    \357\ National Automobile Dealers Association conversations with 
Panel staff (Feb. 2, 2010 and Mar. 5, 2010); GMAC conversations with 
Panel staff (Feb. 16, 2010). Data provided to the Panel by GMAC 
(reporting on GMAC's $900 million offering of TALF-eligible securities 
backed by wholesale automotive loans in February 2010). Similarly, 
while the Small Business Administration opened up Section 7(a) lending 
to dealer floorplan lendings, specifics of this program made it 
impractical to significantly ease the floorplan credit crunch. See 
Section E, infra.
---------------------------------------------------------------------------
    It is clear that disruptions in GMAC's provision of 
wholesale and consumer credit materially affected GM's business 
at a particularly crucial time when GM was undergoing 
bankruptcy and restructuring amidst a severe financial crisis 
and deep recession. At least at that point, there may have not 
been adequate substitute market players to step sufficiently 
into the breach. What is less clear is whether these other 
market players would eventually have increased their capacity 
to step into the breach, especially after the credit crunch 
eased. Treasury has indicated that it was focused on the short 
and medium term; it did not consider whether there would be 
adequate substitutes for the traditional roles of GMAC and 
Chrysler Financial five years down the road.\358\
---------------------------------------------------------------------------
    \358\ In fact, one of the results of the financial crisis and 
restructuring was to accelerate the weakening of the relationship 
between GMAC and GM. On December 29, 2008, GMAC and GM agreed to modify 
the GMAC Services Agreement to provide that ``GMAC no longer is subject 
to contractual wholesale funding commitments or retail underwriting 
targets.'' See GM Form 10-K for 2008, supra note 346.
---------------------------------------------------------------------------

2. Commitments Made by Treasury

    The other primary justification Treasury has provided for 
its continued support of GMAC is that these transactions, 
especially the most recent transaction in late December 2009, 
were not new commitments, but were made in fulfillment of 
previously made commitments. In its December 30, 2009 press 
release announcing an additional investment of $3.8 billion of 
new capital, Treasury stated that it was ``acting on its 
previously announced commitment to provide capital to GMAC as 
identified in May as a result of the SCAP.'' \359\
---------------------------------------------------------------------------
    \359\ December 2009 Restructuring Announcement, supra note 214. As 
described in greater detail in Section F, the SCAP was designed to 
``stress test'' the nation's largest bank holding companies--those with 
$100 billion or more in assets--and provide additional capital to those 
that were found to be potentially at risk in the case of an even deeper 
recession. See Section F, infra (analyzing the inclusion of GMAC in the 
SCAP and the implications of the funding that was ultimately provided).
---------------------------------------------------------------------------
    As discussed in more detail in Section F below, a key 
element of the SCAP or stress tests was the unconditional 
commitment of Treasury to provide necessary capital to banks 
that were unable to raise it privately.
    There was no specific contractual obligation to GMAC either 
as a result of the stress tests or as a result of previous 
injections of capital. At the time of the May 2009 investment, 
Treasury and GMAC executed the May Stock Purchase Agreement 
(SPA), which described the terms under which Treasury would 
provide capital to GMAC should it be unable to obtain 
additional capital from private sources. The term sheet 
appended as a schedule to the May SPA, however, only stated 
that Treasury stood ready to commit ``up to $5.6 billion'' in 
additional capital.\360\ Treasury clearly retained the legal 
flexibility to provide less than that amount--even zero--if 
circumstances warranted.
---------------------------------------------------------------------------
    \360\ Treasury GMAC Contract, supra note 226, at Schedule A.
---------------------------------------------------------------------------
    Over the course of the financial crisis, Treasury has 
variously argued that its decisions have been influenced by the 
potentially conflicting needs to change its strategy as the 
economic environment has shifted \361\ and to protect the 
government's credibility by following through on its 
promises.\362\ The best example of the former justification is 
the overall shift in emphasis from the original purpose behind 
the TARP to the TARP in its current form. On September 18, 
2008, then-Secretary Paulson issued a statement attributing 
much of the crisis to an inability to value residential 
mortgage-backed assets and calling for a program to ``remove 
these illiquid assets that are weighing down our financial 
institutions and threatening our economy.'' \363\ As 
implemented, the TARP has only one relatively small program, 
the Public-Private Investment Program, aimed at buying such 
assets. In its first report, the Panel asked Treasury to 
explain this shift in strategy.\364\ In response, Treasury 
explained:
---------------------------------------------------------------------------
    \361\ U.S. Department of the Treasury, Responses to Questions of 
the First Report of the Congressional Oversight Panel for Economic 
Stabilization, at 4-5 (Dec. 30, 2008) (online at www.treas.gov/press/
releases/reports/123108%20cop%20response.pdf) (hereinafter ``Treasury 
Response to December 2008 Oversight Report'').
    \362\ Treasury meeting with Panel staff (Jan. 29, 2010).
    \363\ U.S. Department of the Treasury, Statement by Secretary Henry 
M. Paulson, Jr. on Comprehensive Approach to Market Developments (Sept. 
19, 2008) (online at www.financialstability.gov/latest/hp1149.html).
    \364\ Congressional Oversight Panel, December Oversight Report: 
Questions About the $700 Billion Emergency Economic Stabilization 
Funds, at 4 (Dec. 10, 2008) (online at frwebgate.access.gpo.gov/cgi-
bin/getdoc.cgi?dbname=110_cong_senate_committee_prints&docid=f:45840.pdf
) (hereinafter ``December Oversight Report'').

          Given [the existing] market conditions, Secretary 
        Paulson and Chairman Bernanke recognized that Treasury 
        needed to use the authority and flexibility granted 
        under the EESA as aggressively as possible to help 
        stabilize the financial system. They determined the 
        fastest, most direct way was to increase capital in the 
        system by buying equity in healthy banks of all sizes. 
        Illiquid asset purchases, in contrast, require much 
        longer to execute.\365\
---------------------------------------------------------------------------
    \365\ Treasury Response to December 2008 Oversight Report, supra 
note 361, at 5.

Shifting strategy with regard to one transaction with one 
institution--i.e., deciding not to proceed with the December 
30, 2009 transaction--could be argued to be a less drastic 
shift than Treasury's shift in overall TARP strategy a year 
earlier.
    It might also be argued that conditions have changed 
significantly since the May 2009 statement regarding future 
funding, such that revisiting that position might not have such 
an adverse impact as it would have earlier. The economic 
environment had shifted noticeably between December 2008, when 
Treasury first articulated its intent to support GMAC as a part 
of the U.S. automotive industry, and December 2009, when it 
executed its most recent investment in GMAC.\366\ It may even 
be argued that the economic environment underwent a major shift 
between the completion of the stress tests in May and the 
December 2009 investment. For example, in November 2009, 
Secretary Geithner stated that ``[t]he U.S. economy and the 
global economy are growing again'' and that ``the value of 
savings around the world has risen'' and ``[t]he cost of credit 
has fallen.'' \367\ Later in the month, he stated that ``we 
have stabilized the financial system and brought down the cost 
of borrowing for business and families. Companies across the 
country are now able again to raise equity and issue bonds. 
Credit terms are easing as markets that were once frozen are 
beginning to open up.'' \368\
---------------------------------------------------------------------------
    \366\ The TED Spread, which measures the difference between 3-month 
LIBOR and 3-month Treasury Securities, is a widely used financial 
metric seen as an indicator of economic stability and market liquidity. 
By December 31, 2009, the TED Spread decreased 85 percent from its 
December 2008 level of 135 basis points, signaling a marked increase in 
overall financial stability (online at www.bloomberg.com/apps/
cbuilder?ticker1=.TEDSP:IND).
    \367\ U.S. Department of the Treasury, Statement by Secretary 
Geithner at the G-20 Meeting of Finance Ministers and Central Bank 
Governors (Nov. 7, 2009) (online at www.treas.gov/press/releases/
tg358.htm).
    \368\ U.S. Department of the Treasury, Treasury Secretary Timothy 
Geithner Opening Remarks--Small Business Conference (Nov. 18, 2009) 
(online at www.treas.gov/press/releases/tg412.htm). See also 
Congressional Oversight Panel, December Oversight Report: Taking Stock: 
What Has the Troubled Asset Relief Program Achieved, at 101 (Dec. 9, 
2009) (online at cop.senate.gov/documents/cop-120909-09report.pdf) 
(hereinafter ``December 2009 Oversight Report''). In addition, the 
September Auto Industry Brief authored by Manheim Consulting Chief 
Economist Tom Webb noted several statistics suggesting targeted 
improvement in the automotive sector, including the following facts:
     The Manheim Used Vehicle Value Index for August was up for 
the eighth consecutive month; at 116.4, this represents a year-over-
year increase of 5.1%;
     The Cash-for-Clunkers program spurred new vehicle sales in 
August, significantly depleting inventories. The seasonally adjusted 
annual rate of new sales reached 14.1 million in August, compared to 
``10 million in the first half of the year.'' This means that ``there 
will be virtually no `carryover' inventory this fall'';
     Household net worth increased in the second quarter of 
2009 ``after six consecutive quarterly declines,'' ``primarily the 
result of a rising stock market--a trend which continued in the third 
quarter.''
    Manheim Consulting, Auto Industry Brief, at 3, 5 (Sept. 2009) 
(provided to the Panel by Thomas Webb).
---------------------------------------------------------------------------
    Treasury, however, has approached the issue of GMAC's 
financing from the position that it must follow through on its 
commitments, even if the commitments are not legally 
enforceable, to maintain the credibility of the federal 
government. Treasury, in coordination with the FDIC and the 
Federal Reserve, has used guarantees to prevent further 
destabilization of the markets at the height of the crisis. 
Treasury has argued that its ability to establish stability 
might be significantly impaired if it failed to follow through 
on its statements with respect to funding, although that 
involvement carries countervailing effects as well.\369\ Much 
of the progress in stabilizing the markets that has been 
experienced since early 2009 arguably might have crumbled if 
Treasury had failed to follow through in this way with respect 
to GMAC. Moreover, Treasury has noted that the impact of other 
guarantees it has provided throughout this crisis might decline 
in value and its ability to use guarantees to alleviate future 
crises might be limited if the markets doubted the reliability 
of Treasury's word.\370\ As discussed in the Panel's November 
report, the guarantees that Treasury has used to increase 
stability during the present crisis have allowed Treasury to 
leverage a small pool of assets to guarantee a larger pool of 
assets in the market. Treasury has taken the view that it has 
been able to obtain guarantees at such a low cost to taxpayers 
because the value of Treasury's guarantee--which is another way 
of saying the likelihood that it will honor its commitments--is 
so high.\371\ If the market came to believe that Treasury was 
less likely to honor commitments, Treasury has stated, it might 
be obliged to put up a larger fund to guarantee the same pool 
of market assets. Other Treasury commitments may also have been 
impaired. Most notably, Treasury argues that the value of other 
government-supported entities may have deteriorated had its 
government backing been devalued.
---------------------------------------------------------------------------
    \369\ Treasury conversations with Panel staff (Mar. 2, 2010). A 
decision by Treasury that GMAC did not require the additional funding 
in December may not, however, have been interpreted in the market as a 
decision to let GMAC fail. Given Treasury's previous support for the 
company, the market may have believed that Treasury had merely changed 
its strategy with regard to its support for GMAC.
    \370\ Treasury conversations with Panel staff (Mar. 2, 2010).
    \371\ Treasury conversations with Panel staff (Jan. 29, 2010).
---------------------------------------------------------------------------
    Taking a more limited view, the collapse of GMAC may itself 
have caused ripple effects. The fact that Treasury intended to 
provide capital to GMAC may have been a factor in the business 
decisions of entities that do business with GMAC. These 
entities would have relied on the expectation of future 
Treasury funding for GMAC and may have been disadvantaged if 
GMAC had failed to survive.

3. Systemic Importance of GMAC: Could it Just be Permitted to Fail?

    Treasury has never argued that GMAC itself was systemically 
important, although in 2008 some Treasury staff members 
believed that GMAC's failure at that time--independent of its 
effects on the domestic automotive industry--could have thrown 
an already precarious financial system into further disarray 
during the depths of the financial crisis.\372\
---------------------------------------------------------------------------
    \372\ Treasury conversations with Panel staff (Feb. 2, 2010) 
(reporting on a review of internal Treasury Department memoranda from 
October and November 2008 considering support for GMAC based on 
systemic risk caused by failure of GM and Chrysler and on fear of 
financial contagion of possible default of GMAC's debt).
---------------------------------------------------------------------------
    As discussed above, Treasury defends its assistance to GMAC 
as crucial to supporting its extensive investments in GM and 
Chrysler, which, in turn, were made for a variety of reasons, 
including the fear of shock to the economy--perhaps rising to 
the level of systemic risk if the domestic auto industry were 
to fail.\373\ The Panel's previous review of statements of the 
last two administrations concluded:
---------------------------------------------------------------------------
    \373\ See September Oversight Report, supra note 189, at Section D.

          Treasury's intervention in the automotive industry 
        could be attributed to one of (or a combination of) 
        three broad policy objectives: (1) the prevention of a 
        systemic threat to the U.S. financial markets and 
        broader economy; (2) the advancement of social policy 
        (such as tempering the impact of unemployment, 
        environmental improvement, or provision of retirement 
        benefits); or (3) the maintenance of a viable American 
        automotive presence in the United States.\374\
---------------------------------------------------------------------------
    \374\ September Oversight Report, supra note 189, at 103 (citing 
various sources).

    Apart from the role it plays with respect to automotive 
financing, GMAC's operations do not appear to have any systemic 
significance. Until revenues from ResCap plummeted upon the 
implosion of the housing market in 2007, GMAC's revenue over 
the last five years was roughly equally distributed among 
automobile finance, mortgage finance, and insurance 
operations.\375\ In fact, insurance has been the most 
consistent source of GMAC revenue recently, accounting for 
almost double GMAC's automobile finance revenue in 2008, a year 
where both the mortgage and automobile sales industries were 
severely depressed. Loss of GMAC's operations in this sector 
would not seem to pose a systemic threat. Finally, while ResCap 
was once a profitable venture for GMAC, and ResCap holds 
significant market shares in both the mortgage origination and 
mortgage servicing sectors,\376\ there has been no suggestion 
that the disruption of these businesses caused by a bankruptcy 
would have any direct systemic effect. Treasury has stated that 
while it has some interest in ResCap's holdings in the mortgage 
market,\377\ it regarded ResCap as ``marginal, at best'' as a 
factor in the decision to support GMAC.\378\
---------------------------------------------------------------------------
    \375\ See Section C.1, supra.
    \376\ ResCap is the sixth largest mortgage originator and fifth 
largest mortgage servicers in the United States. GMAC Form 10-K for 
2008, supra note 10, at 53.
    \377\ GMAC and one other institution have 50 percent of their HAMP-
eligible mortgages in active trial or permanent modifications. U.S. 
Department of the Treasury, Making Home Affordable Program Servicer 
Performance Report Through January 2010, at 7 (Feb. 18, 2010) (online 
at www.financialstability.gov/docs/press/
January%20Report%20FINAL%2002%2016%2010.pdf).
    \378\ Treasury conversations with Panel staff (Jan. 29, 2010).
---------------------------------------------------------------------------
    It is the automotive finance operations of GMAC, then, that 
would have the most impact on the U.S. economy if GMAC were to 
be allowed to fail. Treasury has cited estimates of automobile 
sales declines solely attributable to diminished availability 
of credit ranging from 1.5 to 2.5 million vehicle sales per 
year.\379\ Treasury estimated that a further reduction of 
between 2 and 2.5 million in yearly automobile sales could have 
been expected if GMAC were allowed to fail--a number that 
Treasury believed might affect the overall viability of the 
domestic automotive industry.\380\
---------------------------------------------------------------------------
    \379\ See Written Testimony of Ron Bloom and Jim Millstein, supra 
note 73, at 3 (citing estimates of the effect of diminished credit on 
the Seasonally Adjusted Annualized Rate (SAAR) of auto sales, 
including: 2.6 million units (Barclays), 1 to 1.5 million units (the 
Federal Reserve), and 1.6 million units in 2009 and 3.1 million units 
in 2010 (AutoNation)).
    \380\ Treasury conversations with Panel staff (Feb. 2, 2010).
---------------------------------------------------------------------------
    Treasury's support of GMAC can be contrasted to its 
treatment of CIT Group, Inc., a finance company that received 
initial support from Treasury, in part because of its perceived 
systemic significance, only later to be allowed to go into 
bankruptcy, resulting in over $2 billion of losses to Treasury.
    CIT Group was a hundred-year-old company that provided a 
variety of commercial financing and leasing products and 
services, including factoring, and was an important source of 
lending for small businesses nationwide.\381\ The financial 
crisis deeply affected CIT Group's business, and the company's 
losses accelerated in the second quarter of 2007 because of its 
heavy exposure to underperforming assets, including subprime 
mortgages and student loans. As its losses mounted and CIT 
expended over $7 billion in emergency bank credit, CIT Group's 
credit was downgraded, and it had difficulty accessing credit 
in short-term debt markets, on which its business model was 
heavily reliant.\382\
---------------------------------------------------------------------------
    \381\ Factoring is a financial transaction whereby a business sells 
its accounts receivable (i.e., invoices) to a third party (called a 
factor, here, CIT Group) at a discount in exchange for immediate money 
with which to finance continued business.
    \382\ In June, CIT entered into a 20-year secured lending facility 
with Goldman Sachs, Inc. with the intention of reducing its reliance on 
unsecured credit markets. CIT Group, Inc., Form 8-K for the Period 
Ending June 6, 2008 (June 9, 2008) (online at www.sec.gov/Archives/
edgar/data/1171825/000089109208002979/e31893_8k.htm).
---------------------------------------------------------------------------
    In December 2008, the Federal Reserve, citing ``unusual and 
exigent circumstances affecting the financial markets'' and 
``emergency conditions,'' approved the conversion of CIT Group, 
Inc. from an ILC to a BHC upon conversion of its subsidiary CIT 
Bank from a limited purpose bank to a state bank for the 
purposes of the Bank Holding Act.\383\ In making that 
determination, the Federal Reserve found that CIT was 
``adequately capitalized and as a result of its successful 
efforts to raise additional capital, will be well capitalized 
prior to consummation.'' \384\ The Federal Reserve's action 
allowed the company to become eligible for TARP funds. One day 
after the conversion, Treasury preliminarily approved what 
became a $2.33 billion investment in CIT Group under the CPP, 
and the capital injection was complete on December 31, 
2008.\385\
---------------------------------------------------------------------------
    \383\ See Board of Governors of the Federal Reserve System, CIT 
Group Inc.: Order Approving Formation of a Bank Holding Company and 
Notice to Engage in Certain Nonbanking Activities, Federal Reserve 
Bulletin Volume 95: Legal Developments: Fourth Quarter, 2008 (May 29, 
2009) (online at www.federalreserve.gov/pubs/bulletin/2009/legal/q408/
order5.htm).
    \384\ See Id. The Federal Reserve also approved CIT Group's bid to 
continue to engage in nonbanking activities through its subsidiaries 
based on the Board's belief that the public benefits of CIT Group 
strengthening its position as a ``leading provider of factoring 
services in the United States and a leading lender in the Small 
Business Administration's 7a programs'' would ``outweigh any likely 
adverse effects.'' Id.
    \385\ U.S. Department of the Treasury, Troubled Asset Relief 
Program Transactions Report for Period Ending November 18, 2009, at 5 
(Nov. 20, 2009) (online at www.financialstability.gov/docs/transaction-
reports/11-20-09%20Transactions%20Report%20as%20of%2011-18-09.pdf).
---------------------------------------------------------------------------
    Up to this point, there are significant parallels between 
the two companies' appeals for government support. The Federal 
Reserve's reference to ``emergency conditions'' in the 
financial markets when issuing an expedited approval of CIT 
Group's BHC application underscores the concern in late 2008 
that the failure of CIT Group could be harmful to an already 
fragile economy because of CIT Group's specialized provision of 
certain financial services--small business lending and 
factoring services. Similarly, the Federal Reserve's expedited 
approval of GMAC's BHC application (and Treasury's subsequent 
support under the AIFP) both relied on Treasury's belief that 
GMAC played a critical role in its specialized provision of 
financial services--automobile finance.\386\ Both suffered 
heavy credit losses in large part because of their exposures to 
the subprime mortgage market, and their inability to access 
capital markets further imperiled their abilities to function 
in their market niches.\387\ Moreover, like GMAC, CIT Group was 
denied access to capital markets, suffered a damaging downgrade 
in its credit rating, and successfully petitioned the Federal 
Reserve for an emergency conversion of its ILC to a BHC to gain 
access to the deposit market and government financial 
assistance programs. Both institutions received emergency 
injections of TARP funds, promptly sought access from the FDIC 
to the TLGP, and eventually applied for additional TARP 
assistance.
---------------------------------------------------------------------------
    \386\ See section C.2(b) (discussion of Federal Reserve's approval 
of GMAC's BHC application), supra.
    \387\ GMAC's consumer automobile finance shriveled in 2008, see 
section E.1, supra; CIT Group's consumer small business declined 
precipitously (from $4.46 billion in the first quarter of 2007 to $127 
million in the second quarter of 2008). See CIT Group, Inc., Form 10-Q 
for the Quarter Ending Sept. 30, 2008 (Nov. 10, 2008) (online at 
www.sec.gov/Archives/edgar/data/1171825/000089109208005502/
e33450_10q.htm).
---------------------------------------------------------------------------
    But there were significant differences in the respective 
treatment and fates of the companies. Unlike GMAC, CIT Group's 
TLGP application with the FDIC was pending for several months 
as its capital needs became even more pressing. CIT Group 
aggressively sought to increase deposits in CIT Bank, but that 
was not sufficient to offset a lack of short-term financing and 
capital deficiencies. In mid-July 2009, the Federal Reserve 
Bank of New York completed a stress test of CIT Group and 
concluded that the same institution that it had found 
``adequately capitalized'' four months earlier would need to 
raise $4 billion.
    But Treasury, the Federal Reserve, and the FDIC did not 
coordinate to rescue CIT Group and preserve Treasury's 
investment; instead, the federal government allowed CIT Group 
to continue on the path toward bankruptcy. After months of 
delay, the FDIC denied CIT Group's TLGP application and issued 
a cease-and-desist order prohibiting CIT Bank from increasing 
its deposits.\388\ Treasury was unwilling to prop up CIT Group 
alone and withheld additional CPP funds, finding that CIT did 
not qualify for receipt of ``exceptional assistance'' under the 
TARP, based in part on Treasury's view of the importance (or, 
in this case, relative unimportance) of CIT's role in the 
financial system and the existence of alternate sources of 
credit for CIT's customers.\389\
---------------------------------------------------------------------------
    \388\ See Federal Deposit Insurance Corporation, In the Matter of 
CIT Bank, Salt Lake City, Utah, Order to Cease and Desist (July 16, 
2009) (online at www.fdic.gov/bank/individual/enforcement/2009-07-
18.pdf).
    \389\ Congressional Oversight Panel, February Oversight Report: 
Commercial Real Estate Losses and the Risk to Financial Stability, at 
184 (Feb. 10, 2010) (online at cop.senate.gov/documents/cop-021110-
report.pdf) (hereinafter ``February Oversight Report'') (citing Letter 
from Timothy F. Geithner, secretary of the Treasury, to Elizabeth 
Warren, chair, Congressional Oversight Panel (Jan. 13, 2010)) 
(responding to Panel's question whether it deemed CIT to be 
``systemically significant'', that Treasury considered CIT's role in 
the financial system; the availability of alternative sources of 
liquidity to CIT; the likelihood that CIT would continue as a going 
concern in the absence of exceptional assistance; the existence of 
alternative credit channels for CIT's customers; the condition of the 
financial system at the time of the determination; and CIT's size and 
funding structure).
---------------------------------------------------------------------------
    Unable to raise sufficient private capital, CIT had to 
either restructure or enter bankruptcy. In October 2009, CIT 
Group's bondholders and creditors rejected a restructuring 
plan, which would have at least partially preserved Treasury's 
CPP investment, in favor of a prepackaged bankruptcy.\390\ CIT 
filed for bankruptcy on November 1, 2009.\391\ CIT emerged from 
bankruptcy on December 10, 2009.\392\ As part of CIT's 
reorganization plan, Treasury's investment, valued at $2.3 
billion, was deemed an ``old preferred interest'' and 
subordinated to the interests of CIT's senior creditors.\393\ 
As a byproduct of CIT's bankruptcy, taxpayers have lost the 
entirety of their TARP investment in CIT Group.\394\ Perhaps 
equally notable, the original fear that the failure of CIT 
Group would further weaken the already anemic small business 
lending sector has not materialized. CIT Group was forced to 
reduce its lending well before its eventual bankruptcy,\395\ 
and while small business lending is still weak nationally, 
market observers have not pointed to CIT Group's demise as a 
major factor in this continued weakness.
---------------------------------------------------------------------------
    \390\ CIT Group, Inc., CIT Board of Directors Approves Proceeding 
with Prepackaged Plan with Overwhelming Support of Debtholders (Nov. 1, 
2009) (online at cit.com/media-room/press-releases/index.htm). Under 
the rejected restructuring plan, bondholders would have received 70 
cents on the dollar and equity in a newly restructured company and 
Treasury would have converted its preferred shares into 3.5 and 5 
percent of CIT's common equity. See CIT Group, Inc., Form 8-K for the 
Period Ending October 1, 2009, at 5 (Oct. 1, 2009) (online at 
www.sec.gov/Archives/edgar/data/1171825/000095012309047816/
y02330exv99w2.htm).
    \391\ See Voluntary Petition for CIT Group Inc. (Nov. 1, 2009), In 
re CIT Group Inc., No. 09-16565, 2009 WL 4824498 (Bankr. S.D.N.Y. Dec. 
8, 2009) (online at www.kccllc.net/documents/8803600/
8803600091101000000000002.pdf).
    \392\ See Notice of Filing of Confirmed Modified Second Amended 
Prepackaged Reorganization Plan of CIT Group Inc. and CIT Group Funding 
Company of Delaware LLA (Dec. 10, 2009), In re CIT Group Inc., No. 09-
16565, 2009 WL 4824498 (Bankr. S.D.N.Y. Dec. 8, 2009) (online at 
www.kccllc.net/documents/0916565/0916565091210000000000003.pdf) 
(hereinafter ``Notice of Filing of CIT Reorganization Plan'').
    \393\ Notice of Filing of CIT Reorganization Plan, supra note 392, 
at 12.
    \394\ February Oversight Report, supra note 389, at 184 (citing 
Letter from Timothy F. Geithner, secretary of the Treasury, to 
Elizabeth Warren, chair, Congressional Oversight Panel (Jan. 13, 
2010)).
    \395\ CIT Group's Loan Originations declined from $39.6 billion in 
2007 to $18.6 billion in 2008. SNL Financial data provided to Panel 
staff. Additionally, CIT Group's consumer and small business lending 
declined from $4.46 billion in the first quarter of 2007, to $1.99 
billion in the third quarter of 2007, to only $127 million in the 
second quarter of 2008, and almost zero thereafter. See CIT Group, 
Inc., Form 10-Q for the Quarter Ended March 31, 2007, at 30 (May 7, 
2007) (online at www.sec.gov/Archives/edgar/data/1171825/
000089109207001797/0000891092-07-001797-index.htm); CIT Group, Inc., 
Form 10-Q for the Quarter Ended September 30, 2007, at 36 (Nov. 6, 
2007) (online at www.sec.gov/Archives/edgar/data/1171825/
000089109207004826/0000891092-07-004826-index.htm); CIT Group, Inc., 
Form 10-Q for the Quarter Ended June 30, 2008, at 45 (Aug. 11, 2008) 
(online at www.sec.gov/Archives/edgar/data/1171825/000089109208004007/
0000891092-08-004007-index.htm).
---------------------------------------------------------------------------
    There are several differences in the economic and 
regulatory landscape that may account for the differential 
treatment. The primary difference is that GMAC was a stress-
tested bank, and CIT Group was not. Treasury had made a 
commitment by including GMAC as one of the 19 financial 
institutions included in the SCAP, and pledging TARP funds to 
make up for capital deficiency if the institution could not 
raise capital in the private market. Because CIT Group had not 
been formally designated as crucial to the stability of the 
financial system, Treasury made no similar commitment to 
address any future capital deficiencies, and therefore its 
credibility or commitment was not on the line when it decided 
to cut its losses. Second, Treasury deemed GMAC to be essential 
to the continuing operation of another recipient of TARP 
assistance, GM, which, in turn, Treasury deemed systemically 
important. CIT Group did not have a similar role as the primary 
provider of credit to any recipient of TARP funds.
    Treasury's support of CIT Group may suggest that half-
hearted attempts at saving an institution from insolvency that 
lack coordination among regulators--particularly when there are 
questions about its long-term business model and capital 
structure--may end up to be more costly than a decision to 
support an institution fully or allow it to enter bankruptcy. 
On the other hand, the GMAC experience underscores the double-
edged nature of regulatory flexibility. By designating GMAC as 
crucial for economic stability--and backing such a view with a 
commitment to provide support--the federal government believed 
that it foreclosed the option to stop funding the institution, 
even if the commitment to back GMAC arguably outlasted the 
economic justification for maintaining its solvency.

4. Treasury's Explanations for Why Bankruptcy Law Could Not be Used and 
        Why ResCap Could Not be Abandoned in a Restructuring

    GMAC and Treasury maintain that a traditional Chapter 11 
filing or a Section 363 \396\ sale was an unrealistic option 
for GMAC. In response to Panel questions about the possibility 
of placing GMAC into bankruptcy, Treasury provided four reasons 
for its belief that bankruptcy was not a viable policy option:
---------------------------------------------------------------------------
    \396\ Under Section 363 of the bankruptcy code, a debtor may sell 
certain assets from the bankruptcy estate. See September Oversight 
Report, supra note 189, at 46-48.
---------------------------------------------------------------------------
           Treasury believed that GM was so dependent 
        on GMAC that if GMAC could not continue financing its 
        dealers, GM would collapse,\397\ and the amount of 
        debtor-in-possession (DIP) financing that Treasury 
        would have needed to provide during a bankruptcy would 
        have been prohibitively large;
---------------------------------------------------------------------------
    \397\ As noted above in Section E.1(a), infra, Treasury maintains 
that GMAC's collapse or bankruptcy would have crippled dealer financing 
and with it GM and Chrysler. Treasury also maintains that a GMAC 
bankruptcy would have harmed Chrysler's efforts to partner with Fiat.
    GMAC also maintains that a quick workout in bankruptcy would have 
so disrupted its access to the credit markets that, as a finance 
company, it would have been unable to either continue to obtain 
financing or to refinance its debt, and that the hardship to the 
automotive industry and GM's dealers would have been too great. GMAC 
and Treasury both stated that bankruptcy is not currently an option 
worth considering for the future, as GMAC's $2 billion bond issue on 
February 9, 2010, marks it as a company that is not in distress. GMAC 
conversations with Panel staff (Feb. 16, 2010); Treasury conversations 
with Panel staff (Feb. 18, 2010) (bankruptcy is unnecessary because it 
is ``out of line with existing market conditions and the perception of 
the company''). Of course, it is also conceivable that the market 
perception of GMAC is that Treasury will provide additional funds if 
necessary, which undercuts the argument that the market is becoming 
more comfortable with GMAC as an independent entity.
---------------------------------------------------------------------------
           Treasury believed that Chrysler needed a 
        source of financing in order to emerge from bankruptcy, 
        and in the wake of the collapse of Chrysler Financial, 
        Treasury staff believed that GMAC was essential for 
        providing financing to Chrysler;
           Any prior Treasury investments would have 
        been wiped out by a bankruptcy filing; and
           Treasury believed that having promised in 
        May to support GMAC in fulfilling its SCAP requirements 
        if it was unable to meet its capital targets through 
        private financing, Treasury staff believed that it 
        could not renege on this promise.\398\
---------------------------------------------------------------------------
    \398\ Treasury conversations with Panel staff (Feb. 18, 2010).
---------------------------------------------------------------------------
    Treasury staff stated that the combination of these four 
factors--rather than any single one--made bankruptcy virtually 
impossible.\399\
---------------------------------------------------------------------------
    \399\ Treasury conversations with Panel staff (Feb. 18, 2010).
---------------------------------------------------------------------------
    Each of the first three of the reasons that Treasury has 
offered appears, on its own, not to be totally persuasive. That 
GMAC was critical to GM means only that financing would have 
needed to continue, not that GMAC could not restructure. 
Treasury has provided a range for the DIP financing: $6 billion 
per month for the floorplan financing and a total of $10-18 
billion, assuming a 60-90 day bankruptcy process,\400\ but up 
to $50 billion for both floorplan and consumer financing, and 
assuming a bankruptcy process that took closer to six 
months.\401\ Even assuming that Treasury's numbers are correct 
\402\--and given the range of numbers that Treasury has 
offered, this may be a generous assumption--the question is not 
just one of size, but also one of risk. A DIP investment might 
have been low-risk because floorplan financing is low-risk, so 
Treasury might have recouped its DIP investment. Particularly 
if the company had been broken up, automotive finance is a 
profitable business, and any auto-specific DIP financing could 
have been serviced by the floorplan loans and ultimately 
refinanced. It is not clear that such loans would have been 
likely to be lost. Treasury asserts that the tremendous 
uncertainty in the markets at the end of 2008 and the beginning 
of 2009 might have rendered ordinarily low-risk loans much 
higher-risk once GMAC entered a bankruptcy proceeding. In this 
context, Treasury maintains that even if it had provided the 
required DIP investment, there is no guarantee that GMAC would 
have emerged from the restructuring process.\403\ While the 
size of the DIP financing is less important than the riskiness 
of the investment, it is impossible to determine with any 
certainty whether DIP financing would have been more risky than 
Treasury's current investment.
---------------------------------------------------------------------------
    \400\ Treasury conversations with Panel staff (Feb. 22, 2010).
    \401\ Transcript of COP Hearing on GMAC, supra note 12 (Testimony 
of Ron Bloom); Treasury conversations with Panel staff (Mar. 2, 2010).
    \402\ Treasury bases these numbers on the amounts that would have 
gone into run-off under GMAC's then current credit lines. After a 
bankruptcy filing, GMAC would have been unable to draw upon its 
existing credit lines and would have required new originations, which 
(according to Treasury) would have had to come from the government. 
Transcript of COP Hearing on GMAC, supra note 12 (Testimony of Ron 
Bloom).
    \403\ Treasury conversations with Panel staff (Feb. 22, 2010).
---------------------------------------------------------------------------
    As for the Chrysler financing, Treasury had a variety of 
options for ensuring that Chrysler had access to financing, 
including using DIP financing to keep GMAC's floorplan 
operations afloat during a bankruptcy and then using these 
operations to finance Chrysler dealers.
    With respect to Treasury's concerns about the loss of the 
original $6 billion equity investment, unless wiping out 
Treasury's prior investments would have been more expensive 
over the long-run than the strategy that Treasury actually 
pursued, this concern may prove misplaced. Ultimately, 
bankruptcy in April 2009 would have wiped out the $6 billion 
equity investment, but it also would have significantly reduced 
the likelihood that Treasury would have needed to make the $7.5 
billion May 2009 investment and, in particular, the $3.8 
billion December 2009 investment, the latter of which was 
completed largely to deal with the home mortgage lending 
portfolio, not the automotive finance operations.\404\ 
Moreover, such a move even as late as April 2009 might have 
resolved the GMAC difficulties and increased the likelihood 
that Treasury would have had a clean exit and not continue to 
face the risks associated with GMAC's ongoing weakness.
---------------------------------------------------------------------------
    \404\ The May 2009 investment, in part, underpinned GMAC's 
absorption of the Chrysler Finance business.
---------------------------------------------------------------------------
    As for a separate ResCap bankruptcy, in the third-quarter 
2009 Form 10-Q and the 2009 Form 10-K, GMAC offered a 
particular reason for avoiding the proceeding. GMAC is the 
parent of and has financing and hedging arrangements with 
ResCap. In the 10-K and the 10-Q, GMAC expressed concern that 
in the event of a ResCap bankruptcy, other ResCap creditors 
might seek to recharacterize loans from GMAC to ResCap as 
equity contributions or otherwise seek equitable subordination 
of GMAC's claims against ResCap. Further, GMAC noted that in a 
bankruptcy proceeding, ResCap might not be able to repay its 
obligations to GMAC, while any GMAC equity in ResCap would 
likely be lost. GMAC therefore has concerns that a ResCap 
bankruptcy could significantly harm it as ResCap's parent.\405\ 
In conversations with Panel staff, GMAC also stated that in 
evaluating bankruptcy, it consulted with advisors and weighed 
ResCap's involvement with GMAC Financial Services; the 
disruption a decision to discontinue support would cause for 
GMAC's access to the capital markets; interparty agreements; 
and the significant volume of servicing ResCap provides for 
residential loans and modification assistance.\406\ After 
evaluating these factors, GMAC concluded that a separate ResCap 
bankruptcy was not in GMAC's best interests, and Treasury 
representatives have stated that they view this conclusion as 
reasonable.\407\ But ResCap's continued existence threatens 
GMAC (as described in greater detail in Section H, below) and 
it is difficult to determine whether the choice to keep ResCap 
will end up doing more harm in the long run than a choice to 
put ResCap through bankruptcy.
---------------------------------------------------------------------------
    \405\ GMAC Form 10-Q for Q3 2009, supra note 22, at 8; see also 
GMAC Form 10-K for 2009, supra note 12, at 17 (``We have secured 
financing arrangements and secured hedging agreements in place with 
ResCap. Amounts outstanding under the secured financing and hedging 
arrangements fluctuate. If ResCap were to file for bankruptcy, ResCap's 
repayments of its financing facilities, including those with us, will 
be subject to bankruptcy proceedings and regulations, or ResCap may be 
unable to repay its financing facilities. In addition, we could be an 
unsecured creditor of ResCap to the extent that the proceeds from the 
sale of our collateral are insufficient to repay ResCap's obligations 
to us. In addition, it is possible that other ResCap creditors would 
seek to recharacterize our loans to ResCap as equity contributions or 
to seek equitable subordination of our claims so that the claims of 
other creditors would have priority over our claims'').
    \406\ GMAC conversations with Panel staff (Mar. 3, 2010).
    \407\ Transcript of COP Hearing on GMAC, supra note 12 (Testimony 
of Jim Millstein).
---------------------------------------------------------------------------
    Treasury has also expressed concern that adding GMAC's 
bankruptcy to the landscape in which GM's and Chrysler's 
bankruptcies were already in the offing would have magnified 
the risks from the GM and Chrysler workouts. According to 
Treasury, not only would those complex bankruptcies need to be 
successfully prosecuted, but the financing arm would also have 
had to be successfully brought through the process, and 
bankruptcies of financial institutions are more complex than 
those of industrial companies.\408\ Again, however, this line 
of argument implies that there was only one way to prosecute a 
GMAC bankruptcy and maintain systemic stability. If the 
floorplan financing was the key, there might have been ways to 
save floorplan financing without saving GMAC. For example, 
Treasury could have provided a variety of guarantees to private 
parties--perhaps even including GM--to take over the floorplan 
financing.\409\ One of the most troubling aspects of Treasury's 
discussion of a GMAC bankruptcy is the way in which it elides 
the distinction between a need to save the automotive financing 
services of GMAC and a need to save GMAC. Even assuming that 
the automotive financing was critical, the Panel is not 
convinced that GMAC itself needed to survive. Further, saving 
GMAC saved ResCap, which has no apparent relevance to 
automotive financing and continues to destabilize GMAC. The 
Panel remains unconvinced that saving GMAC whole, without 
attempting (for example) a Section 363 sale of the automotive 
financing business or a separate liquidation of ResCap, will 
prove to have been the better decision in the long run.
---------------------------------------------------------------------------
    \408\ Transcript of COP Hearing on GMAC, supra note 12 (Testimony 
of Jim Millstein).
    \409\ While in his hearing, Mr. Bloom noted that a 363 sale of the 
auto platform would still have required DIP financing, he did not 
disagree with the premise that the action would have created a stronger 
company, rather stating that keeping GMAC whole was viewed as the most 
prudent decision at the time. Transcript of COP Hearing on GMAC, supra 
note 12 (Testimony of Ron Bloom).
---------------------------------------------------------------------------
    Of all of the reasons proffered by Treasury, GMAC's 
inclusion in the stress tests would appear to be the stronger 
reason that Treasury has offered for keeping GMAC out of 
bankruptcy early in the process. After setting up stress tests 
for the largest BHCs and establishing them with the explicit 
promise that the government would serve as a backstop for 
tested institutions that could not raise the necessary capital 
from private sources, Treasury and the Federal Reserve asserted 
that they believed that they could not have allowed a large BHC 
to file for bankruptcy.\410\ The Federal Reserve, for its part, 
has maintained that the tests were designed to restore 
confidence to the nation's banking system through assessing the 
capital and capital needs of the largest banks during a period 
of great uncertainty, that the banks' safety and soundness was 
perceived to be of importance to the broader economy, and that 
GMAC was properly included among the stress-tested banks.\411\ 
Treasury and the Federal Reserve might reasonably have believed 
that conducting the assessment and then withholding the 
promised support could have cast an ominous shadow over the 
government's efforts to combat the financial crisis, especially 
initially.
---------------------------------------------------------------------------
    \410\ See Section F, infra, for further discussion of the stress 
tests. Of course, many entities sought to raise private capital as a 
means of repaying the government and exiting TARP.
    \411\ Federal Reserve conversations with Panel staff (Feb. 19, 
2010).
---------------------------------------------------------------------------
    Beyond these reasons, it is possible that any bankruptcy 
requiring substantial agreement on the part of the stakeholders 
might have been unlikely, and that attempts at a Section 363 
sale would have encountered similar difficulties to those that 
dogged GMAC's 2008 bond exchange offer.\412\ GMAC's bondholders 
were resistant to the exchange, which was instituted to raise 
capital for the BHC application, and did not initially tender 
the principal amount of bonds necessary for the BHC 
conversion.\413\ Ultimately, however, the Federal Reserve 
approved GMAC's BHC application despite the shortfall in the 
amount of tendered bonds on the grounds that GMAC's capital 
ratio was nonetheless adequate.\414\ It is impossible, in 
retrospect, to determine what would have happened if GMAC had 
continued to press its bondholders in the absence of the 
Federal Reserve's intervening BHC application approval. 
Although a Section 363 sale might have met with similar 
obstacles, it is not clear that this would have been the case.
---------------------------------------------------------------------------
    \412\ See Section C.2, infra, for further discussion of the bond 
exchange.
    \413\ GMAC Announces Results of Exchange Offers, supra note 67.
    \414\ Federal Reserve conversations with Panel staff (Feb. 19, 
2010).
---------------------------------------------------------------------------
    For its part, GMAC stated that it was concerned that any 
disruption in its ability to obtain capital at reasonable cost 
or any perception of distress would have created a funding void 
that, it states, would have been between $50 billion and $60 
billion. According to GMAC, it would then have needed DIP 
financing at these levels, which only Treasury could have 
provided. GMAC also asserts that there are few successful 
finance company bankruptcies, and that its advisors estimated 
that a bankruptcy process--either Chapter 11 or Section 363--
would have created major disruption for GM's dealers and retail 
customers.\415\
---------------------------------------------------------------------------
    \415\ GMAC conversations with Panel staff (Mar. 3, 2010).
---------------------------------------------------------------------------
    From the vantage point of Treasury's two most recent 
investments--May and December 2009--bankruptcy might not have 
been a prudent option, although that determination requires a 
careful analysis of the anticipated recovery before and after 
bankruptcy, as well as of returns on any additional capital 
required. Before 2009, however, the landscape was fundamentally 
different. A taxpayer who picked up a newspaper and sat down to 
breakfast on December 20, 2008 would have read headlines about 
the government's decision to provide substantial support to GM 
and Chrysler. But as of that date, GMAC had not yet received 
approval to become a BHC, the stress tests were two months 
away, and Treasury had invested no money in GMAC. Even two 
weeks later, bankruptcy should reasonably have remained an 
option. Treasury, after all, was already providing GMAC with 
liquidity, and could presumably have underpinned a GMAC 
workout. Another possibility might have been a U.S. government-
supported sale, such as that which aided JP Morgan in its 
purchase of Bear Stearns.\416\ The Panel remains unconvinced 
that at that point bankruptcy of either GMAC or ResCap or a 
similar restructuring was not a real possibility. It is unclear 
whether either was seriously considered at the time.
---------------------------------------------------------------------------
    \416\ JPMorgan Chase, JPMorgan Chase and Bear Stearns Announce 
Amended Agreement (Mar. 24, 2008) (online at www.jpmorgan.com/cm/
cs?pagename=JPM_redesign/JPM_Content_C/
Generic_Detail_Page_Template&cid=1159339104093&c=JPM_Content_C).
---------------------------------------------------------------------------
    What is clear is that policymakers now believe that the 
decisions made in December 2008 constrained the options in 
2009. For reasons described in greater detail in Section H, 
below, this may prove unfortunate. GMAC, and ResCap, are still 
struggling with many of the issues that hampered them prior to 
Treasury's first intervention, and a bankruptcy restructuring 
could have alleviated or perhaps solved some of the problems 
facing the entities. Further, a bankruptcy would have solved a 
current problem of particular matter to the taxpayers: the 
continued claims that GMAC's pre-bailout shareholders can still 
make on the company. Treasury and GMAC have provided a variety 
of reasons for rejecting bankruptcy and Section 363 sales of 
various of GMAC or GMAC assets, but the Panel remains 
unconvinced that the consequences of those decisions will not 
prove more harmful to the taxpayers in the long run.

                      F. GMAC and the Stress Tests

    The supervisory action, or SCAP, Treasury announced on 
February 10, 2009 was intended to address the ongoing economic 
crisis by stressing the country's major financial 
institutions.\417\ The results of the test were intended to 
show either that a BHC was sufficiently capitalized, thus 
presumably reassuring the market regarding its stability, or 
that a BHC required additional capital. Any BHC requiring 
additional capital that could not raise funds privately was 
promised the necessary funds from Treasury, assuring that these 
BHCs would also be sufficiently capitalized and stable. The 
SCAP was thus designed to ensure that the nation's largest 
financial institutions would be fully capitalized and that the 
market would view them as stable.
---------------------------------------------------------------------------
    \417\ The Government Accountability Office (GAO) has begun an audit 
of the SCAP as part of its ongoing oversight of TARP.
---------------------------------------------------------------------------
    Secretary Geithner described the SCAP in a statement issued 
on the day the program was announced:

          First, we're going to require banking institutions to 
        go through a carefully designed comprehensive stress 
        test, to use the medical term. We want their balance 
        sheets cleaner, and stronger. And we are going to help 
        this process by providing a new program of capital 
        support for those institutions which need it.

           *       *       *       *       *       *       *


          Those institutions that need additional capital will 
        be able to access a new funding mechanism that uses 
        funds from the Treasury as a bridge to private capital. 
        The capital will come with conditions to help ensure 
        that every dollar of assistance is used to generate a 
        level of lending greater than what would have been 
        possible in the absence of government support. And this 
        assistance will come with terms that should encourage 
        the institutions to replace public assistance with 
        private capital as soon as that is possible.\418\
---------------------------------------------------------------------------
    \418\ U.S. Department of the Treasury, Secretary Geithner 
Introduces Financial Stability Plan (Feb. 10, 2009) (online at 
www.financialstability.gov/latest/tg18.html). This announcement was 
made in coordination with the Federal Reserve and the FDIC.

A term sheet setting out the conditions upon which funds would 
be available from Treasury was published on February 25.\419\
---------------------------------------------------------------------------
    \419\ U.S. Department of the Treasury, U.S. Treasury Releases Terms 
of Capital Assistance Program (Feb. 25, 2009) (online at 
www.financialstability.gov/latest/tg40.html).
---------------------------------------------------------------------------
    The Federal Reserve paper that detailed the design and 
implementation of the stress tests also referred to the 
availability of funds from Treasury:

          The United States Treasury has committed to make 
        capital available to eligible BHCs through the Capital 
        Assistance Program as described in the Term Sheet 
        released on February 25.\420\
---------------------------------------------------------------------------
    \420\ Board of Governors of the Federal Reserve System, The 
Supervisory Capital Assessment Program: Design and Implementation, at 2 
(Apr. 24, 2009) (online at www.federalreserve.gov/newsevents/press/
bcreg/bcreg20090424a1.pdf) (hereinafter ``SCAP Design and 
Implementation'').

The Federal Reserve performed these ``stress tests'' under the 
SCAP on the 19 BHCs with assets above $100 billion, including 
GMAC.\421\
---------------------------------------------------------------------------
    \421\ GMAC converted to a BHC in December 2008. See Section C.2, 
infra, describing the timeline of events related to GMAC. According to 
the Federal Reserve, the decision to use the category of all BHCs with 
assets above $100 billion as the basis for inclusion in the SCAP was 
made after GMAC's application for conversion to a BHC was approved. The 
decision, however, was based on the fact that the SCAP was intended to 
target the financial sector and so using a category that would 
encompass the largest BHCs was the most logical choice to the Federal 
Reserve. Conference call with Panel staff (Feb. 19, 2010).
---------------------------------------------------------------------------
    On May 7, 2009, the Federal Reserve released the results of 
the stress tests, which showed that ten of the tested banks, 
including GMAC, had insufficient tier 1 capital to withstand 
the so-called ``more adverse scenario.'' \422\ The more adverse 
scenario was designed to model the effects of an even greater 
downturn than was being forecast at the time.\423\ These ten 
BHCs were given until June to devise a plan for raising the 
necessary capital from private sources. If any BHC was not able 
to raise this capital by November, TARP funds would be made 
available via the CAP. An institution that received funding 
under the CAP would be subject to several restrictions, 
including restrictions on executive compensation, increased 
disclosure requirements, and a requirement that the institution 
provide information regarding how it would use the CAP funds to 
increase lending.
---------------------------------------------------------------------------
    \422\ Board of Governors of the Federal Reserve System, The 
Supervisory Capital Assessment Program: Overview of Results (May 7, 
2009) (online at www.federalreserve.gov/newsevents/press/bcreg/
bcreg20090507a1.pdf). Specifically, the results showed that GMAC 
required an additional $11.5 billion in tier 1 capital, $9.1 billion of 
which was to be provided in fresh capital. Id. at 26. As discussed in 
Section D.2(b), infra, Treasury provided $3.5 billion of this amount to 
GMAC in May.
    \423\ As noted in the Panel's June 2009 report, the nation's 
unemployment figures have already exceeded the assumptions used for the 
``more adverse'' scenario. Congressional Oversight Panel, June 
Oversight Report: Stress Testing and Shoring Up Bank Capital, at 18 
(Jun. 9, 2009) (online at cop.senate.gov/documents/cop-060909-
report.pdf) (hereinafter ``June Oversight Report'').
---------------------------------------------------------------------------
    As of November 9, 2009, nine of the ten BHCs identified as 
needing additional tier 1 capital had met the requirements 
through private investment. GMAC was the only BHC that failed 
to raise the necessary capital. In a press release issued that 
day, Treasury announced that it would not use the CAP to 
provide GMAC with additional capital, but would use the AIFP 
instead. While the AIFP places many of the same restrictions on 
recipient institutions as the CAP would have placed, noticeably 
absent from the AIFP is a requirement that a recipient 
institution provide information on how it would use the funds 
to increase lending above the levels that would have been 
possible absent government support.\424\ GMAC is, however, 
required to provide Treasury with monthly reports on its 
overall lending activities,\425\ although it is not clear 
whether these reports include specific information about how 
much lending has increased as a direct result of Treasury's 
investments. Moreover, these reports are not publicly 
available, despite a provision in the CAP that would have 
required such disclosure.\426\ Also absent from the AIFP, but 
not from the CAP, is a plan to place all assets into a 
trust.\427\
---------------------------------------------------------------------------
    \424\ Capital Assistance Program, supra note 229.
    \425\ Transcript of COP Hearing on GMAC, supra note 12 (Testimony 
of Jim Millstein).
    \426\ CAP White Paper, supra note 234, at 3.
    \427\ CAP White Paper, supra note 234, at 3.
---------------------------------------------------------------------------
    The decision not to include the increased lending plan 
makes sense to the extent that the AIFP's target is the 
automotive industry and not, as with the CAP, the financial 
industry. But to the extent that the SCAP was aimed at 
stabilizing the financial industry, it is unclear why GMAC 
should have been allowed to receive tier 1 capital free of the 
strictures that were envisioned as a core component of the 
SCAP/CAP process. Each of Treasury's statements about the SCAP 
has included a reference to the importance of increasing 
lending. Furthermore, while GMAC started as the financial arm 
of an automotive company, it has expanded beyond that role to 
provide a greater array of financial services, as described in 
detail in Section C above. Recent statements by the company 
suggest that it intends to continue this expansion into the 
future.\428\ Ultimately, GMAC's original and most important 
purpose is to provide financing to the automotive sector. In 
late 2008 and early 2009, the automotive wholesale and consumer 
credit markets, like all credit markets, nearly froze. Interest 
rates shot up and approval rates plummeted as lenders became 
increasingly cautious and unwilling to part with cash. To the 
extent that the SCAP was intended to loosen up the credit 
markets, requiring GMAC to provide a plan for increasing 
lending would have made sense.
---------------------------------------------------------------------------
    \428\ GMAC, Inc., Preliminary 2009 Third Quarter Results, at 22 
(Nov. 4, 2009) (online at phx.corporate-ir.net/
External.File?item=UGFyZW50SUQ9MTk0MDJ8Q2hp
bGRJRD0tMXxUeXBlPTM=&t=1) (noting that ``Ally Bank continues to build 
brand awareness and retail deposit base'' and identifying goal of 
``expand[ing] and diversify[ing]'' revenue opportunities in auto and 
mortgage, driving originations'').
---------------------------------------------------------------------------
    In meetings with Panel staff, Treasury staff have stated 
that they used the AIFP instead of the CAP because GMAC was 
already part of the AIFP and because it did not make sense to 
open the CAP for only one institution when that institution 
could receive funding elsewhere (i.e., through the AIFP).\429\ 
According to Treasury, the CAP's requirement regarding a 
lending program was unnecessary for GMAC because GMAC is 
already a lending institution. This explanation, however, does 
not adequately address the question. In late 2008 and early 
2009, the credit markets were all but frozen and nearly all 
lending institutions stopped lending. GMAC was and is a part of 
those markets and there are no indications that it was not at 
least as severely affected by the crisis as other lenders. It 
is therefore unclear why GMAC should not be required to provide 
a lending plan just as any other BHC that received funding 
following the SCAP would have been required to provide.
---------------------------------------------------------------------------
    \429\ Treasury meeting with Panel staff (Feb. 2, 2010).
---------------------------------------------------------------------------
    More importantly, the lack of public disclosure of GMAC's 
lending reports is troubling. This Panel has consistently 
requested that Treasury provide more transparency in its 
administration of the TARP. In this instance, Treasury appears 
to have chosen the program with lower disclosure requirements 
in a situation where the more transparent program had been 
established as the default selection.
    The CAP also contemplated the creation of a trust to hold 
the assets purchased through the program while the AIFP does 
not. Because GMAC's assets were purchased through the AIFP, 
they have not been placed in a trust. Treasury staff, in a 
meeting with Panel staff, stated that there was no requirement 
under the CAP to place assets in a trust despite the language 
in the CAP documents that states: ``any capital investments 
made by Treasury under this plan will be placed in a separate 
trust set up to manage the government's investments in US 
financial institutions.'' \430\
---------------------------------------------------------------------------
    \430\ CAP White Paper, supra note 234, at 3.
---------------------------------------------------------------------------
    Additionally, Treasury did not provide the full amount to 
GMAC that the SCAP indicated that the company would require. 
Although the SCAP found that GMAC would require $11.5 billion 
in total additional capital, including $9.1 billion in fresh 
capital, the total provided by Treasury increased GMAC's tier 1 
capital by only $7.3 billion.\431\ Treasury and the Federal 
Reserve have both stated that the shift in the size of the 
capital buffer required for GMAC occurred because the impact of 
the GM bankruptcy on GMAC's operations was less adverse to GMAC 
than the assumptions used by the Federal Reserve in the 
SCAP.\432\ At the time the stress tests were conducted, the GM 
bankruptcy process was not yet complete and, according to 
Treasury, three items remained unknown: (1) what the residual 
values for GM's assets would be; (2) how GM dealers who had 
been rejected would be treated; and (3) what preference GMAC 
would receive in the bankruptcy process. When the Federal 
Reserve conducted the SCAP, it used very conservative 
assumptions for the outcome of these three unknowns. 
Ultimately, the real values were less adverse than the Federal 
Reserve's assumptions and, in December 2009, GMAC presented 
Treasury with a proposed revised plan that would require a 
smaller amount of additional tier 1 capital than the May stress 
test results required.\433\ Treasury discussed the revised plan 
with the Federal Reserve, and the Federal Reserve judged that 
the capital buffer requirement for GMAC could be adjusted 
downward, although not as far as GMAC had proposed.\434\ 
Instead of reducing the additional capital needed to the figure 
proposed by GMAC, it was reduced to $3.8 billion.
---------------------------------------------------------------------------
    \431\ Treasury also provided $4 billion to GMAC related to GMAC's 
acquisition of Chrysler Financial, as described in Section D above, for 
a total in fresh capital of $13.1 billion.
    \432\ Treasury conversations with Panel staff (Feb. 2, 2010); 
Federal Reserve conversations with Panel staff (Feb. 19, 2010).
    \433\ Treasury conversations with Panel staff (Jan. 29, 2010); GMAC 
conversation with Panel staff (Feb. 1, 2010).
    \434\ It does not appear that any similar adjustments were made for 
any other BHCs tested under the SCAP.
---------------------------------------------------------------------------
    None of the other 18 BHCs that participated in the SCAP had 
their capital buffer requirements revised after the May 6, 2009 
announcement. According to both Treasury and the Federal 
Reserve, this is because GMAC was uniquely situated; the 
outcome of the GM bankruptcy would have considerable impact on 
GMAC's operations and, given the size of GM and the state of 
the economy at the time, that outcome was exceedingly difficult 
to predict.\435\ Although every BHC that was tested had some 
uncertainties for which the Federal Reserve was obliged to 
devise assumptions, only for GMAC did the actual numbers 
diverge from the assumptions enough to warrant a revision to 
the capital buffer.\436\ GMAC's unique position, however, was 
never publicly mentioned by Treasury or the Federal Reserve.
---------------------------------------------------------------------------
    \435\ Treasury conversations with Panel staff (Feb. 2, 2010); 
Federal Reserve conversations with Panel staff (Feb. 19, 2010).
    \436\ Treasury conversations with Panel staff (Feb. 2, 2010); 
Federal Reserve conversations with Panel staff (Feb. 19, 2010).
---------------------------------------------------------------------------
    Although the SCAP was unique in its size, scope, and 
visibility, bank supervisors regularly conduct such exercises 
on a smaller scale to ensure that BHCs remain healthy and 
viable. It is not surprising that, over the course of seven or 
more months, the amount of additional capital a BHC requires 
might change. Nor does the Panel have an opinion as to whether 
GMAC's current capital buffer is sufficient. What is notable to 
the Panel, however, is the fact that there appears to have been 
a degree of conditionality in the results of the SCAP that was 
not communicated to the public. While, for example, the 
document issued by the Federal Reserve noted that ``[i]f the 
economy recovers more quickly than specified in the more 
adverse scenario, firms could find their capital buffers at the 
end of 2010 more than sufficient to support their critical 
intermediation role and could take actions to reverse their 
capital build-up[,]'' \437\ there was no suggestion that the 
capital levels might be revised downward at any earlier point. 
Announcements regarding the results of the SCAP likewise 
included no indication that the results might be subject to 
revision at any point or, in particular, that the level 
required for one company might be adjusted based solely on 
factors relevant to that BHC. It is therefore surprising that 
such a revision was apparently available.
---------------------------------------------------------------------------
    \437\ SCAP Design and Implementation, supra note 420, at 5.
---------------------------------------------------------------------------

             G. GMAC and the AIFP: A More Lenient Approach

    As discussed earlier, Treasury maintains that the aid 
provided to GMAC was inextricable from the aid provided to the 
automotive companies. Like the automotive companies, which 
received bridge financing before long-term investment, GMAC 
also received successive infusions, the last of which was paid 
in December 2009. It is there that the similarities end. For 
most other points of comparison, GMAC received very different 
treatment from the automotive companies it supports.

1. Due Diligence and Demonstrations of Viability

    The first point upon which GMAC's treatment differs from 
that of the automotive companies is in the due diligence 
Treasury performed, and the requirements it imposed on GMAC. 
Unlike the automotive companies, GMAC does not appear to have 
been required to demonstrate or disclose anything particularly 
rigorous regarding its future plans, viability, or current 
stability in order to receive later sums. Given that Treasury's 
investment in GMAC is currently larger than its investment in 
Chrysler, this omission is, at best, puzzling. GMAC has 
explained that prior to the December 2009 infusion, it provided 
Treasury and the Federal Reserve with pro forma financial 
statements.\438\ The pro-forma financials were, however, a work 
in progress, and while GMAC and Treasury discussed and reviewed 
the pro-forma financials, Treasury did not otherwise require a 
rigorous determination of GMAC's viability prior to delivering 
the funds in late December 2009.\439\ Instead, GMAC received 
the funds and continued to develop the details of its strategy 
over the following quarter. Treasury takes the position that a 
diligence process would have added little, given that the funds 
were already committed, and that renegotiating the consent 
provisions for the entire MCP holdings would permit it to 
evaluate GMAC's strategy and viability at any time that GMAC 
approached it for a conversion. Whether this substitute for due 
diligence will prove relevant to the taxpayer is yet to be 
seen; the difference from Treasury's treatment of the 
automotive companies is, however, marked.
---------------------------------------------------------------------------
    \438\ GMAC conversations with Panel staff (Feb. 1, 2010).
    \439\ GMAC conversations with Panel staff (Feb. 1, 2010).
---------------------------------------------------------------------------
    The automotive companies were given bridge financing and 
funds for current operations, but were required to demonstrate 
their continued viability before they could receive longer-term 
help. More specifically, the initial loans to the automotive 
companies were extended with a requirement that each company 
demonstrate the capacity to stabilize and achieve long-term 
health.\440\ In announcing the program, then-Secretary Paulson 
emphasized the conditionality of the loans, stating that 
assistance came with the ``requirement that [the companies] 
move quickly to develop and adopt acceptable plans for long 
term [sic] viability.'' \441\ Moreover, then-Secretary Paulson 
emphasized that the assistance was not intended solely as a 
means of preventing ``significant disruption to our economy,'' 
but was also a critical step toward ``the significant 
restructuring necessary to achieve long-term viability.'' \442\ 
In response to the conditions, in February 2009, both companies 
submitted financial viability plans, which the Obama 
Administration reviewed critically, requiring Chrysler to 
develop a partnership with another automotive company, and 
describing GM's forecasts as overly optimistic.\443\ GMAC is 
currently at work on a viability plan: this plan, however, was 
not a precondition to the government's investments. If any 
evaluation of GMAC's viability occurred prior to the commitment 
of TARP funds, it has not been disclosed to the public.
---------------------------------------------------------------------------
    \440\ White House, Fact Sheet: Financing Assistance to Facilitate 
the Restructuring of Auto Manufacturers to Attain Financial Viability 
(Dec. 19, 2008) (online at georgewbush-whitehouse.archives.gov/news/
releases/2008/12/20081219-6.html). The loans also imposed conditions 
related to operations, expenditures, and reporting.
    \441\ Sec. Paulson Statement on the Automotive Industry, supra note 
187.
    \442\ Sec. Paulson Statement on the Automotive Industry, supra note 
187.
    \443\ U.S. Department of the Treasury, Chrysler February 17 Plan: 
Determination of Viability, at 1 (Mar. 30, 2009) (online at 
www.financialstability.gov/docs/AIFP/Chrysler-Viability-
Assessment.pdf); U.S. Department of the Treasury, GM February 17 Plan: 
Determination of Viability, at 2 (Mar. 30, 2009) (online at 
www.financialstability.gov/docs/AIFP/GM-Viability-
Assessment.pdf).
---------------------------------------------------------------------------

2. Consequences to Shareholders

    Yet another distinction between Treasury's treatment of 
GMAC and Treasury's approach to the automotive companies lies 
in the consequences visited upon the various entities' owners. 
Prior to Treasury's intervention, Daimler and Cerberus were the 
primary owners of Old Chrysler, with 19.9 percent and 80.1 
percent equity, respectively. In the Old Chrysler \444\ 
liquidation, both were wiped out. Old Chrysler's first-lien 
secured lenders, who had $6.9 billion in secured claims from 
Old Chrysler, received $2 billion cash in the liquidation. 
Other stakeholders similarly found their claims upon Old 
Chrysler substantially impaired after the bankruptcy 
proceeding. The Old GM shareholders were also wiped out, while 
other stakeholders saw substantial obligations owed by Old GM 
converted into more uncertain shares in the new GM. The 
automotive companies, accordingly, had vastly different 
ownership structures after Treasury's intervention than they 
did before, and many if not most of the parties involved were 
asked to make significant sacrifices in the bankruptcy 
proceedings.\445\
---------------------------------------------------------------------------
    \444\ For purposes of consistency, Chrysler, in its incarnation 
before it entered bankruptcy, is referred to as Old Chrysler, while the 
new entity that emerged from the bankruptcy process is referred to as 
Chrysler.
    \445\ See September Oversight Report, supra note 189, at 23-31.
---------------------------------------------------------------------------
    By contrast, GMAC's shareholders have been diluted by 
Treasury's entry, but have not been wiped out.\446\ In 
reviewing GMAC's BHC application, the Federal Reserve required 
GM and Cerberus to reduce their ownership interest in GMAC: 
neither GM nor Cerberus could comply with the nonbanking 
activities restrictions in the BHCA, and therefore neither 
could retain a controlling interest in GMAC once it became a 
BHC. The Federal Reserve required GM to reduce its ownership 
interest to less than 10 percent of the voting equity in GMAC 
and required Cerberus to reduce its aggregate direct and 
indirect investments to no greater than 14.9 percent of the 
voting and 33 percent of the total equity in GMAC.\447\ 
Although GM and Cerberus lost control, neither GM nor Cerberus 
sacrificed all economic value in the investment. Rather, GM 
transferred its remaining equity interest in GMAC to a 
trust,\448\ while each Cerberus fund that held interests in 
GMAC distributed its excess equity interest in the company to 
its respective investors.\449\ While the value of these 
investments to either the GM Trust or to the Cerberus investors 
is, of course, subject to the vagaries of the market, the 
original investors had something to distribute. Neither 
original investor was therefore wiped out in the sense that the 
Old GM or Old Chrysler shareholders were wiped out in the 
bankruptcies. Finally, both GM and Cerberus retained a residual 
equity voting interest in GMAC. To the extent that the GMAC 
bailout is part of the AIFP, the disparate treatment of the 
stakeholders in the process appears to be without any 
particular justification. In his speech on the GM 
restructuring, President Obama emphasized the principle of 
sacrifice: in particular, he observed that the UAW was 
receiving cuts in employee compensation and retiree health care 
benefits, while shareholders were sacrificing any remaining 
value in their shares.\450\ If GMAC is properly part of the 
AIFP, it is unclear why no such sacrifices were required of the 
GMAC shareholders.
---------------------------------------------------------------------------
    \446\ See Sections C.2 and D.2, supra, for a discussion of the 
consequences visited upon GMAC's bondholders, board, and management. 
The board has turned over completely since before the BHC application, 
and the bondholders were required to take a haircut. Management 
experienced some, but not overwhelming, turnover.
    \447\ Order Approving GMAC's BHC Formation, supra note 58.
    \448\ Order Approving GMAC's BHC Formation, supra note 58. The 
Trustee of the trust had to be acceptable to the Federal Reserve and 
the Treasury, entirely independent of GM, and have sole discretion to 
vote and dispose of the GMAC equity interests. As part of the process, 
GM was also required to sign a passivity agreement whereby its 
representative on the board is only an observer, and does not vote. 
March 24 Letter to B. Robbins Kiessling, Esq., supra note 65.
    \449\ The Federal Reserve imposed additional requirements on 
Cerberus and GM's ability to effect control over GMAC. Among other 
things, Cerberus employees and consultants were to cease providing 
services to or otherwise functioning as dual employees of GMAC, and 
Cerberus was also required to abjure any advisory relationships with 
GMAC or any investor regarding the sale of shares or management or 
policies of GMAC. Order Approving GMAC's BHC Formation, supra note 58.
    \450\ See White House, Remarks by the President on General Motors 
Restructuring (June 1, 2009) (online at www.whitehouse.gov/
the_press_office/Remarks-by-the-President-on-General-Motors-
Restructuring/).
---------------------------------------------------------------------------

3. Bankruptcy

    Another glaring difference between GMAC and the automotive 
companies, and the reason that GMAC's shareholders retain 
whatever value is left in their shares, is, of course, that 
GMAC never went through bankruptcy. In the abstract, bankruptcy 
would have been possible for GMAC. In the absence of market-
specific concerns, the structure and business of GMAC--either 
before or after the BHC conversion--would not have presented 
any particular obstacles to either a bankruptcy proceeding or, 
more likely, a Section 363 sale. The nonbank portions of the 
business would have been segregated and placed into the 
bankruptcy process, while the bank portions of the business 
could either have been kept solvent or placed into receivership 
by the FDIC according to its customary processes. The 
profitable automotive financing business could have been sold, 
perhaps with a government guarantee. In testimony before the 
Panel, Treasury representatives cited a variety of concerns 
underpinning the decision to keep GMAC out of bankruptcy, from 
their belief that adding a GMAC bankruptcy to the GM and 
Chrysler bankruptcies would have further destabilized a 
precarious situation, to their assertion that the workout would 
have required enormous DIP financing, to, ultimately, their 
fear that GMAC, as a financial services company, could have 
failed to emerge from bankruptcy.\451\ But Treasury and GMAC's 
objections, further discussed in Section E.4, could as easily 
have applied to the automobile company bankruptcies. After all, 
fear that the company would emerge from liquidation crippled, 
if at all; substantial need for assistance; and fear of 
significant disruption all describe the concerns surrounding 
GM's bankruptcy as well. A bankruptcy could have solved a 
variety of the problems that face GMAC now, which are discussed 
in greater detail in Section H, below: its debt burden, its 
exposure to deteriorating mortgages through ResCap, and its 
high preferred share ratio and attendant high cost of capital, 
among others. In fact, a bankruptcy could have addressed many 
of GMAC's problems: it could have wiped out the old equity, 
limited losses on housing, haircut the outstanding debt, and 
overall put the company on a better path towards the future. A 
bankruptcy might have preserved an independent GMAC or sold off 
its parts, including the automotive financing business, for 
more value. And yet, GMAC and its shareholders were never 
subjected to the same risk of total loss, because Treasury 
deemed bankruptcy imprudent for GMAC. The Panel has discussed 
its objections to Treasury's concerns in Section E, above, and 
continues to question whether Treasury was indeed powerless in 
the face of the hurdles it described: as the Panel noted in its 
September report, a $700 billion fund gives the holder many 
options.\452\
---------------------------------------------------------------------------
    \451\ Transcript of COP Hearing on GMAC, supra note 12 (Testimony 
of Jim Millstein). For a more detailed discussion of Treasury's reasons 
for determining that a bankruptcy proceeding was not appropriate for 
GMAC, see Section E.4, supra.
    \452\ See September Oversight Report, supra note 189, at 3, 86-87 
(discussing Treasury as a ``tough negotiator'' when it invested 
taxpayer funds in the automotive companies and describing the 
imposition of conditions on institutions that receive ``exceptional 
assistance'').
---------------------------------------------------------------------------
    Fundamentally, these decisions matter not only because they 
affect the manner of the taxpayers' investment, but also, and 
more importantly, because they affect the taxpayers' potential 
for recovery. When the prior shareholders were preserved, with 
them were preserved their claims upon GMAC, although it is 
Treasury, and not the prior investors, that has kept GMAC 
afloat. Treasury has assured the Panel that it would be highly 
unlikely for the third-party shareholders to receive a return 
if the taxpayers suffered a loss, because Treasury has multiple 
mechanisms for protecting the priority of its investment. 
First, Treasury has substantial preferred share holdings, which 
would be paid before any distributions on the equity of the 
other investors. Second, if Treasury converted its preferred 
shares, the other shareholders would be diluted beyond their 
already substantial dilution. Treasury's MCP have conversion 
rights that allow Treasury to convert--and substantially 
dilute--other shareholders in the event of certain corporate 
actions, and therefore permit Treasury to intervene in GMAC's 
efforts to raise capital.\453\ But Treasury has also stated 
that the only way to legally wipe out the other shareholders 
was through bankruptcy, and this option was rejected: Treasury 
may have the power to dilute the other shareholders, but unless 
it takes GMAC into bankruptcy, it does not have the power to 
eliminate them.\454\ Ultimately, the Panel urges Treasury to 
make every effort to bring to fruition its assertion that no 
third-party shareholder is likely to receive a return unless 
the taxpayers are paid in full.\455\ It would be the height of 
impropriety for these shareholders to recover any value in 
their investment if the taxpayers were not previously or 
simultaneously made whole.
---------------------------------------------------------------------------
    \453\ Treasury GMAC Contract, supra note 226, at Schedule A.
    \454\ Transcript of COP Hearing on GMAC, supra note 12 (Testimony 
of Ron Bloom).
    \455\ It would be theoretically possible for a third-party investor 
to sell its shares in a private sale. Given Treasury's ability to 
dilute the shareholdings, the large number of outstanding preferred 
shares, and GMAC's pending debt maturities, however, it is unlikely 
that this hypothetical private sale would net very much. Treasury 
conversations with Panel staff (Mar. 2, 2010).
---------------------------------------------------------------------------

     H. Exit Strategy and Expected Returns from the GMAC Investment


1. Treasury's Options for Divesting the GMAC Stake

    Treasury currently owns $11.4 billion in MCP, $2.67 billion 
in TruPs and 56.3 percent of the common equity of GMAC. For the 
purpose of comparison, this is a larger investment than the 
$12.8 billion acquisition cost of Treasury's Chrysler 
holdings.\456\ In fact, if Treasury converted its preferred 
position, it would hold more than 70 percent of the common 
equity of GMAC.\457\ And yet, in sharp contrast to its 
discussion of the investment in Chrysler, Treasury has provided 
the public virtually no information about its intentions with 
respect to its future strategy or exit for GMAC. This deprives 
the taxpayers of the means to understand the current state of 
and future plans for their not insubstantial investment in 
GMAC. The Panel has repeatedly called for Treasury to manage 
the TARP in a transparent and open fashion.\458\ In its 
treatment of GMAC, Treasury has, however, failed to provide the 
public with much information.
---------------------------------------------------------------------------
    \456\ This figure represents the total amount of funds provided to 
Chrysler through the AIFP. See Congressional Oversight Panel, January 
Oversight Report: Exiting TARP and Unwinding Its Impact on the 
Financial Markets, at 85, 87 (Jan. 13, 2009) (online at cop.senate.gov/
documents/cop-011410-report.pdf) (hereinafter ``January Oversight 
Report''). These comparisons should not imply that there is any special 
significance that rests upon the size of an investment. Rather, this 
report hopes to draw a contrast between the professed rigor and 
transparency associated with the investment in the automotive companies 
with the more opaque circumstances of the GMAC investment. Chrysler, as 
an AIFP participant with a Treasury stake of roughly the same size as 
GMAC, is a useful point of comparison. See Congressional Oversight 
Panel, January Oversight Report: Exiting TARP and Unwinding Its Impact 
on the Financial Markets, at 87 (Jan. 13, 2009) (online at 
cop.senate.gov/documents/cop-011410-report.pdf).
    \457\ GMAC, Inc., Investor Call to Discuss Key Capital and 
Strategic Actions, at 10 (Jan. 5, 2010) (online at www.gmacfs.com/us/
en/about/investor/upcoming_events.html) (hereinafter ``Investor Call to 
Discuss Capital and Strategic Actions'').
    \458\ The Panel has been consistent in its calls for transparency 
in the administration of the TARP, recommending or discussing the need 
for transparency in nearly all of its reports. See Congressional 
Oversight Panel, April Oversight Report: Assessing Treasury's Strategy: 
Six Months of TARP, at 5 (Apr. 7, 2009) (online at cop.senate.gov/
documents/cop-040709-report.pdf); August Oversight Report, supra note 
151, at 60; December 2009 Oversight Report, supra note 368, at 95-97; 
December Oversight Report, supra note 364, at 5, 16, 19; Congressional 
Oversight Panel, February Oversight Report: Valuing Treasury's 
Acquisitions, at 3, 12 (Feb. 6, 2009) (online at cop.senate.gov/
documents/cop-020609-report.pdf); Congressional Oversight Panel, 
January Oversight Report: Accountability for the Troubled Asset Relief 
Program, at 3-4 (Jan. 9, 2009) (online at cop.senate.gov/documents/cop-
010909-report.pdf); January Oversight Report, supra note 456, at 45; 
Congressional Oversight Panel, July Oversight Report: TARP Repayments, 
Including the Repurchase of Stock Warrants, at 39 (July 10, 2009) 
(online at cop.senate.gov/documents/cop-071009-report.pdf); June 
Oversight Report, supra note 423, at 5, 49; Congressional Oversight 
Panel, November Oversight Report: Guarantees and Contingent Payments in 
TARP and Related Programs, at 79, 86 (online at cop.senate.gov/
documents/cop-110609-report.pdf) (hereinafter ``November Oversight 
Report''); Congressional Oversight Panel, October Oversight Report: An 
Assessment of Foreclosure Mitigation Efforts After Six Months, at 93 
(Oct. 9, 2009) (online at cop.senate.gov/documents/cop-100909-
report.pdf); September Oversight Report, supra note 189, at 104-105.
---------------------------------------------------------------------------
    As with the automotive companies, Treasury's stake in 
GMAC--common, TruPs, and MCP \459\--is fundamentally 
illiquid.\460\ Accordingly, Treasury's large common stock 
position in GMAC, a non-public company, can be sold only in 
private sales unless and until GMAC makes an initial public 
offering (IPO). Divesting Treasury's preferred share position 
depends on whether Treasury converts the MCP into common stock. 
If Treasury converted the MCP, it could sell the resulting 
common stock in the market after the eventual IPO, or, less 
likely, in a private sale.\461\ Even then, Treasury will be 
hampered by the ownership restrictions imposed on holders of 
bank stock. As any entity holding 25 percent or more of the 
voting stock of a bank or BHC is itself a BHC, Treasury could 
transfer its interests in GMAC stock only consistent with the 
BHCA, which could further limit its ability to sell its 
position.\462\ In any event, consistent with its approach 
overall, Treasury's goal is to ``dispose of the government's 
interests as soon as practicable consistent with EESA goals.'' 
\463\
---------------------------------------------------------------------------
    \459\ TruPs have elements of both common equity and debt, are 
senior to all other common equity of GMAC, and have no contractual 
restrictions on transfer (other than requirements that certificates 
bear certain legends and other similar restrictions set forth in the 
Declaration of Trust for the Trust), while MCP, which are convertible 
at the Federal Reserve's option, would require conversion before they 
can be marketed. See December 2009 Restructuring Announcement, supra 
note 214; U.S. Department of the Treasury, Decoder (online at 
www.financialstability.gov/roadtostability/decoder.htm) (accessed Mar. 
8, 2010); U.S. Department of the Treasury, The Treasury Capital 
Assistance Program and the Supervisory Capital Assessment Program, 
Joint Statement by Secretary of the Treasury Timothy F. Geithner, 
Chairman of the Board of Governors of the Federal Reserve System Ben S. 
Bernanke, Chairman of the Federal Deposit Insurance Corporation Sheila 
Bair, and Comptroller of the Currency John C. Dugan (May 6, 2009) 
(online at www.financialstability.gov/latest/tg91.html); GMAC Inc., 
Summary of Trust Preferred Securities and Warrant Terms (May 21, 2009) 
(online at financialstability.gov/docs/AIFP/
Posted%20to%20AIFP%20Website%20-%20GMAC%202009.pdf).
    \460\ See GMAC to Expand Retail Auto Financing, supra note 138.
    \461\ Transcript of COP Hearing on GMAC, supra note 12 (Testimony 
of Ron Bloom and Jim Millstein).
    \462\ 12 U.S.C. Sec. 1842(a).
    \463\ U.S. Department of the Treasury, Office of Financial 
Stability Agency Financial Report: Fiscal Year 2009, at 44 (Dec. 10, 
2009) (online at www.treas.gov/press/releases/OSF%20AFR%2009.pdf) 
(hereinafter ``OFS Financial Report: Fiscal Year 2009'').
---------------------------------------------------------------------------
    Treasury has stated that it intends to sell its interests 
in a timely and orderly manner that ``minimizes financial 
market and economic impact,'' under what it determines to be 
appropriate market conditions.\464\ At the Panel's hearing, 
Treasury representatives set forth the steps GMAC would need to 
follow in order for Treasury to divest the GMAC investment. 
First, GMAC must address its looming maturing debt. Until 
GMAC's debt has been refinanced, Treasury does not expect GMAC 
to be able to access the equity markets. Once the debt is 
refinanced and the GMAC balance sheet has a better liquidity 
profile, then an IPO should be possible. Treasury would likely 
convert its MCP to common in whole or in part and sell its 
shares after the company becomes public.\465\
---------------------------------------------------------------------------
    \464\ OFS Financial Report: Fiscal Year 2009, supra note 463, at 
40.
    \465\ Transcript of COP Hearing on GMAC, supra note 12 (Testimony 
of Ron Bloom and Jim Millstein).
---------------------------------------------------------------------------
    An IPO strategy hinges on the ability of GMAC to become 
profitable. Since a public offering is the primary method for 
recovery of taxpayers' money, delays in or hindrances to 
accessing the equity capital markets will prolong Treasury's 
involvement as a shareholder. This therefore places substantial 
weight on GMAC's strategy for becoming profitable, which is 
presently a work in progress. At base, GMAC is dependent on 
maintaining liquidity in order to sustain the lending flows to 
the automotive industry. In this context, GMAC has two primary 
obstacles between its current position and the profitability 
that would support a potential IPO, both of which relate to 
liquidity: it must have unfettered and non-government-sponsored 
access to the third-party credit markets, and it must be able 
to reduce its cost of capital.\466\ In order to overcome both 
roadblocks, it must address its maturing debt; hire good 
staff,\467\ support and expand a retail bank, contain a deeply 
troubled mortgage subsidiary, convince the credit markets that 
its debt is a worthwhile investment and the equity markets that 
it has a future as a non-captive finance arm of GM, and engage 
in asset securitizations in a tight market. Any one of these 
could prove a substantial impediment to a return to 
profitability, but to succeed, GMAC must accomplish all of 
these goals simultaneously.
---------------------------------------------------------------------------
    \466\ The GMAC preferred stock that Treasury holds pays 9 percent 
interest. U.S. Department of the Treasury, Treasury Announces 
Restructuring of Commitment to GMAC (Dec. 30, 2009) (online at 
www.financialstability.gov/latest/pr_1052010.html).
    \467\ GMAC is subject to Special Master Feinberg's jurisdiction and 
may pay compensation only if it is consistent with the restrictions 
imposed on entities that received exceptional financial assistance 
under TARP. Among other things, these entities may only pay covered 
employees compensation that will not encourage them to take unnecessary 
or excessive risks, appropriately allocates its components between 
short- and long-term incentives, is comparable to the compensation at 
similar entities, and is sufficiently competitive to attract talented 
staff. 31 CFR Part 30; see also U.S. Department of the Treasury, TARP 
Standards for Compensation and Corporate Governance (June 6, 2010) 
(online at www.treas.gov/press/releases/reports/
ec%20ifr%20fr%20web%206.9.09tg164.pdf).
    Special Master Feinberg rejected aspects of GMAC's initial 
compensation proposal, finding them inconsistent with the regulatory 
standards. GMAC was also directed to institute corporate governance 
reforms consistent with the Special Master's direction, including 
clawbacks, disclosure, and prohibitions on luxury expenditures and tax 
gross-ups. See Letter from Kenneth R. Feinberg, special master for TARP 
executive compensation, to Al de Molina, chief executive officer, GMAC, 
Proposed Compensation Structures for Senior Executive Officers and Most 
Highly Compensated Employees (Oct. 22, 2009) (online at www.treas.gov/
press/releases/docs/20091022%20GMAC%20Letter.pdf); Letter from Kenneth 
R. Feinberg, special master for TARP executive compensation, to Drema 
M. Kalajian, attorney, GMAC, Proposed Compensation Structures for 
Certain Executive Officers and Most Highly Compensated Employees (Dec. 
11, 2009) (online at www.financialstability.gov/docs/
20091210%20GMAC%20Determination.pdf).
    Some entities subject to the compensation restrictions have argued 
that they cannot attract or retain the talented and dedicated staff 
necessary to help untangle the mess. Bank of America, Corp., Form 10-K 
for the Fiscal Year Ended December 31, 2008, at 6 (Feb. 27, 2009) 
(online at www.sec.gov/Archives/edgar/data/70858/000119312509041126/
d10k.htm); Citigroup, Form 10-K for the Fiscal Year Ended December 31, 
2008, at 49 (Feb, 27, 2009) (online at www.citi.com/citi/fin/data/
k08c.pdf?ieNocache=865).
    As long as it is subject to the restrictions, GMAC may believe that 
it is similarly hampered. If GMAC cannot assemble the team it needs to 
address its many problems, it may also delay its return to solvency.
---------------------------------------------------------------------------

2. GMAC's Current Strategy

    The overall likelihood of success of GMAC's current 
operations is, like the future of the U.S. automotive industry 
generally, uncertain. At a high level, GMAC has stated that it 
intends to focus on fulfilling the regulatory requirements of a 
BHC, address the issues posed by ResCap, repay the U.S. 
government,\468\ and become a multi-brand source of automotive 
financing.\469\ Further, in a recent press release, GMAC stated 
that it believes that the best way for it to return to 
profitability is to focus on its core automotive financing 
business.\470\ GMAC is expanding in both the wholesale and the 
retail market to obtain funds for its automotive financing. 
Underlying any and all discussions of specific strategy, 
however, lies GMAC's need to keep access to credit. Whether it 
achieves liquidity through taking deposits, access to the 
credit markets, or asset securitizations, it must be able to 
keep the funds flowing in order to maintain the automotive 
finance core.
---------------------------------------------------------------------------
    \468\ GMAC, Inc., GMAC Names Michael A. Carpenter Chief Executive 
Officer; Will Lead Next Phase Of Renewal (Nov. 16, 2009) (online at 
media.gmacfs.com/index.php?s=43&item=374).
    \469\ GMAC conversations with Panel staff (Feb. 1, 2010).
    \470\ GMAC Announces Capital and Strategic Actions, supra note 248.
---------------------------------------------------------------------------
    As noted above, GMAC has multiple impediments to overcoming 
its two core obstacles to profitability. At a high level, GMAC 
suffers from significant amounts of maturing debt and an 
uncertain ability to access the credit markets. In October 
2009, GMAC issued $2.9 billion in senior fixed rate notes 
pursuant to the TLGP,\471\ but this facility has effectively 
expired and is unlikely to be readily available for GMAC for 
additional offerings in the future.\472\ GMAC recently offered 
$2 billion principal amount of five-year corporate-guaranteed 
debt at 8.3 percent in a Rule 144A offering. This offering was 
not supported either by the Federal Reserve or the TLGP, and 
may therefore represent renewed access to the credit 
markets.\473\ The interest rate paid, however, is high and may 
prove a significant drag on future profitability. It is also 
not clear whether or on what terms this access will continue, 
particularly given that GMAC has $24 billion worth of debt 
coming due in 2010, $22 billion in 2011, and $13 billion in 
2012.\474\ If GMAC is unable to refinance at affordable rates 
or has insufficient cash to cover its maturing obligations, it 
may face even higher borrowing costs, possibly resulting in 
renewed liquidity problems.
---------------------------------------------------------------------------
    \471\ GMAC Reports Preliminary Q3 2009 Results, supra note 273.
    \472\ Temporary Liquidity Guarantee Program FAQs, supra note 49.
    \473\ It is, however, roughly comparable to other offerings: Ford 
Motor Credit recently issued $1 billion of five-year senior unsecured 
notes at 8.7 percent. Ford Motor Credit, Prospectus Supplement Filed 
Pursuant to Rule 424(b)(2) (Sept. 16, 2009) (online at www.sec.gov/
Archives/edgar/data/38009/000095012309043842/k48318b2e424b2.htm).
    \474\ GMAC, Inc., Preliminary 2009 Second Quarter Results (Aug. 4, 
2009) (online at phx.corporate-ir.net/
External.File?item=UGFyZW50SUQ9MTIwMjN8Q2hpbGRJRD0tMXxUeX
BlPTM=&t=1) (hereinafter ``GMAC Preliminary 2Q 2009 Results'').
---------------------------------------------------------------------------
    Another of GMAC's impediments to becoming an attractive 
borrower or equity investment is the uncertainty surrounding 
the losses at ResCap. Consistent with a focus on its core 
automotive business, GMAC has announced its intention to seek 
strategic disposition of ResCap, and to that end has 
reclassified most of the ResCap assets as ``held for sale'' 
rather than ``held for investment.'' \475\ According to 
Treasury, the losses at ResCap have weighed on GMAC's balance 
sheet: not only did ResCap have significant amounts of debt 
coming due, but the boundaries of the ResCap losses were 
extremely difficult to quantify. To address this problem, as 
part of the December capital infusion, GMAC contributed cash to 
its banking subsidiary, Ally Bank, in exchange for impaired 
subprime assets, which were then contributed to ResCap.\476\ 
This benefitted Ally Bank while having little functional effect 
on ResCap. Ally Bank received more cash and shed impaired 
assets,\477\ while ResCap merely added to an already 
substantial portfolio of impaired subprime mortgages.\478\ 
According to Treasury and GMAC, these transactions also had the 
effect of signaling the general extent of the ResCap losses to 
the market, making the market more willing to lend to GMAC. In 
setting clearer bounds to the potential ResCap downside, 
Treasury and GMAC also believe that ResCap itself has become a 
more attractive acquisition prospect and less of a drag on 
GMAC's overall balance sheet. Whatever value remains in 
ResCap--and it is unclear whether there is any value in ResCap 
at present--Treasury feels that it can be more easily realized 
if ResCap's total losses are more transparent.\479\ The success 
of this strategy, however, depends on market confidence that 
the ResCap losses are in fact bounded and that no further 
significant write-downs will be necessary. It is too soon to 
determine if this has occurred.
---------------------------------------------------------------------------
    \475\ GMAC Announces Capital and Strategic Actions, supra note 248.
    \476\ GMAC Announces Capital and Strategic Actions, supra note 248; 
see also GMAC, Inc., Form 8-K for the Period Ending December 30, 2009, 
at Ex. 99.2 (Jan. 5, 2010) (online at www.sec.gov/Archives/edgar/data/
40729/000119312510001220/0001193125-10-001220-index.htm).
    \477\ As a result of these transactions, GMAC recognized a pre-tax 
charge of approximately $3.8 billion, with $3.3 billion related to the 
mortgage write-downs at ResCap and Ally Bank and $500 million related 
to repurchase reserve expense. In addition, ResCap's received 
approximately $2.7 billion in additional capital, and Ally Bank 
recognized a $1.3 billion pre-tax charge, while being recapitalized 
with a $1.3 billion cash infusion from GMAC. See GMAC Announces Capital 
and Strategic Actions, supra note 248.
    \478\ Treasury conversations with Panel staff (Jan. 5, 2010).
    \479\ This may be advantageous from the standpoint of transparency, 
although it arguably could also undermine GMAC's (and, thus, 
Treasury's) efforts to dispose of these assets for as much as possible.
---------------------------------------------------------------------------
    An analysis of GMAC's five-year credit default swap (CDS) 
spreads, a market proxy for the perceived risk of an issuer's 
default, does not indicate a meaningful improvement in market 
sentiment towards GMAC following the company's announcement of 
additional Treasury support and strategic actions aimed at 
ring-fencing ResCap on December 30, 2009. While swap spreads 
initially tightened (improved) on the announcement from 498 
basis points to 372 basis points in mid-January, they have 
since widened (deteriorated) to prior levels in the weeks 
thereafter. Despite initially outperforming FMCC, a strongly-
capitalized competitor without a mortgage overhang, GMAC 
spreads have generally performed in line with this competitor. 
A comparative analysis of the yield on similar debt for the two 
companies is generally consistent with the CDS data, with GMAC 
debt narrowing its Yield-To-Worst (YTW) spread vs. FMCC during 
this period from 11140 basis points to 1160 basis points, 
before widening again to 11130 basis points. However, the 
absolute and relative performance of GMAC's CDS spreads and 
bond yields clearly indicate that the market had already priced 
continued government support for GMAC well before the latest 
government assistance.

           FIGURE 16: 5-YEAR CDS SPREADS_GMAC vs. FMCC \480\

[GRAPHIC] [TIFF OMITTED] 54875A.010


                   FIGURE 17: YTW_GMAC vs. FMCC \481\

[GRAPHIC] [TIFF OMITTED] 54875A.029

      
---------------------------------------------------------------------------
    \480\ Bloomberg Data Service.
---------------------------------------------------------------------------
      
---------------------------------------------------------------------------
    \481\ Ford Motor Credit Corp. 8.00% December 15, 2015 maturity and 
GMAC 8.00% November 1, 2031 maturity. Bloomberg Data Service.
---------------------------------------------------------------------------
    In light of ResCap's muddy but potentially destructive 
future, one option for ResCap would be a separate bankruptcy. 
GMAC and Treasury have been varied in their discussion of this 
possibility. A ResCap bankruptcy was one of the many options 
discussed by the GMAC board. In the Form 10-Q for the third 
quarter of 2009 and the 10-K for 2009, GMAC expressed concern 
that a ResCap bankruptcy proceeding might treat the 
relationships between the parent and the subsidiary in a way 
that could disadvantage the parent, particularly with respect 
to its financing and hedging arrangements with ResCap. GMAC 
also expressed concern that the other creditors of ResCap would 
ask the bankruptcy court to subordinate amounts owed to GMAC to 
their claims.\482\ GMAC has also stated that it consulted with 
advisors and weighed ResCap's involvement with GMAC Financial 
Services, the disruption a decision to discontinue support 
would cause for GMAC's access to the capital markets; 
interparty agreements, and the significant volume of servicing 
ResCap provides for residential loans and modification 
assistance.\483\ Mr. Carpenter has stated that the board has 
considered a ResCap bankruptcy as a means of containing the 
ResCap losses and has concluded that restructuring and seeking 
alternatives other than bankruptcy were best for the 
stakeholders, and Treasury representatives have stated that 
they view this conclusion as reasonable.\484\ In that context, 
Mr. Carpenter said ``we're not going to do anything crazy in 
terms of giving value away.'' \485\ The value of ResCap, 
however, remains extremely opaque.
---------------------------------------------------------------------------
    \482\ GMAC Form 10-Q for Q3 2009, supra note 22, at 8; see also 
GMAC Form 10-K for 2009, supra note 12, at 17. See Section E.4., supra, 
for additional discussion.
    \483\ GMAC conversations with Panel staff (Mar. 3, 2010).
    \484\ Transcript of COP Hearing on GMAC, supra note 12 (Testimony 
of Jim Millstein).
    \485\ Investor Call to Discuss Capital and Strategic Actions, supra 
note 457, at 10.
---------------------------------------------------------------------------
    ResCap clearly poses a continuing problem for GMAC. In a 
recent presentation to investors, a not insubstantial amount of 
the discussion focused on the future for ResCap.\486\ GMAC has 
stated that it believes that given their current value, the 
ResCap assets can be sold in the market. GMAC does not, 
however, appear to have any willing buyers at present. 
Similarly, GMAC is unable to make any commitment that ResCap 
will not need further capital support. Right now, ResCap has no 
clear future and no clear strategy for turnaround, although it 
has posed and may continue to pose a drain on GMAC's balance 
sheet.
---------------------------------------------------------------------------
    \486\ Investor Call to Discuss Capital and Strategic Actions, supra 
note 457.
---------------------------------------------------------------------------
    Yet another variable for GMAC lies in its uncertain ability 
to access the ABS market, a substantial source of liquidity. 
GMAC has used the TALF to issue ABS and obtain liquidity 
through securitizations. The TALF, however, will no longer be 
available to automotive finance after March 31, 2010, unless 
the Federal Reserve extends the facility.\487\ GMAC believes 
that the TALF has been extremely beneficial to unlocking the 
securitization market, and is concerned that absent the TALF, 
it will lose some access to the ABS markets and with it the 
liquidity it needs to rebuild.\488\
---------------------------------------------------------------------------
    \487\ Term Asset-Backed Securities Loan Facility: FAQs, supra note 
355.
    \488\ Although floorplan loans were made eligible for the Small 
Business Administration (SBA) loan guarantee program, and that program 
therefore seemed like it might provide a source of liquidity for 
dealers, the remaining restrictions on the program make it difficult to 
do the floorplan lending upon which the automotive industry depends. 
First, floorplan loans often have a 100 percent advance, while the 
maximum under the SBA program is 90 percent. The maximum loan under the 
SBA program is $2 million: the average floorplan loan is $5 million. 
Finally, the SBA program is a loan guarantee, not a direct loan 
program. Although the guarantee is available, it is a private banking 
institution that must itself make the loan, and these credit markets 
are still tight. Accordingly, the SBA program is not likely to provide 
a significant source of dealer floorplan financing in the future.
---------------------------------------------------------------------------
    Ally Bank also provides GMAC with a source of liquidity in 
both the retail and wholesale markets. GMAC has stated that it 
believes that the credit crisis ended the viability of the 
classic wholesale financing model for itself and other 
wholesale-funded institutions, and that inflows derived from 
the wholesale finance market (such as debt issuances and 
securitizations) will likely be insufficient. GMAC's answer to 
the problem is to develop a retail bank, Ally Bank, which has 
been attempting to provide diversified funding (including 
deposits) for the automotive financing unit.\489\ This strategy 
has several components. GMAC is simultaneously integrating Ally 
Bank with the automotive products side while expanding its 
retail products. For example, GMAC is positioning Ally Bank 
within the dealer network, using a program called Ally Dealer 
Rewards to provide benefits to frequent users of the bank's 
automotive financial products.\490\ Ally Bank is also 
participating in auto loan securitizations that are backed by 
the TALF.\491\ At the same time, however, GMAC is expanding 
Ally Bank's retail product portfolio, recently adding interest 
checking \492\ as part of its growth strategy for Ally 
Bank.\493\
---------------------------------------------------------------------------
    \489\ GMAC conversations with Panel staff (Feb. 1, 2010).
    \490\ GMAC Reports Preliminary Q3 2009 Results, supra note 273.
    \491\ GMAC Reports Preliminary Q3 2009 Results, supra note 273.
    \492\ GMAC, Inc., Ally Bank Expands Product Portfolio; Launches 
Interest Checking Account (Jan. 20, 2010) (online at media.gmacfs.com/
index.php?s=43&item=381).
    \493\ GMAC Preliminary 2Q 2009 Results, supra note 474, at 28.
---------------------------------------------------------------------------
    Although GMAC is cutting costs across the organization, its 
investment in Ally Bank is staying largely stable. GMAC has 
been engaged in an aggressive marketing campaign for Ally Bank. 
Among other things, Ally Bank has been attempting to interest 
depositors by offering CD rates that are nationally among the 
highest available.\494\ This strategy has been politically 
contentious regulators view unusually high rates as an 
indication of instability. In the summer of 2009, when Ally 
Bank's rates were more than double the national average, the 
rates prompted a letter of complaint from the American Bankers 
Association (ABA) to the FDIC. The ABA letter stated that the 
Ally Bank strategy--aggressive courting of deposits and 
extremely rapid growth in assets--was risky and required 
regulatory supervision. The ABA was particularly incensed by 
Ally Bank's strategy in light of the government bailout, 
arguing that Ally Bank was shielded from investor and market 
influences, and was therefore free to follow risky strategies. 
Citing the high interest rates paid by troubled financial 
institutions during the banking crisis of the 1980s, the ABA 
observed that such high rates and risky behavior can create a 
race to the bottom, in which other banks are also forced to 
raise their rates above the market rate.\495\ In response, Ally 
Bank vigorously contested the ABA's characterization of Ally 
Bank as troubled, citing its capitalization ratio and 
protesting that its rates were supported by its relationship 
with the GM and Chrysler dealership network.\496\ Ally Bank's 
arguments, however, did not persuade the FDIC, which sent a 
letter conditioning Ally Bank's access to the TLGP on FDIC 
review of Ally Bank's CD rates \497\ and later adopted new 
regulations setting a variety of standards for the interest 
rates permissible for insured depository institutions that are 
not well capitalized.\498\ At present, Ally Bank still offers 
rates that are among the highest available, although Mr. 
Carpenter has said that Ally Bank hopes to move away from 
aggressive rates and toward a more traditional banking model, 
albeit an online one.\499\ According to one analyst, however, 
internet banks do not have a history of success. Among other 
things, overhead is high because in the absence of branches the 
banks depend on expensive advertising.\500\ In addition, at 
present Ally Bank has approximately 10 percent of its deposits 
in brokered deposits.\501\ One analyst considers Ally Bank's 
proportion of brokered deposits and lack of restrictions on 
deposit withdrawals to be a warning sign of bank 
instability.\502\ Finally, as the Federal Reserve discontinues 
the extraordinary measures it has been using to keep interest 
rates low, interest rates are likely to rise and with them Ally 
Bank's cost of funds.\503\ Although these shifts will affect 
the industry as a whole, Ally Bank already has high deposit 
costs and a high proportion of brokered deposits. Some 
commentators note Ally Bank's high costs for acquiring and 
retaining depositors and low core deposits and liken Ally Bank 
to the unstable S&Ls of the 1980s.\504\ Given that Ally Bank's 
deposits serve the same purpose for GMAC as commercial 
paper,\505\ GMAC instability affects not only GMAC and Ally 
Bank and, downstream, GM but also--and this brings to the fore 
the moral hazard of using government-insured deposits as the 
basis for monoline financing--Ally Bank's depositors. 
Ultimately, Ally Bank appears to be both critical to GMAC and 
very much a work in progress, and whether it will be a success 
remains to be seen.
---------------------------------------------------------------------------
    \494\ Bankrate.com, CD Investment Rates (online at 
www.bankrate.com/funnel/cd-investments/cd-investment-
results.aspx?local=false&tab=CD&prods=15⁣_id=CR_searchCDNational_cd_1y
rCD_V1) (accessed Mar. 8, 2010).
    \495\ Letter from Edward L. Yingling, president, American Bankers 
Association, to Sheila Bair, chairman, Federal Deposit Insurance 
Corporation (May 27, 2009) (online at www.aba.com/aba/documents/News/
GMACletter52709.pdf).
    \496\ Letter from Al de Molina, chief executive officer, GMAC LLC 
to Edward L. Yingling, president, American Bankers Association (Jun. 1, 
2009) (online at www.ally.com/files/pdf/AllyResponse-060109-
forWeb.pdf).
    \497\ Letter from Sandra L. Thompson, director, Federal Deposit 
Insurance Corporation, to Alvaro de Molina, chief executive officer, 
GMAC LLC, Notice Regarding the Temporary Liquidity Guarantee Program 
(June 4, 2009) (online at www.sec.gov/Archives/edgar/data/40729/
000114420409031691/v151811_ex99-1.htm); see also GMAC, LLC, Form 8-K 
Dated June 4, 2009 (Jun. 4, 2009) (online at www.sec.gov/Archives/
edgar/data/40729/000114420409031691/v151811_8k.htm).
    \498\ Federal Deposit Insurance Corporation, Final Rule: Interest 
Rate Restrictions on Insured Depository Institutions That Are Not Well 
Capitalized (effective Jan. 1, 2010) (online at www.fdic.gov/news/
board/May29no8.pdf). During this period, Ally Bank made an application 
to the Federal Reserve to become regulated by the Federal Reserve 
rather than the FDIC. See Federal Reserve Bank of Chicago, Filings 
Received During the Week Ending May 16, 2009 (May 16, 2009) (online at 
www.federalreserve.gov/releases/h2/20090516/chicago.htm). Ally Bank 
subsequently withdrew the application in October 2009. Board of 
Governors of the Federal Reserve System, Actions Taken under Delegated 
Authority, at 9 (Oct. 31, 2009) (online at www.federalreserve.gov/
Releases/H2/20091031/h2.pdf).
    \499\ Investor Call to Discuss Capital and Strategic Actions, supra 
note 457, at 11.
    \500\ Testimony of Christopher Whalen, supra note 345, at 18-19.
    \501\ Investor Call to Discuss Capital and Strategic Actions, supra 
note 457, at 11. See also Testimony of Christopher Whalen, supra note 
345, at 6, 18. Brokered deposits, also known as ``hot money,'' are 
large deposits that deposit brokers shop among depository institutions 
looking for high rates and are usually viewed as risky for the 
depository institution. They are short-term investments, which have 
been associated with high rates of bank failures. See Mindy West and 
Chris Newbury, Brokered and High-Cost Deposits (Mar. 2009) (online at 
www.fdic.gov/regulations/resources/minority/events/interagency2009/
Presentations/Brokered.pdf). See also L.J. Davis, Chronicle of a 
Debacle Foretold, Harper's Magazine, at 53-54 (Sept. 1990). GMAC, Inc., 
Preliminary 2009 Fourth Quarter Results, at 25 (Feb. 4, 2010) (online 
at phx.corporate-ir.net/
External.File?item=UGFyZW50SUQ9MjkzNTh8Q2hpbGRJRD0tMXxUeXBlPTM=&t=1).
    \502\ Investor Call to Discuss Capital and Strategic Actions, supra 
note 457, at 11; Testimony of Christopher Whalen, supra note 345, at 
18. See also Transcript of COP Hearing on GMAC, supra note 12 
(Testimony of Chris Whalen).
    \503\ GMAC Form 10-K for 2009, supra note 12, at 17-18 (``Rising 
interest rates could increase our cost of funds''). Board of Governors 
of the Federal Reserve System, Press Release, Monetary Policy Releases 
(Feb. 18, 2010) (online at www.federalreserve.gov/newsevents/press/
monetary/20100218a.htm).
    \504\ Testimony of Christopher Whalen, supra note 345, at 6, 18.
    \505\ Transcript of COP Hearing on GMAC, supra note 12 (Testimony 
of Michael Ward).
---------------------------------------------------------------------------
    While Ally Bank's integration with dealers and 
securitization participation appears to be consistent with a 
focus on the automotive business, the Ally Bank expansion, 
while furthering GMAC's efforts to become a deposit-funded 
institution, requires a separate set of management skills. GMAC 
is aware that its combination of retail online banking and 
wholesale automotive financial services is untested but 
believes that it offers good value to Ally Bank's customers 
while simultaneously involving Ally Bank effectively in the 
automotive lending side of the business. As Ally Bank is 
currently an important source of GMAC's liquidity, however, 
Ally Bank will need to maintain either adequate growth or 
adequate deposits to fund the automotive finance business. This 
puts pressure on Ally Bank, and it is difficult to predict how 
successful the venture is likely to be given the disparate 
competencies that the two sides of the business may require.
    Finally, GMAC remains substantially tied to the domestic 
automotive industry. Ally Bank and GMAC's focus on this 
sector--and the continued close relationship between GMAC and 
GM--concentrates the risk to GMAC of any decline in the 
automotive industry. As discussed in our September and January 
Reports, the fate of the domestic automotive industry is not by 
any means clear.\506\ GMAC's strategy of focusing on its core 
automotive business ties GMAC further into a sector that has 
been, at best, unstable. If the automotive industry does not 
thrive, GMAC may share its fate.\507\ Further, GMAC's prior 
major effort at diversification beyond the automotive industry, 
ResCap, was anything but successful in addressing risk. Future 
attempts at diversification, if any, might be more successful 
but would represent another change in strategy. Overall, GMAC's 
dependence on the auto industry may continue to prove 
destabilizing.\508\
---------------------------------------------------------------------------
    \506\ September Oversight Report, supra note 189, at 79; January 
Oversight Report, supra note 456.
    \507\ It is also difficult for GMAC to pass too much of its cost of 
capital through to the dealerships because it then risks hurting the 
franchises and with them its long-term prospects. Accordingly, GMAC is 
dependent on reducing its cost of capital. GMAC conversation with Panel 
staff (Feb. 16, 2010).
    \508\ One analyst went so far as to describe GM and GMAC as ``two 
drunks holding each other up at a bar.'' Beyond colorful metaphors, the 
dependence between the entities could magnify the possibility of 
taxpayer loss. As a depository institution, Ally Bank's cost of capital 
is generally low. Its CD rates, as of March 9, 2010, were 1.58 percent 
for a 12 month CD, in contrast to GMAC's recent unsecured debt deal, 
which has an 8.3 percent coupon. Ally Bank's cheap deposit base aids 
GM, but Ally Bank is a source of cheap financing in part because it is 
the beneficiary of federal insurance. This is true not only of Ally 
Bank, of course, but also of any such depository institution: the 
difference is that other depository institutions are much less likely 
to concentrate their loans in one industry, and any financing 
arrangements are more likely to be or to be perceived as arm's length. 
Like GMAC and Ally Bank, JP Morgan's automotive financing is 
underpinned by the deposits at Chase. JP Morgan, however, does not have 
an historically close, quasi-captive relationship with an OEM. If the 
automotive industry suffers another decline such that Ally Bank's 
deposits are put at risk and the FDIC is required to aid Ally Bank, the 
taxpayers are, in essence, paying twice for the same impaired assets.
---------------------------------------------------------------------------
    Over and above these potential obstacles to profitability, 
there is another, more fundamental question about GMAC's 
future. As a subsidiary, GMAC's interests could be 
appropriately subordinated to GM's need to sell cars, if 
necessary, but as a separate entity GMAC owes a duty to its own 
shareholders, not GM. As discussed above, GMAC's business model 
has developed as a hybrid: it is a captive/non-captive 
automotive finance company, a bank, and a holder of impaired 
mortgage assets. Its status as a separate entity from GM and as 
a BHC seems as much a matter of accident as strategy. Its fate, 
further, is substantially tied to GM's: as a continued and 
significant source of GM's wholesale and retail financing, its 
relationship with GM remains, at present, critical to its 
success. Even assuming that the issues presented by ResCap are 
neutralized, it would not be unreasonable for a potential 
equity investor to question whether GMAC's relationship with GM 
is designed to serve GM's rather than GMAC's shareholders' 
interests. Put another way, an investor could question what 
long-term value or viability GMAC offers as long as it is 
separate from GM. Although GM may need a source of financing 
for cars, it does not necessarily need to look to a separate 
bank for its financing. In that context, GMAC's non-captive 
status subjects it to greater risk from GM: the relationship 
could sour and GMAC could lose its preferred provider role; 
GM's sales practices could reduce the residual value of autos 
(a risk to which GMAC, as a finance company, may be subject); 
and/or GM could, in fact, form its own, new captive finance 
company.\509\ In particular, the last point could form a source 
of significant instability in the relationship.
---------------------------------------------------------------------------
    \509\ The IRA Advisory Service, GMAC & GM: All of the Political 
Endgames Lead to Bankruptcy, at 2-3 (Mar. 1, 2010). GM's need for a new 
captive finance company has been circulating in analysis for some time. 
See, e.g., Automotive News, Editorial (Jan. 12, 2009) (``GM should be 
prepared to establish its own captive finance company once GM is 
healthy again.''); Poornima Gupta, Autonation Says GM Needs New Captive 
Financing (Jan. 9, 2009) (online at uk.reuters.com/article/
idUKN2147448520090121?pageNumber=1&virtualBrandChannel=0) (quoting 
AutoNation CEO, Mike Jackson: ``It was a strategic mistake splitting 
the finance company from the operating company. . . Somehow, some way 
they need their own finance company again'').
---------------------------------------------------------------------------
    Some industry analysts believe that for GM itself to be 
competitive--and indeed, for GM to have a successful IPO--it 
must have its own captive, not a captive/non-captive hybrid 
like GMAC.\510\ They say that a captive provides income and 
financial flexibility--a dividend stream, earnings, and 
consistent financing flow--and that GM will need these 
attributes of a captive in order to compete with other 
automotive companies such as Ford Motor Company.\511\ 
Fundamentally, what these analyses emphasize is that the non-
captive public financing company model is fundamentally 
untried, and if GM determines that it needs a captive, it could 
destabilize the relationship. All of these are risks attendant 
upon GMAC's status as a non-captive automotive finance company. 
An IPO requires a potential shareholder to believe either that 
GMAC's relationship with GM is sufficiently stable to sustain 
it as a separate company or that GMAC can expand adequately 
(through growth strategies for Ally Bank, Chrysler, other 
automotive companies, or otherwise) to handle the risk of a 
reduced relationship with GM. The public equity markets have 
never had an opportunity to evaluate this question, and their 
assessment remains unknown.
---------------------------------------------------------------------------
    \510\ Transcript of COP Hearing on GMAC, supra note 12 (Testimony 
of Michael Ward).
    \511\ Transcript of COP Hearing on GMAC, supra note 12 (Testimony 
of Michael Ward); Testimony of Christopher Whalen, supra note 345, at 
3-4.
---------------------------------------------------------------------------
    The centrality of the GM/GMAC relationship and the oddity 
of the non-captive finance company also raise the question 
whether it is sensible to consider merging GMAC back into GM. 
If GM needs a finance company, and the interests of the finance 
company and GM are most clearly aligned when they are part of 
the same corporate structure, the market might determine that 
the entities should, in fact, be merged. This would require a 
number of structural shifts: because of the ownership 
restrictions, among other things, GMAC could no longer be a 
BHC. The Chrysler dealership funding might not serve GM and 
might need to be spun off. The substantial investment in GMAC's 
infrastructure, however, and the natural synergies between the 
captive and the OEM may cause GM, GMAC, and Treasury (presuming 
it is still a majority shareholder in both) to contemplate this 
possibility. In a recent investor call, Mr. Carpenter addressed 
the possibility of a merger between the two companies.\512\ 
Stating that there is no current discussion of that 
possibility, and without specifically weighing in on the wisdom 
of a merger, Mr. Carpenter and Mr. Hull observed that success 
for both entities depends on a very close partnership.
---------------------------------------------------------------------------
    \512\ GMAC Q4 2009 Earnings Conference Call, supra note 111, at 15.
---------------------------------------------------------------------------
    The discussion of a merger is purely hypothetical at this 
point, but the investment community is interested in the 
possibility. If there is an effort to fold the entities back 
into each other, Treasury must walk a difficult line. In a 
third-party sale of GMAC, the perception of political 
favoritism could be alleviated by the presence of the outside 
actor. If Treasury sells GMAC to itself, even if the merger 
were instigated by the management of either GM or GMAC based 
purely on market factors, Treasury's substantial involvement in 
both companies could greatly complicate any merger, 
particularly in assigning value to either company. Treasury has 
already come under criticism from a number of sources for 
perceived favoritism toward one or another party in both the 
auto and the GMAC bailouts.\513\ Any merger between these 
parties while Treasury is still the majority shareholder of 
both would likely be subject to similar criticism--that a party 
with political connections is receiving value at the expense of 
the taxpayer. To alleviate these concerns, no merger should be 
effected without a third-party fairness opinion, and the 
taxpayers' claims upon both businesses must survive the merger. 
Treasury should under no circumstances be permitted to forgive 
or negate any claim of the taxpayers for repayment of the TARP 
as a part of the merger. Ultimately, any potential merger would 
have to be evaluated not only for synergies between the 
businesses but also, and equally importantly, for adequate 
return to and protection for the taxpayer, whose substantial 
investments have kept both companies afloat.
---------------------------------------------------------------------------
    \513\ For examples of such commentary, see, e.g., George F. Will, 
End Run on the Treasury (Jan. 8, 2009) (online at 
www.washingtonpost.com/wp-dyn/content/article/2009/01/07/
AR2009010702646.html); Richard A. Epstein, The Deadly Sins of the 
Chrysler Bankruptcy, Wall Street Journal (May 11, 2009) (online at 
www.forbes.com/2009/05/11/chrysler-bankruptcy-mortgage-opinions-
columnists-epstein.html); September Oversight Report, supra note 189, 
at 102 (citing criticisms). See also Gallup, Unions Second to Auto 
Execs in Bailout Blame Game (Dec. 16, 2008) (online at www.gallup.com/
poll/113431/unions-second-auto-execs-bailout-blame-game.aspx).
---------------------------------------------------------------------------
    Last, the question remains whether GMAC could itself go 
into the bankruptcy process as a means of restructuring and 
recapitalizing. There are no present plans for a GMAC 
bankruptcy, and both Treasury and GMAC maintain that GMAC's 
current actions--recapitalization of Ally Bank and charges 
against assets at ResCap plus a new strategic focus on the 
automotive sector--are the appropriate means of returning GMAC 
to stability. Treasury stated that GMAC is currently solvent 
and cites GMAC's recent debt offering spreads as an event 
suggesting that the market believes that the company is on the 
right track.\514\ As discussed above, however, GMAC still has a 
substantial and looming debt burden, the ResCap ``millstone,'' 
\515\ a high cost of funds, dependence on an internet bank, and 
a reliance on a still uncertain automotive industry. Failure to 
address these issues, either singly or in tandem, could put 
GMAC back on a path to crisis. In the absence of a general 
credit crunch, some of the concerns about stability and 
continuity in the automotive industry that Treasury says 
animated its initial investment would likely be less important. 
According to various analysts, unlike in 2008-2009, other banks 
would be more likely to absorb the majority of GMAC's floorplan 
lending if GMAC were to become insolvent.\516\ Treasury's 
equity position, however, while more valuable as capital to 
GMAC, places Treasury and the taxpayers at the bottom of the 
bankruptcy heap. This puts Treasury in an unfortunate position: 
GMAC is still unstable, with an uncertain path to 
profitability, and if it were to become insolvent, other 
entities would be more likely to absorb its legacy business--
all at the cost of the taxpayers' investment. Treasury's 
initial involvement has narrowed its options, making it 
difficult for Treasury to disentangle itself from a weak 
institution without risking the loss of its entire investment.
---------------------------------------------------------------------------
    \514\ Treasury conversations with Panel staff (Feb. 18, 2010). As 
earlier noted, of course, GMAC's current spreads could be as 
representative of a company that enjoys an implicit guarantee from 
Treasury as they are representative of a company that is on the right 
track. In the hearing before the Panel, Mr. Carpenter also stated that 
GMAC is solvent. Transcript of COP Hearing on GMAC, supra note 12 
(Testimony of Michael Carpenter).
    \515\ Investor Call to Discuss Capital and Strategic Actions, supra 
note 457, at 8; GMAC conversations with Panel staff (Feb. 16, 2010).
    \516\ Analyst conversations with Panel staff (Feb. 17, 2010).
---------------------------------------------------------------------------

3. The Forthcoming Business Plan

    According to Treasury, GMAC is still constructing budgets 
and a strategy plan, which Treasury and a third-party 
investment bank will evaluate. GMAC's specific plan to become 
profitable again is therefore still under construction. 
Treasury expects the budgets and the strategy plan to be 
evaluated by GMAC's Board within the next few months. While 
GMAC has explained the broad strokes of its strategy--a 
deposit-funded institution with a focus on multi-brand 
automotive financing--the specific details and numbers have yet 
to be constructed. Until the Board approves the various plans, 
therefore, GMAC's precise route to profitability cannot be 
concretely evaluated.
    This is, by itself, problematic. Treasury's previous and 
current support is not underpinned by a mature business plan. 
Although GMAC and Treasury are working to produce a business 
plan, Treasury has already been supporting GMAC for over a year 
despite the plan's absence. Given industry skepticism about 
GMAC's path to profitability and the newness of the non-captive 
financing company model, it is critical that Treasury be given 
an opportunity to review concrete plans from GMAC as soon as 
possible.

4. Treasury's Approach to Managing its Shareholder Interests

    At present, Treasury, as holder of 56.3 percent of the 
voting equity, has the right to name four directors to GMAC's 
nine-person board.\517\ After Treasury's majority share, 
ownership of GMAC's equity is relatively dispersed: Cerberus 
holds the next largest share of the equity, with 14.9 percent, 
followed by third-party investors, who collectively hold 12.2 
percent, the GM Trust, which holds 9.9 percent, and GM itself, 
which holds 6.7 percent.\518\ Although the third-party 
investors received their share in distributions from Cerberus, 
they are not Cerberus affiliates and will not necessarily act 
in concert with Cerberus. GM, for its part, operates according 
to a passivity agreement and only has observer status on the 
GMAC board. The trustee of the GM Trust has sole discretion to 
vote and dispose of the GM ownership interests held in the 
trust and must dispose of those interests within three years of 
the approval of the BHC application.\519\ Accordingly, other 
than Treasury, there is no shareholder whom an outsider would 
clearly expect to help set a direction for GMAC. The Panel's 
January Report discussed the difficulties that can arise from a 
passive majority shareholder, and given Treasury's majority 
share, these are as applicable to GMAC as they are to GM.\520\ 
Although GMAC's Treasury-appointed board members are reported 
to be very involved and active, it is not clear whether this is 
sufficient to give GMAC adequate direction.
---------------------------------------------------------------------------
    \517\ GMAC, LLC, GMAC Financial Services Announces Key Capital and 
Liquidity Actions (May 21, 2009) (online at gmacfs.mediaroom.com/
index.php?s=43&item=331%20).
    \518\ As part of the conditions to the approval of the BHC 
application, none of these third-party investors own, hold, or control 
more than 5 percent of the voting shares or 7.5 percent of the total 
equity of GMAC. The Federal Reserve describes them as sophisticated 
investors who are independent of Cerberus and each other. See Order 
Approving GMAC's BHC Formation, supra note 58. As private equity 
investors, none of these parties are required to disclose their 
identities publicly under applicable law, and Cerberus generally avoids 
the spotlight whenever possible. See Letter to Investors, supra note 
153, at 6.
    \519\ GM's Passivity Agreement serves to alleviate, to a certain 
degree, concerns that a power vacuum among GMAC shareholders will 
result in GM's exerting undue influence on the board. In addition, the 
trustee of the GM Trust must be independent of GM and have sole 
discretion to vote and dispose of the ownership interests in the trust. 
The Passivity Agreement, however, while it may limit GM's influence on 
GMAC's board, does not change the essential commercial relationship 
between the two companies. Given GM's critical role for GMAC, GM can 
presumably exercise enormous influence on GMAC's direction and 
strategy. The governance solution does not address the commercial 
dominance. Further, GM has been directed to sell the holdings in the GM 
Trust over the course of the three years following the BHC application 
approval. See March 24 Letter to B. Robbins Kiessling, Esq., supra note 
65. Once GM holds below 10 percent of the voting interests of GMAC, it 
would no longer be deemed to be an affiliate, after which time Ally 
Bank could increase its levels of funding to GM, thereby increasing 
GM's commercial dominance over GMAC. See GMAC Form 10-K for 2009, supra 
note 12. Accordingly, even if GM does not have a voice on the board, it 
clearly has enormous influence over GMAC.
    \520\ Treasury's position is that the government distorts the 
market when it takes an activist shareholder role; in response, the 
Panel has noted that Treasury may not be able to protect the taxpayers' 
investments or effect cultural changes if it is passive. At the same 
time, however, it is not clear that the government has any aptitude at 
being an activist shareholder, which further complicates the question. 
See January Oversight Report, supra note 456.
---------------------------------------------------------------------------
    It is unfortunate that Treasury has provided very little 
public information about any specific strategy for GMAC because 
its approach to GMAC is not identical to its approach to the 
automotive companies, despite Treasury's assertion that these 
two investments are intertwined. Treasury has stated generally, 
and repeatedly, that it has no intention of becoming actively 
involved in management.\521\ These very general statements, 
however, while providing an overview of Treasury's approach, 
have yet to be discussed in the context of GMAC. In December 
2009, in an otherwise reasonably comprehensive discussion of 
Treasury's approach to the government as shareholder, Assistant 
Secretary Allison did not discuss or, indeed, even mention 
GMAC.\522\ Given that Treasury owned approximately 35 percent 
of the common equity of GMAC at the time, considerably more 
than its common equity investments in Chrysler, this omission 
is somewhat puzzling.\523\ It is, however, typical. Treasury 
has devoted very little of its generalized discussions to GMAC, 
even though the concerns that animate Treasury's involvement 
with the automotive companies would also seem to affect GMAC. 
The paucity of public pronouncements or discussions of GMAC 
makes it very difficult for the public to assess Treasury's 
approach to the investment. Treasury's current position has not 
been provided to the public clearly.\524\
---------------------------------------------------------------------------
    \521\ As discussed in the Panel's January report, Treasury is in 
most cases firmly committed to its limited role. In its January report, 
the Panel also described Treasury's belief that the government, as 
shareholder, distorts the market in such a way that the entities in 
which it holds investments--and accordingly the taxpayers--will 
ultimately reap greater benefit from a passive government shareholder. 
The Panel expressed concern that a ``hands off'' approach, however, may 
not provide the influence necessary to achieve the cultural changes 
most likely to lead to sustained viability for Chrysler and GM, and the 
same concerns can easily apply to GMAC. In its January report, however, 
the Panel also voiced the contrary concern: that even if a passive 
major shareholder might hinder a company, Treasury is at best ill-
suited to perform the role of activist shareholder. See January 
Oversight Report, supra note 456, at 94-96. In testimony before the 
House Oversight and Government Reform Committee, Secretary Allison also 
discussed the major principles guiding Treasury's role as a shareholder 
with regard to corporate governance issues. These principles were: (1) 
as a reluctant shareholder, Treasury intends to exit its positions as 
soon as practicable; (2) Treasury does not intend to be involved in the 
day-to-day management of any company; (3) Treasury reserves the right 
to set conditions on the receipt of public funds to ensure that 
``assistance is deployed in a manner that promotes economic growth and 
financial stability and protects taxpayer value''; and (4) Treasury 
will exercise its rights as a shareholder in a commercial manner, 
voting only on core shareholder matters. See House Oversight and 
Government Reform Committee, Subcommittee on Domestic Policy, 
Transcript Testimony of Assistant Secretary of the Treasury for 
Financial Stability Herbert M. Allison, Jr., The Government As Dominant 
Shareholder: How Should the Taxpayers' Ownership Rights Be Exercised?, 
111th Cong. (Dec. 17, 2009) (online at oversight.house.gov/
index.php?option=com_content&task=view&id=4722&Itemid=31); House 
Oversight and Government Reform Committee, Subcommittee on Domestic 
Policy, Written Testimony of Herbert M. Allison, Jr., assistant 
secretary of the Treasury for financial stability, The Government As 
Dominant Shareholder: How Should the Taxpayers' Ownership Rights Be 
Exercised?, 111th Cong. (Dec. 17, 2009) (online at oversight.house.gov/
images/stories/Allison_Testimony_for_Dec-17-09_FINAL_2.pdf) 
(hereinafter ``Dec. 17, 2009 Written Testimony of Herb Allison''). 
Treasury's approach to GMAC is, as described above, neither 
consistently activist nor hands-off. They do not interfere with the 
day-to-day operations of GMAC but neither do they stand completely 
aside from the material decisions and directions that GMAC may 
contemplate.
    \522\ Dec. 17, 2009 Written Testimony of Herb Allison, supra note 
521.
    \523\ The subsequent cash infusion increased Treasury's share in 
GMAC to over 50 percent.
    \524\ At the Congressional Oversight Panel hearing, Treasury laid 
out its GMAC strategy in greater detail than it had previously. 
Transcript of COP Hearing on GMAC, supra note 12 (Testimony of Jim 
Millstein).
---------------------------------------------------------------------------
    In its recent hearing, Mr. Millstein explained: ``We are 
taking our oversight responsibilities seriously, we have 
frequent contact with the management to evaluate the strategies 
they are employing and the results of their operations, but 
again, I don't think we're in a position to dictate policy for 
them.'' \525\ By contrast, Assistant Secretary Allison's 
response to a similar question about Treasury's involvement 
with Citigroup management appears to downplay its engagement 
with Citigroup. In that instance, Assistant Secretary Allison 
responded:
---------------------------------------------------------------------------
    \525\ Transcript of COP Hearing on GMAC, supra note 12 (Testimony 
of Jim Millstein).

          We have contacts with Citi, as we do with many other 
        banks. We are taking a very limited role as an 
        investor. We are not getting involved in the day-to-day 
        management of Citigroup. Instead, we will only be 
        active as a shareholder in voting for directors and 
        voting on major corporate events and voting on issuance 
        of significant new shareholdings and major asset sales, 
        and changes in bylaws or charter. Other than that, we 
        intend to act as any public shareholder.\526\
---------------------------------------------------------------------------
    \526\ Transcript of COP Hearing on GMAC, supra note 12 (Testimony 
of Herbert Allison).

The difference between the two statements (even taking 
Citigroup's status as a public company into account) would 
imply greater involvement between Treasury and GMAC management 
than between Treasury and Citigroup. GMAC similarly states that 
while Treasury does not manage the business, the Treasury team 
has frequent and substantive meetings and discussions with 
GMAC's management and provides advice and guidance on a regular 
basis.\527\
---------------------------------------------------------------------------
    \527\ GMAC conversations with Panel staff (Feb. 1, 2010).
---------------------------------------------------------------------------
    The effects of this advisory strategy on good corporate 
governance, however, are mixed. GMAC has the advantage of 
advisors at Treasury who can help them navigate the public 
perception of proposed actions and private-party advisors to 
evaluate their business plan. But, Treasury's engagement with 
GMAC is not as apparent to outsiders as a Board decision would 
be. By deciding to offer its advice at a management rather than 
Board level, Treasury is depriving the market of an opportunity 
to evaluate its advice. Clearly, Treasury and GMAC must be able 
to discuss business strategy in a non-public forum; the extent 
of Treasury's involvement, however, is still not transparent, 
and the lack of transparency opens the process, and Treasury, 
to accusations of favoritism or other kinds of misfeasance and 
raises the possibility of further public suspicion and 
mistrust, particularly if GMAC continues to struggle. If 
Treasury judges it to be in the best interests of the taxpayer 
for it to maintain this advisory role, general and public 
information about the types and channels of communication would 
be appropriate.
    In the past, the Panel has discussed whether Treasury's 
equity holdings would be better held in a trust, and Treasury 
has provided a variety of answers and explanations as to the 
usefulness or appropriateness of a trust.\528\ Treasury has 
often expressed concern that its active involvement as a 
shareholder could reduce shareholder value: its actions might 
be perceived as political, rather than commercial, which would 
make other potential investors wary. The combination of the 
passive shareholder and the active board, however, means that 
perception of Treasury's passivity depends greatly on the 
perceived independence of the Treasury-appointed 
directors.\529\ Placing the GMAC shares in a trust could help 
avoid the perception that the board members are not genuinely 
independent. The Panel believes, consistent with past reports, 
that Treasury should evaluate whether the GMAC shares should be 
held in a trust. Consistent with the Panel's cautions in past 
reports, however, establishing a trust does not come without 
its own set of concerns. Establishing a trust to hold the 
shares might slow Treasury's exit, prolong its involvement in 
the market, and make future interventions more palatable, any 
or all of which could set an inappropriate precedent. Nor does 
a trust automatically ensure the independence of the trustee. 
Any trust should include curbs on hiring and firing, methods of 
addressing conflicts of interest (including fee income), and 
other obligations for the trustee (such as ``noisy withdrawal'' 
if the trustee resigns) to ensure that the shares in a trust 
are, in fact, isolated from the political process.
---------------------------------------------------------------------------
    \528\ See January Oversight Report, supra note 456, at 96.
    \529\ After Sarbanes-Oxley (SOX), the independence of directors is 
determined with reference to a variety of sources, including SOX and 
various exchange listing standards. Factors include, generally 
speaking, compensation or employment by the issuer or auditor of the 
issuer; material relationships with vendors or customers or associated 
charities; and family relationships with any of the foregoing that 
could compromise independence. See generally Bruce F. Dravis, The Role 
of Independent Directors after Sarbanes-Oxley (2007). The directors 
whom Treasury has named to the GMAC board are Robert Blakely and Kim 
Fennebresque, neither of whom appear to have material relationships 
with Treasury, although Mr. Blakely was the former executive vice 
president and chief financial officer of Fannie Mae. See GMAC, Inc., 
Governance (online at media.gmacfs.com/index.php?s=52) (accessed Mar. 
8, 2010). These same sorts of metrics would need to be considered for 
any trustee appointed to manage a trust with Treasury's shares.
---------------------------------------------------------------------------

5. Evaluating the Investment: Current and Required Value

    Treasury's recent financial statements do not break out the 
value of its GMAC stake. The value of its AIFP investment, 
overall, is estimated at $42.3 billion as of September 30, 
2009, on an outstanding balance of $73.8 billion.\530\ The GMAC 
portion of this stake comprises $11.4 billion in MCP, $2.67 
billion in TruPs, and 56.3 percent of the common equity.\531\ 
These numbers represent the outstanding balance, however, and 
not the present value, for which there are no separate numbers. 
Based in part on this calculation, and according to Treasury, 
the total common equity of GMAC needs to be worth approximately 
$6.9 billion for the taxpayer to be made whole. According to 
GMAC, its total equity at December 31, 2009, was $20.8 billion, 
down from $24.9 billion at September 30, 2009.\532\ Book value, 
however, differs from market value, and as GMAC is not publicly 
traded, there is no way to establish the market value for 
GMAC's equity. Analysis of whether and when the value of GMAC's 
common equity will be sufficient to repay the taxpayer, 
however, awaits evaluation of the forthcoming budgets and 
strategy plan.
---------------------------------------------------------------------------
    \530\ OFS Financial Report: Fiscal Year 2009, supra note 463, at 
17.
    \531\  As of January 31, 2010, GMAC had made $854.8 million in 
dividend payments associated with the funds it received under the AIFP. 
U.S. Department of the Treasury, Cumulative Dividends and Interest 
Report as of January 31, 2010 (Feb. 19, 2010) (online at 
www.financialstability.gov/docs/dividends-interest-reports/
January%202010_Dividends%20and%20Interest%20Report.pdf) (hereinafter 
``OFS Cumulative Dividends Report as of January 31, 2010'').
    \532\ GMAC Reports Preliminary Q4 and Full-Year 2009 Results, supra 
note 127.
---------------------------------------------------------------------------
    In Section 123 of EESA, Congress required that both the OMB 
and the Congressional Budget Office (CBO) calculate the budget 
costs of the TARP transactions under the procedures of the 
Federal Credit Reform Act of 1990, while using discount rates 
reflecting market risk rather than simply the government's cost 
of funds.\533\ These subsidy rates, which represent an estimate 
of the investment that will not be recouped by the federal 
government, incorporate assumptions concerning the timing of 
cash flows (mainly principal and interest or dividend payments) 
as well as defaults on, or (partial) losses of, the amounts 
invested.
---------------------------------------------------------------------------
    \533\ EESA Sec. 123(a).
---------------------------------------------------------------------------
    The OMB and CBO valuations of the taxpayer subsidy rate in 
the automotive industry have produced varying results, owing 
primarily to the availability of disaggregated data to reflect 
GMAC specific investments. As noted, the government has 
expended $17.2 billion in government assistance to GMAC through 
year-end 2009, of which $16.3 billion was equity or equity-
related funding.\534\ OMB has calculated a subsidy rate of 39 
percent for the government's equity assistance to GMAC, 
reflecting an estimated subsidy cost, or loss to the 
government, of $6.3 billion on the $16.3 billion in government 
equity purchases from GMAC.\535\ The CBO currently does not 
disaggregate subsidy estimates by specific institutions, 
publishing instead an overall subsidy rate for all TARP 
automotive industry support programs.\536\ The CBO cites an 
estimated cost of $47 billion on the $79 billion in aggregate 
assistance--a 59 percent subsidy rate--to GMAC, GM, Chrysler, 
Chrysler Financial, and various auto suppliers as of mid-
December 2009 (note that CBO figures exclude $3.8 billion in 
additional assistance to GMAC on December 30, 2009). 
Accordingly, it is impossible to infer from this estimate if 
the implied GMAC subsidy is greater or less than the overall 59 
percent rate calculated by the CBO for all the automotive firms 
receiving TARP funding.
---------------------------------------------------------------------------
    \534\ The balance of this assistance was a loan made to GM in 
conjunction with GMAC's rights offering following its conversion into a 
BHC, which was later converted by Treasury into $884 million in GMAC 
equity. Treasury Transactions Report, supra note 264.
    \535\ See Office of Management & Budget, Analytical Perspectives: 
Budget of the U.S. Government, Fiscal Year 2011, at 40 (online at 
www.whitehouse.gov/omb/budget/fy2011/assets/spec.pdf) (hereinafter 
``OMB Analytical Perspectives: FY2011 Budget'').
    \536\ See Congressional Budget Office, The Budget and Economic 
Outlook: Fiscal Years 2010 to 2020, at 13 (Jan. 2010) (online at 
www.cbo.gov/ftpdocs/108xx/doc10871/01-26-Outlook.pdf).
---------------------------------------------------------------------------
    It is important to note that these subsidy rate estimates 
are inherently uncertain, particularly given the limitations of 
fundamental analysis once a company receives government 
support. The CBO and OMB estimates rely on objective data 
points that reflect market prices assigned to key securities 
instruments (bond yields, discount rates, etc.)--the prices of 
which are often impacted by government support for a particular 
company or sector. This is certainly the case after the 
government steps in, as market rates--particularly on debt 
instruments--are skewed to reflect this presumed halo and its 
beneficial impact on creditors (as illustrated above in the 
comparison of GMAC vs. FMCC). Note that Standard & Poor's and 
other rating agencies have cited this implicit guarantee in 
justifying higher credit ratings than a company would otherwise 
merit absent government involvement or--in the case of 
systemically important financial institutions--the prospect of 
government support should the company run into trouble in a 
crisis.
    All else equal--as incremental Treasury support was 
required to offset the worsening outlook for the ResCap 
portfolio--Treasury's series of investments in GMAC served to 
progressively increase the value of the company. After taking 
an initial equity stake, Treasury was put into a position where 
its interests as an equity holder might have increased its 
reluctance to put GMAC into bankruptcy.

                   I. Conclusion and Recommendations

    Treasury has asserted, and a broad range of industry 
experts consulted by the Panel have agreed, that support to 
GMAC was necessary in order to support the automotive industry 
and protect the investment made by Treasury in GM and 
Chrysler.\537\ The Panel takes no view on whether GM and 
Chrysler should have been rescued in the first place and 
similarly takes no view as to the rescue of GMAC. It is clear, 
however, that credit is a crucial element of the automotive 
industry, that GMAC played a dominant role in providing that 
credit, especially for GM vehicles and especially for dealers' 
floorplan financing, and that alternative sources of credit 
were increasingly unavailable as the financial crisis deepened. 
Whether GMAC's role was truly indispensable to the survival of 
GM and Chrysler, or whether other lenders in the industry could 
eventually have stepped in (or been encouraged to step in, with 
short-term government guarantees or other incentives) to fill 
the breach if GMAC had not been supported, is ultimately 
unknowable.
---------------------------------------------------------------------------
    \537\ September Oversight Report, supra note 189, at 3.
---------------------------------------------------------------------------
    Treasury also asserts that once the government had 
announced in public statements that it would provide capital to 
the stress tested banks that were unable to raise it privately, 
it had to carry through on those statements. There is ample 
precedent in the history of the TARP for changes in strategy--
such as the switch in primary TARP strategy from asset purchase 
to capital injection--and changes in execution--such as the 
switch from use of CAP funds for GMAC to AIFP funds. There is, 
however, no precedent in the TARP for the government of the 
United States specifically stating that it would make funds 
available to identified recipients on an unconditional basis 
and then not carrying through with that funding. Treasury's 
position is that to have done so would not only have adversely 
affected GMAC itself and the parties doing business with it who 
relied on the government's statement, but might have had a 
broader and negative effect both on other institutions 
dependent upon government support and on the financial markets. 
It may be possible to criticize the design of the stress tests 
and the inclusion of GMAC in those tests (and given GMAC's 
unique status and relationship to the automobile companies that 
were at the time entering the bankruptcy process, the Panel 
believes there are serious questions raised by such inclusion), 
but the fact is that once GMAC was included in those stress 
tests, Treasury believed that it was necessary for GMAC to 
receive funds in the amount of the capital buffer established 
by the supervisors. The result, however, is that it might 
appear that good money was being thrown after bad.
    The establishment of that capital buffer throws some 
interesting light on the conduct of the stress tests. From the 
point of view of reducing the amount of money to be invested by 
the taxpayer in a company with an uncertain future, it is all 
to the good that the Federal Reserve reduced the required 
capital buffer. The fact that there was an element of 
conditionality to its calculation, however, was never made 
clear when the stress tests were held. The Federal Reserve did 
publish the first quarter adjustments that were taken into 
account in calculating the buffer, some of which related to 
transactions not yet consummated, but never explicitly spelled 
out whether and how further adjustments would be made for those 
BHCs that had still not raised capital by November 2009.
    GMAC was included in the stress tests as a result of its 
becoming a BHC in December 2008. The Federal Reserve has very 
broad discretion in deciding whether to approve BHC 
applications, and there is no indication that this discretion 
was abused in this instance, although clearly the non-unanimous 
decision was made in light of, and may have been influenced by, 
the exigent circumstances existing at the time. The decision 
was, however, crucial to GMAC's subsequent inclusion in the 
stress tests and the Treasury funding commitments that resulted 
and to GMAC's access to government assistance under programs 
such as the TGLP. Possibly even more important was the signal 
to the markets that BHC approval constituted, in light of 
uncertainty in the markets, that GMAC would be able to 
restructure its capital to meet the Federal Reserve's 
regulatory capital requirements. The supervisors' decision 
proved decisive in several ways to GMAC's fate, underscoring 
the extent to which some aspects of the resolution of the 
financial crisis have been dependent upon the trust placed in 
the supervisors.
    In some ways, GMAC seems to have been treated more 
favorably than other companies in comparable circumstances. For 
example, GM and Chrysler were forced into bankruptcy, their 
shareholders wiped out, and many of their debt holders forced 
to take losses. They emerged from bankruptcy, however, with 
cleaner balance sheets and limited liabilities. GMAC was not 
required to liquidate, and its shareholders continue to hold a 
small equity interest. The Panel repeatedly requested 
assurances from witnesses that no third-party shareholder would 
receive a return unless the taxpayers were made whole, but the 
fact remains that the only way to ensure that result would have 
been through a bankruptcy. Although Treasury and GMAC have 
detailed the factors that may have complicated the use of 
bankruptcy, the fact remains that by avoiding restructuring, 
GMAC continues to bear the ``millstone'' of ResCap. The Panel 
remains unconvinced that in 2008 or very early 2009 bankruptcy 
or a similar restructuring, including a sale of the automotive 
financing business, was not a real possibility; nor has the 
Panel been convinced that even now a GMAC or ResCap bankruptcy 
or sale of the automotive financing is impossible. In either 
case, these actions require analysis of the facts and 
circumstances, a cost-benefit analysis comparing recovery 
before and after bankruptcy or sale, and an analysis of any 
additional TARP contributions that may be required. The extent 
to which bankruptcy was seriously considered at the time is 
unclear. What is clear is that policymakers now believe that 
the decisions made in December 2008 constrained the options in 
2009. By decreasing the viability of a GMAC bankruptcy, these 
constraints may have resulted in a less-viable company, greater 
risk to public dollars, and troubling moral hazard concerns. 
Even if the automotive industry needed a financing source, and 
even if GMAC was the most likely candidate, it does not 
necessarily follow that Treasury's particular treatment of the 
GMAC stakeholders was the most advantageous or even the most 
cost-effective means of addressing the need for automotive 
finance.
    By reason of Treasury's using AIFP as opposed to CAP funds, 
GMAC is not subject to the same level of requirements as to 
disclosure of the use of funds. For the same reason, Treasury 
is not required to hold the GMAC shares in trust. In other 
ways, GMAC is less well treated than other TARP recipients: the 
terms of the MCP provide conversion rights that are more to 
Treasury's advantage than other TARP securities, for example. A 
couple of major shifts in approach, such as the change from CAP 
to AIFP, were made in the course of dealing with GMAC, which 
may be due to the change in administrations between the first 
intervention and the final funding. Since Treasury's efforts to 
explain what it was doing with GMAC and why have been 
unsuccessful, some of Treasury's actions give the impression of 
a somewhat ad hoc approach.
    Other aspects of the support of GMAC raise additional 
questions. As discussed in more detail in Section E, support to 
GMAC may amount to support to GM and Chrysler and triggers 
questions of compliance with trade and competition laws in many 
jurisdictions. The Panel takes no position on this issue. 
Questions are also raised by the amount and nature of the 
compensation of GMAC's executives, issues which the Panel will 
pursue further.
    At the date of this report, it is unclear whether the U.S. 
taxpayer will recoup the investments made in GMAC. The total 
amount at stake in GMAC itself is $17.2 billion. There is still 
no viable business plan. As GMAC's business plan is still a 
work in progress, the immediate future of the company, and 
therefore the investment, remains opaque, and as discussed 
above, the OMB currently estimates a loss of at least $6.3 
billion of that amount. Mr. Bloom asserts that ``I don't think 
as a practical matter, the [old shareholders] are getting 
anything out of this thing if the government doesn't get its 
money back.'' GMAC's CEO also testified that GMAC is unlikely 
to require additional capital from the Treasury. Even if these 
assertions prove to be true, since the businesses and future 
prosperity of GM and Chrysler are so closely interconnected 
with that of GMAC, it makes sense to view the three companies 
as a package of support totaling $78.2 billion. The support 
provided to GMAC amounted to further assistance to GM and 
Chrysler, and the success of the support to GMAC can only be 
evaluated as part of the AIFP. Until all three companies repay 
the taxpayer, the government cannot really be said to have 
exited its investment in GMAC.
    It is not just GMAC's own future that is uncertain. The 
intervention of the U.S. government into the automotive 
industry and its sources of financing has increased the near-
monopoly position held by GMAC with respect to floorplan 
financing, and Treasury has not indicated how it plans to 
promote competition in this industry.
    GMAC joins the small group of companies with large 
government stakes and is subject to the corporate governance 
guidelines announced by Treasury that govern its relations with 
those groups. Treasury appears to be largely consistent with 
its other holdings in its ``hands-off'' approach to management, 
but as the Panel has noted before, this results in a potential 
governance vacuum, with smaller shareholders having 
disproportionate power. The impact of this approach is 
particularly noticeable in this case, where GMAC may play a 
significant part in GM's hoped-for recovery and where GM still 
owns substantial portions of GMAC, albeit in part through a 
trust. With both GM and GMAC majority-owned by Treasury and 
subject to its hands-off policy, the potential for a governance 
vacuum is amplified. This means that the parties who wish to 
operate GMAC in GM's interests become proportionately more 
powerful, inasmuch as GM has extraordinary commercial influence 
over GMAC, and there may not be countervailing pressure from 
involved shareholders. The Panel has previously suggested that 
Treasury consider placing certain of its holdings in a trust 
that would be more hands-on. Questions are also raised by the 
amount and nature of the compensation of GMAC's executives, 
issues which the Panel will pursue further.
    The Panel makes the following recommendations:
     The experience with GMAC reinforces the imperative 
that any future TARP support that might be given to any entity 
be subject to more stringent criteria and due diligence to 
establish that it will become a profitable concern, capable of 
recouping the taxpayers' investment.
     In the hearing held by the Panel, Mr. Bloom agreed 
that GMAC will most likely not require any additional taxpayer 
funding. The Panel expects Treasury to remain consistent on 
this point. Treasury must make it clear to markets and 
counterparties that GMAC is exposed to market forces and that 
government support will eventually end.
     Treasury should insist that GMAC produce a viable 
business plan showing a path toward profitability and a 
resolution of the problems caused by ResCap.
     Treasury should formulate, and clearly articulate, 
a near-term exit strategy with respect to GMAC and articulate 
how that exit will or should be coordinated with exit from 
Treasury's holdings in GM and Chrysler.
     Any future use of TARP funds for any entity must 
be made subject to more stringent ``use of funds'' disclosure 
requirements. Treasury should work through the directors it has 
appointed to impose these requirements on GMAC now.
     To preserve market discipline and protect taxpayer 
interests, Treasury should go to greater lengths to explain its 
approach to the treatment of legacy shareholders, in 
conjunction with both initial and ongoing government 
assistance.
     Treasury should consider whether it is in the 
taxpayers' interest to consider promoting a merger with GM, as 
opposed to letting the companies decide whether to do so. This 
does not fall within day-to-day management and promoting this 
or similar alternatives would be consistent with what a private 
investor would do. The Panel would expect any such action to be 
premised on rigorous analysis and valuation by outside experts. 
Treasury should not forgive any taxpayer claim to repayment of 
TARP funds, commit or guarantee additional taxpayer funds, or 
assume any liabilities in the process.
     Treasury should periodically disclose its estimate 
of the overall subsidy or loss rate, as well as the subsidy 
amount, for each company receiving assistance from the AIFP so 
long as these companies have separate legal status.
    Viewed from the vantage point of March 2010, or even 
December 2009, the decision to rescue GMAC is one of the more 
baffling decisions made under the TARP. A company that 
apparently posed no systemic risk to the financial system, that 
did not seem to be too big to fail, too interconnected to fail, 
or indeed, of any systemic significance, was assisted to the 
extent of a total of $17.2 billion of taxpayers' money and 
became one of the five largest wards of state. The decision to 
save GMAC was not, however, a December 2009 decision. It was 
made in the turbulent early months of 2009 as an intrinsic part 
both of the rescue of GM and Chrysler and of the stress tests, 
and can only be understood in that context. Within that 
context, Treasury's objectives become clearer, and within that 
context, it is also clear that there are lessons to be learned.
                     SECTION TWO: ADDITIONAL VIEWS


                A.  J. Mark McWatters and Paul S. Atkins

    We concur with the issuance of the March report and offer 
the additional observations noted below. We appreciate the 
spirit with which the Panel and the staff approached this 
complex issue and incorporated suggestions offered during the 
drafting process.
    As of today, the American taxpayers have involuntarily 
invested approximately $17.2 billion in GMAC.\538\ Since the 
CBO has assigned a 59 percent subsidy rate to the various auto-
related bailouts--including GMAC--as of mid-December 2009,\539\ 
it is not unreasonable to assume that the taxpayers will lose 
approximately $10 billion \540\ of the $17.2 billion of TARP 
funds allocated to GMAC.\541\
---------------------------------------------------------------------------
    \538\ The taxpayers have been forced to bail out GMAC on three 
separate occasions over the past fifteen months. In December 2008, 
Treasury allocated $5.0 billion of TARP funds to GMAC. Unfortunately, 
in May 2009, Treasury committed the taxpayers to pay another $7.5 
billion of TARP proceeds. In December 2009, Treasury committed the 
taxpayers yet again to pay another $3.8 billion of TARP funds to GMAC. 
Additionally, a loan in the amount of $884 million to GM was converted 
into GMAC shares in May 2009.
    \539\ See Congressional Budget Office, The Budget and Economic 
Outlook: Fiscal Years 2010 to 2020, at 13 (Jan. 2010) (online at 
www.cbo.gov/ftpdocs/108xx/doc10871/01-26-Outlook.pdf).
    \540\ This figure is derived by using the $17.2 billion aggregate 
TARP allocation to GMAC and multiplying it by the CBO subsidy rate of 
59 percent for the auto related bailouts. Since the CBO subsidy rate 
applies to all of the auto industry bailouts, including the automakers 
Chrysler and GM as well as GMAC, the actual subsidy rate for GMAC may 
rise above or fall below 59 percent. The OMB has assigned a subsidy 
rate of 39 percent to the government's equity investment ($16.3 
billion) in GMAC. OMB Analytical Perspectives: FY2011 Budget, supra 
note 535, at 40.
    \541\ As a comparison, for fiscal year 2011 the National Institutes 
of Health (NIH) have requested $765 million for breast cancer research. 
See U.S. Department of Health and Human Services, National Institutes 
of Health, Estimates of Funding for Various Research, Condition and 
Disease Categories (RCDC) (Feb. 1, 2010) (online at report.nih.gov/
rcdc/categories/). The latest Nimitz-class aircraft carrier, the USS 
George H. W. Bush, cost approximately $4.5 billion. See U.S. Navy, 
Official Website of USS George H.W. Bush (CVN 77), Information about 
the Ship (online at up-www01.ffc.navy.mil/cvn77/static/aboutus/
aboutship.html) (accessed Mar. 10, 2010). Thus the question, is the 
loss of $10 billion from the GMAC bailout worth 13 years of breast 
cancer research, or two Nimitz-class aircraft carriers with $1 billion 
left over?
---------------------------------------------------------------------------
    In making its assessment of whether to subsidize GMAC with 
taxpayer-funded TARP resources, Treasury was charged with 
carrying the burden regarding the three fundamental issues 
analyzed immediately below. We question why Treasury has 
allocated any TARP funds to GMAC because Treasury has not 
demonstrated in a satisfactory manner its case with respect to 
any of these issues.
    First, prior to committing taxpayer resources to GMAC, 
Treasury should have demonstrated that no other group of new or 
existing financial institutions could reasonably fill the void 
upon the liquidation of GMAC. Treasury and GMAC have attempted 
to justify GMAC's systemic importance based upon the ``special 
relationships'' that exist between GMAC and its dealer network 
and the ``unique IT system'' employed by GMAC to monitor its 
extensions of credit. Many successful business enterprises rely 
upon these sorts of factors. It is unclear why GMAC merits more 
than $17 billion of taxpayer funds based upon its ``special 
relationships'' or ``unique IT systems.'' It appears 
problematic to argue that GMAC--and GMAC alone--is capable of 
financing a floor plan for a Chrysler or GM dealer.
    It is not unreasonable to anticipate that other financial 
institutions and private equity firms would welcome the 
opportunity to extend credit to the retail customers and 
dealers of Chrysler and GM and to securitize the instruments 
received in such transactions.\542\ During the dark days of 
late 2008 and early 2009, Treasury could have encouraged other 
market participants to enter GMAC's auto finance business by 
providing short-term guarantees of their financings as well as 
other credit support. The government could also have encouraged 
one or more of these market participants to purchase GMAC's 
auto finance business and retain the services of its employees. 
The government may have needed to provide short-term financing 
to fund the acquisition, but it seems reasonable to conclude 
that the cost of such financing to the taxpayers would have 
equaled much less than the $17 billion ultimately advanced to 
GMAC under TARP. Since GMAC's auto finance business is 
profitable, the taxpayers would have been subject to far less 
risk than they currently carry under the bailout as actually 
implemented.
---------------------------------------------------------------------------
    \542\ This analysis is based upon the assumption that GMAC's 
business model is not premised upon charging retail customers above-
market rates of interest so as to subsidize the below-market rates it 
charges the dealers.
---------------------------------------------------------------------------
    Even if GMAC--and GMAC alone--possessed the expertise 
necessary to conduct an auto finance business, why does the 
United States government continue to sanction and subsidize 
such concentration instead of encouraging healthy competition 
from other private sector financial institutions and firms 
seeking to enter the market? \543\ Although the bailout of GMAC 
was in part premised upon the overwhelming market dominance of 
GMAC's floorplan business, it does not appear that Treasury has 
taken any action to break up this concentration and foster 
competition from other market participants with established 
expertise in the floorplan business. Instead, Treasury has 
perpetuated GMAC's floorplan market share by providing the 
company with access to unlimited TARP funds in the name of not 
reneging on an informal Treasury commitment. By funneling the 
floorplan business of Chrysler and GM through the narrow--yet 
virtually exclusive--financing conduit of GMAC, Treasury has 
left Chrysler and GM susceptible to any future mismanagement of 
GMAC and raised the possibility that the taxpayers will yet 
again be called upon to rescue GMAC.
---------------------------------------------------------------------------
    \543\ By contrast, in early February the Administration announced 
that it plans to end the Ares I program and outsource low earth orbit 
rocket launches to a group of private sector aerospace companies. See 
Kenneth Chang, Obama Calls for End of NASA's Moon Program, New York 
Times (Feb. 1, 2010) (online at www.nytimes.com/2010/02/02/science/
02nasa.html?scp=1&sq=constellation%20nasa&st=cse). If private sector 
participants are lined up to bid for the right to design and launch 
rockets, there must be at least a few financial institutions that are 
prepared to finance retail customers and dealers of Chrysler and GM.
---------------------------------------------------------------------------
    Of course, both Chrysler and GM might ultimately benefit 
from controlling its own well-managed financing subsidiary, as 
other vehicle manufacturers do. While such subsidiaries often 
control a substantial share of their parent's financing needs, 
they infrequently venture into other high-risk and non-
complementary business operations that they are incapable of 
properly managing--such as ResCap or, perhaps, Ally Bank--the 
failure of which could undermine the viability of their vehicle 
financing operations, as ResCap did for GMAC. For these 
reasons, it is possible that Chrysler and GM may undertake to 
form a limited liability special purpose entity to acquire the 
auto finance business of GMAC (without, most likely, any of the 
operations of the failed ResCap). It is also possible that 
Chrysler and GM may seek to form their own independent 
financing subsidiaries to compete with the auto finance 
business of GMAC.\544\ The occurrence of either event may 
materially influence how and when the taxpayers are repaid 
their TARP advances to GMAC.
---------------------------------------------------------------------------
    \544\ GM may welcome the opportunity to establish its own financing 
subsidiary if it determines that (1) its common equity in GMAC will be 
wiped out if the taxpayers suffer the loss of any GMAC allocated TARP 
funds and (2) the expansion of Ally Bank is inconsistent with GMAC's 
maintenance of a robust auto finance business. On the other hand, GMAC 
remits royalties and fees to GM pursuant to a services arrangement.
---------------------------------------------------------------------------
    Second, if Treasury carries the burden on the first issue, 
Treasury must next demonstrate that it had no viable choice but 
to bail-out ResCap--the entity through which GMAC made ill-
conceived bets in the residential mortgage and subprime housing 
markets--in hopes of saving GMAC's auto finance business.\545\ 
In satisfying this burden, Treasury should show that no viable 
approach existed under the U.S. bankruptcy code or otherwise to 
extricate GMAC's auto finance business from the taint of its 
insolvent mortgage finance business other than through the 
expenditure of over $17 billion of hard-earned taxpayer-funded 
resources.
---------------------------------------------------------------------------
    \545\ It appears that GMAC operates three businesses--a retail auto 
finance and dealer floor planning business, an insurance business and a 
mortgage finance business. The first business provides financing to 
retail purchasers of Chrysler and GM vehicles as well as to the dealers 
themselves. The second underwrites insurance. The third business placed 
huge un-hedged bets in the residential mortgage and subprime housing 
markets that blew up and drove GMAC into insolvency.
---------------------------------------------------------------------------
    GMAC could have, for example, sold its auto finance 
business for fair market value to a third party outside of 
bankruptcy (and avoided a fraudulent conveyance/transfer claim) 
or sold its auto finance business to a third party under 
Section 363 in a bankruptcy proceeding.\546\ If GMAC's auto 
finance business is truly viable and profitable, it is not 
unreasonable to expect that other financial institutions and 
private equity firms would welcome the opportunity to acquire 
the business with its captive group of customers and 
monopolistic market power in the Chrysler and GM dealer 
floorplan business. GMAC also could have simply sold its auto 
finance business at fair market value to a third party outside 
of bankruptcy.\547\ The government may have had little choice 
in late 2008 and early 2009 but to assist the purchaser of the 
auto finance business by providing DIP financing or other 
credit support, but, as noted above, the subsidy rate on the 
use of TARP funds would have been most likely materially lower 
since GMAC's auto finance business operates as a profitable 
going concern and no TARP funds would have been allocated to 
ResCap. Once the markets stabilized, the auto finance business 
(as a separate entity under new ownership and management) 
should have been able to refinance the government-funded bridge 
facility (with government-sponsored guarantees if absolutely 
necessary) and the taxpayers would have been repaid in full in 
cash. Following the transfer of the auto finance business, GMAC 
could have been reorganized by private market participants (if 
any were interested) or, most likely, liquidated without the 
expenditure of any TARP funds.
---------------------------------------------------------------------------
    \546\ As noted in the Panel's report, the structuring, negotiating, 
and closing of the disposition of GMAC's auto finance business within 
or outside bankruptcy present an array of daunting business and legal 
issues. Prior to any such disposition, Treasury should conduct a 
thorough due diligence investigation including: (1) a careful analysis 
of the relevant facts and circumstances, (2) a cost benefit analysis 
comparing recovery pre- and post-bankruptcy, and (3) an analysis of any 
additional TARP contributions required pre- and post-bankruptcy. GMAC's 
status as a BHC only adds another layer of complexity. Nevertheless, we 
remain unconvinced that Treasury could not have structured the bailout 
of GMAC's auto finance business in a much more taxpayer-friendly 
manner.
    \547\ If GMAC pursues the sale of its auto finance business or any 
other division or subsidiary or the merger of GMAC or any of its 
subsidiaries, Treasury should ascertain that the transaction is 
structured in a manner that is the most advantageous for the taxpayers 
and that no TARP funds are forgiven or subordinated.
---------------------------------------------------------------------------
    If the bailout of GMAC was premised on the necessity of 
saving the company's auto finance business, why was Treasury 
not capable of doing just that? Why was even one dollar of TARP 
funds allocated to ResCap? Why was ResCap not left for 
liquidation? If the automakers Chrysler and GM were capable of 
surviving bankruptcy proceedings, why was GMAC not similarly 
restructured? It is beyond disappointing that the taxpayers 
have been forced to squander many billions of dollars.
    Third, even if GMAC carries the burden on both issues, 
Treasury must also demonstrate why GMAC was too big or too 
interconnected with the financial system and the overall 
economy to fail and why GMAC merited such unprecedented largess 
when so many other American businesses and families are 
suffering from the worst economic downturn in several 
generations. It appears quite unlikely that the failure of GMAC 
would have led directly to the collapse of the American 
financial system.
    Treasury has also justified its bailout of GMAC based upon 
its undertaking to provide each of the 19 stress-tested 
financial institutions with TARP funds to the extent they were 
not able to raise capital in the private markets. We do not 
agree with this simplistic ``our word is our bond'' 
justification for the bailout. Treasury seems to argue that 
once a financial institution has joined (or was drafted into or 
was specifically selected for inclusion in) the ``elite 19,'' 
then the United States government had a duty (or some kind of 
moral obligation or patriotic commitment) to bail it out 
whatever the cost. It is regrettable for Treasury to assert 
that it was somehow duty bound to hand a blank check to GMAC. 
Treasury was required to exercise proper judgment and conduct a 
thorough due diligence analysis with respect to its investment 
of taxpayer-sourced TARP funds and not simply throw $17 billion 
at a problem in hopes that it would go away. The financial 
markets do not expect the government to act in an irrational or 
profligate manner, and any such reaction only creates enhanced 
moral hazard risks and all but codifies GMAC's implicit 
guarantee from the United States government. The taxpayers also 
understand the ``don't throw good money after bad'' mantra and 
expect the government to allocate their tax dollars 
accordingly. In addition, it is not entirely clear why GMAC--a 
non-systemically significant financial institution--was 
included in the list of stress-tested financial institutions 
other than, perhaps, to afford the company an explicit 
guarantee under the TARP program of its seemingly unlimited 
capital deficiencies. Such circular reasoning offers little in 
the way of meaningful insight.
    Other significant issues have arisen with respect to the 
bailout of GMAC, including, without limitation, the following:
    1. It remains unclear how GMAC has used the $17 billion of 
TARP funds. The company has not provided any meaningful 
publicly available analysis of how it has employed such 
taxpayer resources or why it may not be able to repay all of 
such funds. It would be helpful for the taxpayers to receive a 
detailed ``uses of TARP funds'' statement from GMAC with an 
emphasis on those payments made to persons and entities that 
are not obligated to reimburse GMAC. In other words, if the 
taxpayers stand to lose up to $10 billion on their allocation 
of TARP funds to GMAC, it is absolutely critical for GMAC to 
disclose in a prompt, thorough, and public manner specifically 
where the money went and why it was so allocated.\548\
---------------------------------------------------------------------------
    \548\ GMAC should not respond with the statement that ``money is 
fungible.'' Money is also limited and, without the allocation of $17 
billion of TARP funds, GMAC would have no doubt failed.
---------------------------------------------------------------------------
    2. It appears that some (and quite possibly a substantial 
part) of GMAC's TARP funds were allocated to ResCap to bail out 
its risky and ill-considered bets in the residential mortgage 
and subprime markets. Notwithstanding these allocations, we 
remain concerned as to whether Treasury and GMAC have truly 
stemmed the tide of losses at ResCap. The taxpayers have 
received only modest disclosure regarding the operations of and 
prospects for ResCap including, without limitation, the amount 
of ResCap originated mortgage loans that Fannie Mae, Freddie 
Mac, and other purchasers and guarantors are requiring ResCap 
to repurchase, and whether ResCap will require additional 
taxpayer-sourced TARP funds and, if so, why, how much, and 
when? Why ResCap might have merited even one dollar of TARP 
funds remains entirely murky.
    3. Many questions remain unanswered with respect to Ally 
Bank. For example, has GMAC allocated taxpayer-sourced TARP 
funds to Ally Bank? If so, why has Treasury committed the 
taxpayers to underwrite yet another financial institution, 
particularly one with an unproven business model? Is Ally Bank 
using TARP funds to pay above-market rates of interest on its 
retail accounts that it has aggressively advertised over the 
past few months, or does its implicit guarantee from Treasury 
enable it to fund these above-market rates? If so, how does 
Ally Bank plan to pay these rates after the TARP spigot is shut 
off? If Ally Bank fails to pay the above-market rates of 
interest and its deposit base deteriorates, how will GMAC 
finance its floorplan business? How much, if any, of the 
projected $10 billion loss of TARP funds allocated to GMAC is 
attributable to Ally Bank and its payment of above-market rates 
of interest? If the answer is one dollar or more, why has 
Treasury committed the taxpayers to subsidize these rates?
    4. It was recently announced that the CEO of GMAC will 
receive a total annual compensation package of $9.5 million, 
which consists of cash and deferred and restricted stock.\549\ 
Although some have focused on the amount of the compensation, 
more significant from the taxpayers' perspective is the 
structure of the compensation package and the consequent 
incentives that may skew decision-making towards particular 
outcomes, such as building the company, when dissolution and 
sale might be best.
---------------------------------------------------------------------------
    \549\ The bulk of the CEO's compensation is structured as deferred 
or restricted stock with a cash salary of $950,000. While a stock grant 
may have appeared attractive to the Special Master, the incentives 
inherent in a stock grant could cause the CEO to consider actions that 
may not necessarily be in the best interests of the taxpayers. With a 
large stock award in GMAC, the CEO may have little interest in pursuing 
a bankruptcy of GMAC or selling the ``crown jewel'' auto finance 
business (to GM and Chrysler among others) and liquidating ResCap. All 
of these actions could diminish the value of GMAC stock and Mr. 
Carpenter's stock award. Instead, the CEO appears inclined to pursue a 
growth strategy at GMAC with Ally Bank. Perhaps it would have been best 
simply to pay the CEO a higher cash compensation amount so as 
potentially not to influence his management decisions. It is 
unfortunate that such an approach might not have been acceptable to the 
Special Master.
---------------------------------------------------------------------------
    5. Even though the taxpayers stand to lose up to $10 
billion on the allocation of TARP funds to GMAC, the pre-
bailout common shareholders of GMAC may nevertheless profit 
from their investment in the company. The Panel has made clear 
that if the taxpayers lose one dollar of TARP funds, the pre-
bailout common shareholders should be wiped out and receive no 
return. Representatives from Treasury appear quite sensitive 
(if not defensive) regarding this issue. We call upon Treasury 
to issue a formal legal opinion describing the extent to which 
pre-bailout common shareholders may profit if the taxpayers 
lose. Treasury has put the taxpayers in an awkward position of 
suffering a substantial loss but the pre-bailout common 
shareholders are not wiped out.
    6. It is regrettable that the bailouts of GMAC, Chrysler, 
and GM could raise subsidy issues under WTO rules. As noted in 
the Panel's report, in September 2009, the People's Republic of 
China launched a countervailing duty investigation into the 
assistance given Chrysler and GM where, among other items, the 
Chinese automotive industry cited aid to GMAC in its complaint. 
It is possible that other jurisdictions may raise similar 
claims with the WTO. Treasury should thoughtfully analyze these 
and other trade related issues before allocating TARP funds to 
any entity.\550\
---------------------------------------------------------------------------
    \550\ This paragraph is not intended to constitute a legal or other 
analysis regarding the merits of any action brought under WTO or 
similar rules by the People's Republic of China or any other 
jurisdiction or entity regarding the allocation of TARP funds to or any 
other action taken by the U.S. government with respect to GMAC, 
Chrysler, or GM.
           SECTION THREE: CORRESPONDENCE WITH TREASURY UPDATE

    Secretary of the Treasury Timothy Geithner sent a letter to 
Chair Elizabeth Warren on February 16, 2010,\551\ in response 
to a series of questions presented by the Panel regarding 
Treasury's role, under EESA, in setting executive compensation 
and corporate governance standards for TARP recipients and 
regarding the authority of the Special Master for TARP 
Executive Compensation.
---------------------------------------------------------------------------
    \551\ See Appendix I of this report, infra.
              SECTION FOUR: TARP UPDATES SINCE LAST REPORT


                           A. TARP Repayments

    As of March 5, 2010, Treasury received $8.2 billion in CPP 
repayments from six institutions during February and March. Of 
this total, $7.6 billion was repaid by PNC Financial Services 
Group. A total of 66 banks have fully repaid their preferred 
stock TARP investments provided under the CPP to date. Treasury 
has also liquidated the warrants it holds in 44 of these 66 
banks.

                      B. CPP Warrant Dispositions

    As part of its investment in senior preferred stock of 
certain banks under the CPP, Treasury received warrants to 
purchase shares of common stock or other securities in those 
institutions. During February, two institutions repurchased 
their warrants from Treasury for a total of $691,000. Also, on 
March 1, 2010, Treasury announced that it would offer the Bank 
of America warrants it received at auction. Treasury announced 
that gross proceeds from this offering were $1.57 billion. 
Including this sale, Treasury has received $5.59 billion from 
the disposition of CPP warrants.

                     C. CPP Monthly Lending Report

    Treasury's Monthly Lending and Intermediation Snapshot 
tracks loan originations and average loan balances for the 22 
largest recipients of CPP funds across a variety of categories, 
ranging from mortgage loans to commercial real estate to credit 
card lines. As of the December reporting period, this survey no 
longer includes data from the ten institutions that repaid the 
funds they received in June 2009. Furthermore, CIT did not 
report its lending activity this month due to that 
institution's ongoing bankruptcy proceedings. Therefore, the 
Monthly Lending and Intermediation Snapshot now measures only 
eleven institutions and no longer provides a complete basis of 
comparison for lending by these institutions since EESA was 
enacted.
    Of the eleven institutions that participated in the survey, 
new loan origination increased nearly 13 percent in December 
for a total of $178 billion during December. Survey respondents 
highlighted a number of economic areas that showed market 
improvement in December including leasing, business banking and 
mergers and acquisitions. The survey noted the continuing lack 
of demand for new commercial real estate loans. Furthermore, 
respondents cited seasonality in commercial real estate for the 
57 percent increase in commercial real estate renewals.

             D. Term Asset-Backed Securities Loan Facility

    At the February 17, 2010 facility, investors requested $1.3 
billion in loans for legacy commercial mortgage-backed 
securities (CMBS), of which $1.1 billion settled. By way of 
comparison, investors requested $1.5 billion in loans for 
legacy CMBS, of which $1.3 billion settled, at the January 
facility. Investors did not request any loans for new CMBS in 
February. The only request for new CMBS loans during TALF's 
operation was for $72.2 million at the November facility.
    The New York Fed's March 4, 2010 facility was a non-CMBS 
facility, offering loans to support the issuance of ABS 
collateralized by loans in the credit card, equipment, 
floorplan, premium financing, small business, and student loan 
sectors. In total, $4.1 billion in loans were requested at this 
facility. There were no requests at this facility for auto or 
servicing advance loans. At the February 5, 2010 facility, $974 
million of the $987 million in requested loans settled.

                E. Help for Hardest Hit Housing Markets

    On February 19, 2010, President Obama announced Help for 
Hardest Hit Housing Markets (4HM). This initiative will use 
$1.5 billion of the $50 billion in TARP funds allocated to 
foreclosure mitigation in order to assist the five states with 
the highest home price declines stemming from the foreclosure 
crisis: Nevada, California, Florida, Arizona and Michigan. 
These states have all experienced home price declines greater 
than 20 percent. The funds will go directly to the Housing 
Finance Agencies (HFAs) of the participating states for 
programs that may include foreclosure mitigation efforts for 
unemployed borrowers, borrowers owing more than their home is 
worth, or borrowers facing challenges arising from second 
liens. The funds will be divided among the five eligible states 
by a formula based on home price declines and unemployment. 
State HFAs must submit a proposal for their specific program 
designs, allowing the local agencies to tailor programs to the 
local needs.\552\
---------------------------------------------------------------------------
    \552\ The White House, President Obama Announces Help for Hardest 
Hit Housing Markets (Feb. 19, 2010) (online at www.whitehouse.gov/the-
press-office/president-obama-announces-help-hardest-hit-housing-
markets) (hereinafter ``President Announces Help for Housing 
Markets'').
---------------------------------------------------------------------------

                               F. Metrics

    Each month, the Panel's report highlights a number of 
metrics that the Panel and others, including Treasury, the 
Government Accountability Office (GAO), the Special Inspector 
General for the Troubled Asset Relief Program (SIGTARP), and 
the Financial Stability Oversight Board, consider useful in 
assessing the effectiveness of the Administration's efforts to 
restore financial stability and accomplish the goals of EESA. 
This section discusses changes that have occurred in several 
indicators since the release of the Panel's February report.
     Interest Rate Spreads. Interest rate spreads have 
continued to tighten since the Panel's February report, further 
reflecting signs of economic stability. The TED spread, which 
measures the difference between 3 Month LIBOR and the 3 Month 
Treasury Bill yield, is used as a measure of the availability 
of liquidity in the market. As of March 1, 2010, the TED spread 
was 12 basis points, an 89 percent decrease since the enactment 
of EESA. The interest rate spread for AA asset-backed 
commercial paper, which is considered mid-investment grade, has 
decreased by nearly 13 percent since the Panel's January 
report. This measure is at its lowest level since July 2007.

                                        FIGURE 18: INTEREST RATE SPREADS
----------------------------------------------------------------------------------------------------------------
                                                                 Current Spread  (as of   Percent Change  Since
                           Indicator                                    3/1/10)           Last  Report (1/29/10)
----------------------------------------------------------------------------------------------------------------
TED spread 553 (in basis points)..............................                       12                   (29.4)
Conventional mortgage rate spread 554.........................                     1.36                     3.03
Overnight AA asset-backed commercial paper interest rate                           0.11                   (12.5)
 spread 555...................................................
Overnight A2/P2 nonfinancial commercial paper interest rate                        0.12                    10.7
 spread 556...................................................
----------------------------------------------------------------------------------------------------------------
\553\ TED Spread, SNL Financial.
\554\ Board of Governors of the Federal Reserve System, Federal Reserve Statistical Release H.15: Selected
  Interest Rates: Historical Data (Instrument: Conventional Mortgages, Frequency: Weekly) (online at
  www.federalreserve.gov/releases/h15/data/Weekly_Thursday_/H15_MORTG_NA.txt) (accessed Mar. 1, 2010); Board of
  Governors of the Federal Reserve System, Federal Reserve Statistical Release H.15: Selected Interest Rates:
  Historical Data (Instrument: U.S. Government Securities/Treasury Constant Maturities/Nominal 10-Year,
  Frequency: Weekly) (online at www.federalreserve.gov/releases/h15/data/Weekly_Friday_/H15_TCMNOM_Y10.txt)
  (accessed Mar. 1, 2010).
\555\ Board of Governors of the Federal Reserve System, Federal Reserve Statistical Release: Commercial Paper
  Rates and Outstandings: Data Download Program (Instrument: AA Asset-Backed Discount Rate, Frequency: Daily)
  (online at www.federalreserve.gov/DataDownload/Choose.aspx?rel=CP) (hereinafter ``Federal Reserve Statistical
  Release: Commercial Paper'') (accessed Mar. 4, 2010); Board of Governors of the Federal Reserve System,
  Federal Reserve Statistical Release: Commercial Paper Rates and Outstandings: Data Download Program
  (Instrument: AA Nonfinancial Discount Rate, Frequency: Daily) (online at www.federalreserve.gov/DataDownload/
  Choose.aspx?rel=CP) (accessed Mar. 1, 2010). In order to provide a more complete comparison, this metric
  utilizes a five day average of the interest rate spread for the last five days of the month.
\556\ Federal Reserve Statistical Release: Commercial Paper, supra note 555 (accessed Mar. 4, 2010). In order to
  provide a more complete comparison, this metric utilizes a five day average of the interest rate spread for
  the last five days of the month.

     Housing Indicators. Foreclosure filings decreased 
by 9.7 percent from November to December, and are 13 percent 
above the October 2008 level. The S&P/Case-Shiller Composite 20 
Index increased slightly in December, whereas another index 
that measures home prices, the FHFA House Price Index, 
decreased by nearly 2 percent in December.

                                          FIGURE 19: HOUSING INDICATORS
----------------------------------------------------------------------------------------------------------------
                                                                              Percent Change
                                                                                from Data        Percent Change
                       Indicator                            Most Recent        Available at      Since October
                                                            Monthly Data       Time of Last           2008
                                                                                  Report
----------------------------------------------------------------------------------------------------------------
Monthly foreclosure filings \557\......................            315,716              (9.7)                 13
Housing prices--S&P/Case-Shiller Composite 20 Index                  145.9                .32              (6.8)
 \558\.................................................
FHFA Housing Price Index \559\.........................              196.1              (1.6)             (3.3)
----------------------------------------------------------------------------------------------------------------
\557\ RealtyTrac, Foreclosure Activity Press Releases (online at www.realtytrac.com//ContentManagement/
  PressRelease.aspx) (hereinafter ``RealtyTrac Foreclosure Activity Press Releases'') (accessed Mar. 1, 2010).
  Most recent data available for January 2010.
\558\ Standard & Poor's, S&P/Case-Shiller Home Price Indices (Instrument: Seasonally Adjusted Composite 20
  Index) (online at www. standard andpoors.com/prot/servlet/Blob Server?blobheadername3=MDT-Type&blobcol=
  urldata&blobtable=Mungo Blobs&blobheadervalue2=inline%3B+filename% 3DSA_CSHome Price_History_022330.xls
  &blobheadername2=Content-Disposition&blobheader value1=application%2Fexcel &blobkey= id&blob
  headername1=content-type &blobwhere= 1243656054400&blob headervalue3=UTF-8) (accessed Mar. 4, 2010)
  (hereinafter ``S&P/Case-Shiller Home Price Indices''). Most recent data available for December 2009.
\559\ Federal Housing Finance Agency, U.S. and Census Division Monthly Purchase Only Index (Instrument: USA,
  Seasonally Adjusted) (online at www.fhfa.gov/webfiles/15428/Monthly Index_Jan1991_to_Latest.xls) (accessed
  Mar. 4, 2010). Most recent data available for December 2009.

FIGURE 20: FORECLOSURE FILINGS AS COMPARED TO THE CASE-SHILLER 20 CITY 
              HOME PRICE INDEX (AS OF DECEMBER 2009) \560\

---------------------------------------------------------------------------
    \560\ RealtyTrac Foreclosure Activity Press Releases, supra note 
557 (accessed Jan. 27, 2010); S&P/Case-Shiller Home Price Indices, 
supra note 558. Most recent data available is for December 2009.

[GRAPHIC] [TIFF OMITTED] 54875A.011


     Bank Conditions. Data appear to show that 
commercial banks across the country are still being affected by 
the economic downturn and troubled loans. Figure 21 shows the 
percentage of net loan charge-offs has continued to increase 
since the crisis began. This percentage consists of the total 
number of charge-offs by domestic commercial banks over the 
total amount of commercial loans. This percentage, 2.2 as of 
the third quarter of 2009, has nearly tripled since EESA was 
enacted. U.S. commercial banks are also negatively affected by 
loans that are sliding toward default. Nonperforming commercial 
loans are loans that bank officials classify as 90-days or more 
past due or nonaccrual. Figure 22 shows nonperforming 
commercial loans as a percentage of total commercial loans. 
This ratio was 3.6 at the end of the third quarter of 2009, 
more than three times its level in October 2008.

 FIGURE 21: COMMERCIAL NET LOAN CHARGE-OFFS PERCENTAGE (AS OF Q3 2009) 
                                 \561\

[GRAPHIC] [TIFF OMITTED] 54875A.012

      
---------------------------------------------------------------------------
    \561\ Federal Reserve Bank of St. Louis, Condition of 
Banking:Commercial Net Loan Charge-offs (online at 
research.stlouisfed.org/fred2/ series/NCOCMC?cid=93) (accessed Mar. 4, 
2010).

FIGURE 22: NONPERFORMING LOANS AS A PERCENTAGE OF TOTAL LOANS (AS OF Q3 
                              2009) \562\

[GRAPHIC] [TIFF OMITTED] 54875A.013


     Consumer Confidence. There are mixed signs 
emerging regarding consumer confidence. The University of 
Michigan's Consumer Sentiment Index is based on a minimum of 
500 telephone interviews and contains roughly 50 core 
questions.\563\ The Consumer Sentiment Index rose 10 percent in 
January.\564\ Another gauge of consumer attitudes is the 
Consumer Confidence Index. This index is administered by The 
Conference Board and is based off of a representative sample of 
5,000 homes.\565\ This measure decreased 18 percent February. 
The Conference Board notes that a component of the survey, the 
Present Situation Index, was at its lowest level since February 
1983.\566\ Both indices have increased significantly since EESA 
was enacted. As Figure 23 illustrates, the Consumer Sentiment 
Index has increased nearly 30 percent, while the Consumer 
Confidence Index is up 18 percent, since October 2008.
---------------------------------------------------------------------------
    \562\ Federal Reserve Bank of St. Louis, Condition of 
Banking:Nonperforming Commercial Loans (online at 
research.stlouisfed.org/fred2/series/ NPCMCM/downloaddata?cid=93) 
(accessed Mar. 4, 2010).
    \563\ University of Michigan, Survey of Consumers (online at 
www.sca.isr.umich.edu/documents.php?c=i) (accessed Mar. 9, 2010).
    \564\ Federal Reserve Bank of St. Louis, University of Michigan: 
Consumer Sentiment (online at research.stlouisfed.org/fred2/series/
UMCSENT/) (hereinafter ``University of Michigan: Consumer Sentiment'') 
(accessed Mar. 3, 2010).
    \565\ The Conference Board, The Conference Board Consumer 
Confidence Index Declines Sharply (Feb. 23, 2010) (online at 
www.conference-board.org/economics/ConsumerConfidence.cfm) (hereinafter 
``Conference Board Consumer Confidence Index'').
    \566\ Conference Board Consumer Confidence Index, supra note 565.
---------------------------------------------------------------------------

                  FIGURE 23: CONSUMER ATTITUDES \567\

[GRAPHIC] [TIFF OMITTED] 54875A.014

      
---------------------------------------------------------------------------
    \567\ University of Michigan: Consumer Sentiment, supra note 564; 
Bloomberg Data.
---------------------------------------------------------------------------

                          G. Financial Update

    Each month, the Panel summarizes the resources that the 
federal government has committed to economic stabilization. The 
following financial update provides: (1) an updated accounting 
of the TARP, including a tally of dividend income, repayments, 
and warrant dispositions that the program has received as of 
February 25, 2010; and (2) an updated accounting of the full 
federal resource commitment as of February 25, 2010.

1. The TARP

            a. Costs: Expenditures and Commitments
    Treasury has committed or is currently committed to spend 
$520.3 billion of TARP funds through an array of programs used 
to purchase preferred shares in financial institutions, offer 
loans to small businesses and automotive companies, and 
leverage Federal Reserve loans for facilities designed to 
restart secondary securitization markets.\568\ Of this total, 
$290.5 billion is currently outstanding under the $698.7 
billion limit for TARP expenditures set by EESA, leaving $408.2 
billion available for fulfillment of anticipated funding levels 
of existing programs and for funding new programs and 
initiatives. The $290.5 billion includes purchases of preferred 
and common shares, warrants and/or debt obligations under the 
CPP, AIGIP/SSFI Program, PPIP, and AIFP; and a $20 billion loan 
to TALF LLC, the special purpose vehicle (SPV) used to 
guarantee Federal Reserve TALF loans.\569\ Additionally, 
Treasury has allocated $36.9 billion to the Home Affordable 
Modification Program, out of a projected total program level of 
$48.5 billion.
---------------------------------------------------------------------------
    \568\ EESA, as amended by the Helping Families Save Their Homes Act 
of 2009, limits Treasury to $698.7 billion in purchasing authority 
outstanding at any one time as calculated by the sum of the purchases 
prices of all troubled assets held by Treasury. Pub. L. No. 110-343, 
Sec. 115(a)-(b); Helping Families Save Their Homes Act of 2009, Pub. L. 
No. 111-22, Sec. 402(f) (reducing by $1.26 billion the authority for 
the TARP originally set under EESA at $700 billion).
    \569\ Treasury Transactions Report, supra note 264.
---------------------------------------------------------------------------
            b. Income: Dividends, Interest Payments, CPP Repayments, 
                    and Warrant Sales
    As of February 25, 2009, a total of 65 institutions have 
completely repurchased their CPP preferred shares. Of these 
institutions, 39 have repurchased their warrants for common 
shares that Treasury received in conjunction with its preferred 
stock investments; Treasury sold the warrants for common shares 
for three other institutions at auction.\570\ Treasury received 
$7.9 billion in repayments from six CPP participants during 
February. The largest repayment was the $7.6 billion repaid by 
PNC Financial Services Group. Treasury also accounted for 
losses under the CPP for two of the three bankrupt institutions 
participating in the program: CIT Group and Pacific Coast 
National Bancorp. These two institutions received a total of 
$2.3 billion in funds under the CPP.\571\ In addition, Treasury 
receives dividend payments on the preferred shares that it 
holds, usually five percent per annum for the first five years 
and nine percent per annum thereafter.\572\ Net of these losses 
under the CPP, Treasury has received approximately $18.8 
billion in income from warrant repurchases, dividends, interest 
payments, and other considerations deriving from TARP 
investments,\573\ and another $1.2 billion in participation 
fees from its Guarantee Program for Money Market Funds.\574\
---------------------------------------------------------------------------
    \570\ Treasury Transactions Report, supra note 264.
    \571\ Treasury Transactions Report, supra note 264.
    \572\ See, e.g., U.S. Department of the Treasury, Securities 
Purchase Agreement: Standard Terms (online at 
www.financialstability.gov/docs/CPP/spa.pdf) (accessed Mar. 4, 2010).
    \573\ Treasury Transactions Report, supra note 264; U.S. Department 
of the Treasury, Cumulative Dividends and Interest Report as of 
December 31, 2009 (Jan. 20, 2010) (online at 
www.financialstability.gov/docs/dividends-interest-reports/
December%202009%20Dividends%20and%20Interest%20Report.pdf); Treasury 
Transactions Report, supra note 264.
    \574\ For CPP investments in privately-held institutions, Treasury 
received warrants to purchase additional preferred shares. This option 
was excercised immediately and, as of February 25, 2010, six privately 
held institutions redeemed the additional preferred shares associated 
with the warrants provided to Treasury. U.S. Department of the 
Treasury, Treasury Announces Expiration of Guarantee Program for Money 
Market Funds (Sept. 18, 2009) (online at www.treasury.gov/press/
releases/tg293.htm).
---------------------------------------------------------------------------
            c. TARP Accounting

                           FIGURE 24: TARP ACCOUNTING (AS OF FEBRUARY 25, 2010) \575\
                                              [Dollars in billions]
----------------------------------------------------------------------------------------------------------------
                                                                       Total
                                    Anticipated                     Repayments/       Funding         Funding
         TARP Initiative              Funding     Actual Funding      Reduced       Outstanding      Available
                                                                     Exposure
----------------------------------------------------------------------------------------------------------------
Capital Purchase Program (CPP)            $204.9          $204.9          $129.8     \577\ $75.1              $0
 \576\..........................
Targeted Investment Program                 40.0            40.0              40               0               0
 (TIP) \578\....................
AIG Investment Program (AIGIP)/             69.8      \579\ 46.9               0            46.9            22.9
 Systemically Significant
 Failing Institutions Program
 (SSFI).........................
Automobile Industry Financing               81.3            81.3             3.2            78.2               0
 Program (AIFP).................
Asset Guarantee Program (AGP)                5.0             5.0       \581\ 5.0               0               0
 \580\..........................
Capital Assistance Program (CAP)               0               0               0               0               0
 \582\..........................
Term Asset-Backed Securities                20.0            20.0               0            20.0               0
 Lending Facility (TALF)........
Public-Private Investment                   30.0            30.0               0            30.0               0
 Partnership (PPIP) \583\.......
Auto Supplier Support Program          \584\ 3.5             3.5               0             3.5               0
 (ASSP).........................
Unlocking SBA Lending...........            15.0               0               0               0            15.0
Home Affordable Modification          \585\ 48.5      \586\ 36.9               0            36.9            11.6
 Program (HAMP).................
Community Development Capital         \587\ 0.78               0               0               0            0.78
 Initiative (CDCI)..............
Help for Hardest Hit Housing                 1.5               0               0               0             1.5
 Markets (4HM) \588\............
Total Committed.................           520.3           468.5              --           290.5            51.8
Total Uncommitted...............           178.4             N/A           178.0             N/A     \589\ 356.4
                                 -------------------------------------------------------------------------------
    Total.......................          $698.7          $468.5          $178.0          $290.5         $408.2
----------------------------------------------------------------------------------------------------------------
\575\ Treasury Transactions Report, supra note 264.
\576\ As of December 31, 2009, the CPP was closed. U.S. Department of the Treasury, FAQ on Capital Purchase
  Program Deadline (online at www.financialstability.gov/docs/
  FAQ%20on%20Capital%20Purchase%20Program%20Deadline.pdf).
\577\ Treasury classified the investments it made in two institutions, CIT Group ($2.3 billion) and Pacific
  Coast National Bancorp ($4.1 million), as losses on the Transactions Report. Therefore Treasury's net current
  CPP investment is $72.7 billion due to the $2.3 billion in losses thus far. Treasury Transactions Report,
  supra note 264.
\578\ Both Bank of America and Citigroup repaid the $20 billion in assistance each institution received under
  the TIP on December 9 and December 23, 2009, respectively. Therefore the Panel accounts for these funds as
  repaid and uncommitted. U.S. Department of the Treasury, Treasury Receives $45 Billion in Repayments from
  Wells Fargo and Citigroup (Dec. 23, 2009) (online at www.treas.gov/press/releases/20091229716198713.htm)
  (hereinafter ``Treasury Receives $45 Billion from Wells Fargo and Citigroup'').
\579\ Data provided by Treasury in response to a Panel request. AIG has completely utilized the $40 billion made
  available on November 25, 2008 and has drawn-down $5.3 billion of the $29.8 billion made available on April
  17, 2009. This figure also reflects $1.6 billion in accumulated but unpaid dividends owed by AIG to Treasury
  due to the restructuring of Treasury's investment from cumulative preferred shares to non-cumulative shares.
  Treasury Transactions Report, supra note 264.
\580\ Treasury, the Federal Reserve, and the Federal Deposit Insurance Company terminated the asset guarantee
  with Citigroup on December 23, 2009. The agreement was terminated with no losses to Treasury's $5 billion
  second-loss portion of the guarantee. Citigroup did not repay any funds directly, but instead terminated
  Treasury's outstanding exposure on its $5 billion second-loss position. As a result, the $5 billion is now
  counted as available. Treasury Receives $45 Billion from Wells Fargo and Citigroup, supra note 578.
\581\ Although this $5 billion is no longer exposed as part of the AGP and is accounted for as available,
  Treasury did not receive a repayment in the same sense as with other investments. Treasury did receive other
  income as consideration for the guarantee, which is not a repayment and is accounted for in Figure 25.
\582\ On November 9, 2009, Treasury announced the closing of this program and that only one institution, GMAC,
  was in need of further capital from Treasury. GMAC received an additional $3.8 billion in capital through the
  AIFP on December 30, 2009. Treasury Announcement Regarding the CAP, supra note 240; Treasury Transactions
  Report, supra note 264.
\583\ On January 29, 2010, Treasury released its first quarterly report on the Legacy Securities Public-Private
  Investment Program. As of that date, the total value of assets held by the PPIP managers was $3.4 billion. Of
  this total, 87 percent was non-agency Residential Mortgage-Backed Securities and the remaining 13 percent was
  Commercial Mortgage-Backed Securities. U.S. Department of the Treasury, Legacy Securities Public-Private
  Investment Program (Jan. 29, 2010) (online at www.financialstability.gov/docs/External%20Report%20-%2012-
  09%20FINAL.pdf).
\584\ On July 8, 2009, Treasury lowered the total commitment amount for the program from $5 billion to $3.5
  billion. This action reduced GM's portion from $3.5 billion to $2.5 billion and Chrysler's portion from $1.5
  billion to $1 billion. GM Supplier Receivables LLC, the special purpose vehicle created to administer this
  program for GM suppliers, has made $240 million in partial repayments. This was a partial repayment of funds
  that were drawn down and did not reduce Treasury's $3.5 billion in total exposure under the ASSP. Treasury
  Transactions Report, supra note 264.
\585\ In information provided to TARP oversight bodies, Treasury has stated that the $1.5 billion for the newly
  created ``Help for Hardest Hit Housing Markets'' will be taken from the $50 billion in TARP funding committed
  to foreclosure mitigation.
\586\ This figure reflects the total of all the caps set on payments to each mortgage servicer and not the
  disbursed amount of funds for successful modifications. Treasury Transactions Report, supra note 264. In
  response to a Panel inquiry, Treasury disclosed that, as of January 10, 2010, $32 million in funds had been
  disbursed under the HAMP.
\587\ On February 3, 2010, the Administration announced a new initiative under TARP to provide low-cost
  financing for Community Development Financial Institutions (CDFIs). Under this program, CDFIs are eligible for
  capital investments at a 2 percent dividend rate as compared to the 5 percent dividend rate under the CPP. In
  response to a Panel request, Treasury stated that it projects the CDCI program to utilize $780.2 million; U.S
  Department of the Treasury, Community Development Capital Initiative (Feb. 18, 2010) (online at
  www.financialstability.gov/roadtostability/comdev.html).
\588\ On February 19, 2010, President Obama announced 4HM, a plan to use $1.5 billion of the $50 billion in TARP
  funds allocated to HAMP to assist the five states with the highest home price declines stemming from the
  foreclosure crisis: Nevada, California, Florida, Arizona, and Michigan. President Announces Help for Housing
  Markets, supra note 552. For further discussion of this initiative, see Section Four of this report.
\589\ This figure is the sum of the uncommitted funds remaining under the $698.7 billion cap ($178.4 billion)
  and the repayments ($178 billion).


                                                             FIGURE 25: TARP PROFIT AND LOSS
                                                                  [Dollars in millions]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                              Dividends \590\  Interest \591\      Warrant          Other      Losses \592\
                       TARP Initiative                          (as of  1/31/   (as of  1/31/    Repurchases    Proceeds  (as   as of  2/25/    Total
                                                                    10)              10)       (as of 3/4/10)   of  2/25/10)        10
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total.......................................................          $12,502            $478          $5,587          $2,531      ($2,334)      $18,764
CPP.........................................................            8,283              18     \593\ 5,572              --       (2,334)       11,539
TIP.........................................................            3,004             N/A               0              --                      3,004
AIFP........................................................              936             443              15              --                      1,394
ASSP........................................................              N/A              13             N/A              --                         13
AGP.........................................................              277             N/A               0     \594\ 2,234                      2,511
PPIP........................................................                2               4             N/A              21                         27
Bank of America Guarantee...................................               --              --              --        \595\276  ............          276
--------------------------------------------------------------------------------------------------------------------------------------------------------
\590\ OFS Cumulative Dividends Report as of January 31, 2010, supra note 531.
\591\ OFS Cumulative Dividends Report as of January 31, 2010, supra note 531.
\592\ Treasury classified the investments it made in two institutions, CIT Group ($2.3 billion) and Pacific Coast National Bancorp ($4.1 million), as
  losses on the Transactions Report. A third institution, UCBH Holdings, Inc., received $299 million in TARP funds and is currently in bankruptcy
  proceedings. Treasury Transactions Report, supra note 264.
\593\ This figure is comprised of the $4.03 billion in proceeds from warrant dispositions as of February 25, 2010, and the $1.54 billion in funds from
  the auction of Bank of America warrants completed on March 4, 2010. Treasury Transactions Report, supra note 264; U.S. Department of the Treasury,
  Treasury Department Announces Public Offerings of Warrants to Purchase Common Stock of Bank of America Corporation (Mar. 4, 2010) (online at
  www.financialstability.gov/latest/pr_03042010.html).
\594\ Treasury received $4.03 billion in Citigroup preferred stock and warrants as a fee for taking a second-loss position up to $5 billion on a $301
  billion pool of ring-fenced Citigroup assets as part of the AGP; Treasury exchanged these preferred stocks for TruPs in June 2009. Following the early
  termination of the guarantee, Treasury cancelled $1.8 billion of the TruPs, leaving Treasury with a $2.23 billion investment in Citigroup TruPs in
  exchange for the guarantee. At the end of Citigroup's participation in the FDIC's TLGP, the FDIC may transfer $800 million of $3.02 billion in
  Citigroup Trust Preferred Securities it received in consideration for its role in the AGP to the Treasury. Treasury Transactions Report, supra note
  264.
\595\ Although Treasury, the Federal Reserve, and the FDIC negotiated with Bank of America regarding a similar guarantee, the parties never reached an
  agreement. In September 2009, Bank of America agreed to pay each of the prospective guarantors a fee as though the guarantee had been in place during
  the negotiations. This agreement resulted in payments of $276 million to Treasury, $57 million to the Federal Reserve, and $92 million to the FDIC.
  U.S. Department of the Treasury, Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, and Bank of America
  Corporation, Termination Agreement, at 1-2 (Sept. 21, 2009) (online at www.financialstability.gov/docs/AGP/BofA%20-%20Termination%20Agreement%20-
  %20executed.pdf).

            d. Rate of Return
    As of March 4, 2010, the average internal rate of return 
for all financial institutions that participated in the CPP and 
fully repaid the U.S. government (including preferred shares, 
dividends, and warrants) is 10.6 percent. The internal rate of 
return is the annualized effective compounded return rate that 
can be earned on invested capital.
            e. TARP Warrant Disposition

                      FIGURE 26: WARRANT REPURCHASES FOR FINANCIAL INSTITUTIONS WHO HAVE FULLY REPAID CPP FUNDS AS OF MARCH 4, 2010
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                  Panel's Best
                                                           Investment            Warrant         Warrant           Valuation        Price/        IRR
                       Institution                            Date       QEO    Repurchase   Repurchase/Sale      Estimate at      Estimate    (Percent)
                                                                                   Date           Amount        Repurchase Date      Ratio
--------------------------------------------------------------------------------------------------------------------------------------------------------
Old National Bancorp....................................   12/12/2008      No     5/8/2009          1,200,000          2,150,000      0.5581        9.30
Iberiabank Corporation..................................    12/5/2008     Yes    5/20/2009          1,200,000          2,010,000      0.5970        9.40
Firstmerit Corporation..................................     1/9/2009      No    5/27/2009          5,025,000          4,260,000      1.1796       20.30
Sun Bancorp, Inc........................................     1/9/2009      No    5/27/2009          2,100,000          5,580,000      0.3763       15.30
Independent Bank Corp...................................     1/9/2009      No    5/27/2009          2,200,000          3,870,000      0.5685       15.60
Alliance Financial Corporation..........................   12/19/2008      No    6/17/2009            900,000          1,580,000      0.5696       13.80
First Niagara Financial Group...........................   11/21/2008     Yes    6/24/2009          2,700,000          3,050,000      0.8852        8.00
Berkshire Hills Bancorp, Inc............................   12/19/2008      No    6/24/2009          1,040,000          1,620,000      0.6420       11.30
Somerset Hills Bancorp..................................    1/16/2009      No    6/24/2009            275,000            580,000      0.4741       16.60
SCBT Financial Corporation..............................    1/16/2009      No    6/24/2009          1,400,000          2,290,000      0.6114       11.70
HF Financial Corp.......................................   11/21/2008      No    6/30/2009            650,000          1,240,000      0.5242       10.10
State Street............................................   10/28/2008     Yes     7/8/2009         60,000,000         54,200,000      1.1070        9.90
U.S. Bancorp............................................   11/14/2008      No    7/15/2009        139,000,000        135,100,000      1.0289        8.70
The Goldman Sachs Group, Inc............................   10/28/2008      No    7/22/2009      1,100,000,000      1,128,400,000      0.9748       22.80
BB&T Corp...............................................   11/14/2008      No    7/22/2009         67,010,402         68,200,000      0.9826        8.70
American Express Company................................     1/9/2009      No    7/29/2009        340,000,000        391,200,000      0.8691       29.50
Bank of New York Mellon Corp............................   10/28/2008      No     8/5/2009        136,000,000        155,700,000      0.8735       12.30
Morgan Stanley..........................................   10/28/2008      No    8/12/2009        950,000,000      1,039,800,000      0.9136       20.20
Northern Trust Corporation..............................   11/14/2008      No    8/26/2009         87,000,000         89,800,000      0.9688       14.50
Old Line Bancshares Inc.................................    12/5/2008      No     9/2/2009            225,000            500,000      0.4500       10.40
Bancorp Rhode Island, Inc...............................   12/19/2008      No    9/30/2009          1,400,000          1,400,000      1.0000       12.60
Centerstate Banks of Florida Inc........................   11/21/2008      No   10/28/2009            212,000            220,000      0.9636        5.90
Manhattan Bancorp.......................................    12/5/2008      No   10/14/2009             63,364            140,000      0.4526        9.80
Bank of Ozarks..........................................   12/12/2008      No   11/24/2009          2,650,000          3,500,000      0.7571        9.00
Capital One Financial...................................   11/14/2008      No    12/3/2009        148,731,030        232,000,000      0.6411       12.00
JP Morgan Chase & Co....................................   10/28/2008      No   12/10/2009        950,318,243      1,006,587,697      0.9441       10.90
TCF Financial Corp......................................    1/16/2009      No   12/16/2009          9,599,964         11,825,830      0.8118       11.00
LSB Corporation.........................................   12/12/2008      No   12/16/2009            560,000            535,202      1.0463        9.00
Wainwright Bank & Trust Company.........................   12/19/2008      No   12/16/2009            568,700          1,071,494      0.5308        7.80
Wesbanco Bank, Inc......................................    12/5/2008      No   12/23/2009            950,000          2,387,617      0.3979        6.70
Union Bankshares Corporation............................   12/19/2008     Yes   12/23/2009            450,000          1,130,418      0.3981        5.80
Trustmark Corporation...................................   11/21/2008      No   12/30/2009         10,000,000         11,573,699      0.8640        9.40
Flushing Financial Corporation..........................   12/19/2008     Yes   12/30/2009            900,000          2,861,919      0.3145        6.50
OceanFirst Financial Corporation........................    1/16/2009     Yes     2/3/2010            430,797            279,359      1.5421        6.20
Monarch Financial Holdings, Inc.........................   12/19/2008     Yes    2/10/2010            260,000            623,434      0.4170        6.70
Bank of America.........................................    59610/28/      No     3/3/2010      1,542,717,553      1,006,416,684      1.5329        6.50
                                                                 2008
                                                          5971/9/2009
                                                             5981/14/
                                                                 2009
                                                                                           -------------------------------------------------------------
    Total...............................................  ...........  ......  ...........     $5,567,737,053     $5,373,683,352      1.0361      10.60
--------------------------------------------------------------------------------------------------------------------------------------------------------
\596\ Investment date for Bank of America in CPP.
\597\ Investment date for Merrill Lynch in CPP.
\598\ Investment date for Bank of America in TIP.


                               FIGURE 27: WARRANT VALUATION OF REMAINING WARRANTS
                                              [Dollars in millions]
----------------------------------------------------------------------------------------------------------------
                                                                                 Warrant Valuation
                                                                 -----------------------------------------------
                                                                   Low  Estimate  High  Estimate  Best  Estimate
----------------------------------------------------------------------------------------------------------------
Stress Test Financial Institutions with Warrants Outstanding:
    Wells Fargo & Company.......................................         $511.52       $2,184.69         $668.21
    Citigroup, Inc..............................................           17.33          660.59          144.36
    The PNC Financial Services Group, Inc.......................          116.03          402.14          183.17
    SunTrust Banks, Inc.........................................           20.53          278.35           95.02
    Regions Financial Corporation...............................           15.30          166.93           69.56
    Fifth Third Bancorp.........................................          122.37          385.90          179.47
    Hartford Financial Services Group, Inc......................          812.43        1,017.87          812.43
    KeyCorp.....................................................           20.31          164.16     60.62307167
    All Other Banks with Outstanding Warrants...................          874.40        2,711.59        1,671.03
                                                                 -----------------------------------------------
        Total...................................................       $2,510.23       $7,972.22       $3,883.87
----------------------------------------------------------------------------------------------------------------

2. Other Financial Stability Efforts

Federal Reserve, FDIC, and Other Programs

    In addition to the direct expenditures Treasury has 
undertaken through the TARP, the federal government has engaged 
in a much broader program directed at stabilizing the U.S. 
financial system. Many of these initiatives explicitly augment 
funds allocated by Treasury under specific TARP initiatives, 
such as FDIC and Federal Reserve asset guarantees for 
Citigroup, or operate in tandem with Treasury programs, such as 
the interaction between the PPIP and the TALF. Other programs, 
like the Federal Reserve's extension of credit through its 
section 13(3) facilities and SPVs and the FDIC's TLGP, operate 
independently of the TARP.
    Figure 28 below reflects the changing mix of Federal 
Reserve investments. As the liquidity facilities established to 
face the crisis have been wound down, the Federal Reserve has 
expanded its facilities for purchasing mortgage related 
securities. The Federal Reserve announced that it intends to 
purchase $175 billion of federal agency debt securities and 
$1.25 trillion of agency mortgage-backed securities.\599\ As of 
February 25, 2010, $166 billion of federal agency (government-
sponsored enterprise) debt securities and $1 trillion of agency 
mortgage-backed securities have been purchased. The Federal 
Reserve has announced that these purchases will be completed by 
April 2010.\600\ These purchases are in addition to the $214.4 
billion in GSE MBS Treasury purchased under the GSE Mortgage-
Backed Securities Purchase Program prior to the program's 
closing on December 31, 2009.\601\
---------------------------------------------------------------------------
    \599\ Board of Governors of the Federal Reserve System, Minutes of 
the Federal Open Market Committee, at 10 (Dec. 15-16, 2009) (online at 
www.federalreserve.gov/newsevents/press/monetary/
fomcminutes20091216.pdf) (``[T]he Federal Reserve is in the process of 
purchasing $1.25 trillion of agency mortgage-backed securities and 
about $175 billion of agency debt'').
    \600\ Board of Governors of the Federal Reserve System, FOMC 
Statement (Dec. 16, 2009) (online at www.federalreserve.gov/newsevents/
press/monetary/20091216a.htm) (``In order to promote a smooth 
transition in markets, the Committee is gradually slowing the pace of 
these purchases, and it anticipates that these transactions will be 
executed by the end of the first quarter of 2010''); Board of Governors 
of the Federal Reserve System, Factors Affecting Reserve Balances (Mar. 
4, 2010) (online at www.federalreserve.gov/Releases/H41/Current/).
    \601\ Treasury received $36 billion in principal and interest 
payments from these securities. U.S. Department of the Treasury, 2009 
Financial Report of the United States Government, at vii (updated Mar. 
4, 2010) (online at www.fms.treas.gov/fr/09frusg/09frusg.pdf).
---------------------------------------------------------------------------

FIGURE 28: OTHER FEDERAL GOVERNMENT FINANCIAL STABILITY EFFORTS (AS OF 
                        FEBRUARY 24, 2010) \602\

[GRAPHIC] [TIFF OMITTED] 54875A.015

      
---------------------------------------------------------------------------
    \602\ Federal Reserve Liquidity Facilities include: Primary credit, 
Secondary credit, Central Bank Liquidity Swaps, Primary dealer and 
other broker-dealer credit, Asset-Backed Commercial Paper Money Market 
Mutual Fund Liquidity Facility, Net portfolio holdings of CPFF, 
Seasonal credit, Term auction credit, Term Asset-Backed Securities Loan 
Facility. Federal Reserve Mortgage Related Facilities include: Federal 
agency debt securities and Mortgage-backed securities held by the 
Federal Reserve. Institution Specific Facilities include: Credit 
extended to American International Group, Inc., and the net portfolio 
holdings of Maiden Lanes I, II, and III. Board of Governors of the 
Federal Reserve System, Factors Affecting Reserve Balances (H.4.1) 
(online at www.federalreserve.gov/datadownload/Choose.aspx?rel=H41) 
(accessed Mar. 4, 2010). For related presentations of Federal Reserve 
data, see Board of Governors of the Federal Reserve System, Federal 
Reserve System Monthly Report on Credit and Liquidity Programs and the 
Balance Sheet, at 2 (Feb. 2010) (online at www.federalreserve.gov/
monetarypolicy/files/monthlyclbsreport201002.pdf). The TLGP figure 
reflects the monthly amount of debt outstanding under the program. 
Federal Deposit Insurance Corporation, Monthly Reports on Debt Issuance 
Under the Temporary Liquidity Guarantee Program (Dec. 2008-Dec. 2009) 
(online at www.fdic.gov/regulations/resources/TLGP/reports.html). The 
total for TALF has been reduced by $20 billion throughout this exhibit 
in order to reflect Treasury's $20 billion first-loss position under 
the terms of this program. U.S. Department of the Treasury, MBS 
Purchase Program: Portfolio by Month (online at 
www.financialstability.gov/docs/
Feb%202010%20Portfolio%20by%20month.xls) (accessed Mar. 4, 2010).
---------------------------------------------------------------------------

3. Total Financial Stability Resources (as of December 31, 2009)

    Beginning in its April 2009 report, the Panel broadly 
classified the resources that the federal government has 
devoted to stabilizing the economy through myriad new programs 
and initiatives as outlays, loans, or guarantees. Although the 
Panel calculates the total value of these resources at nearly 
$3 trillion, this would translate into the ultimate ``cost'' of 
the stabilization effort only if: (1) assets do not appreciate; 
(2) no dividends are received, no warrants are exercised, and 
no TARP funds are repaid; (3) all loans default and are written 
off; and (4) all guarantees are exercised and subsequently 
written off.
    With respect to the FDIC and Federal Reserve programs, the 
risk of loss varies significantly across the programs 
considered here, as do the mechanisms providing protection for 
the taxpayer against such risk. As discussed in the Panel's 
November report, the FDIC assesses a premium of up to 100 basis 
points on TLGP debt guarantees.\603\ In contrast, the Federal 
Reserve's liquidity programs are generally available only to 
borrowers with good credit, and the loans are over-
collateralized and with recourse to other assets of the 
borrower. If the assets securing a Federal Reserve loan realize 
a decline in value greater than the ``haircut,'' the Federal 
Reserve is able to demand more collateral from the borrower. 
Similarly, should a borrower default on a recourse loan, the 
Federal Reserve can turn to the borrower's other assets to make 
the Federal Reserve whole. In this way, the risk to the 
taxpayer on recourse loans only materializes if the borrower 
enters bankruptcy. The only loan currently ``underwater''--
where the outstanding principal amount exceeds the current 
market value of the collateral--is the loan to Maiden Lane LLC, 
which was formed to purchase certain Bear Stearns assets.
---------------------------------------------------------------------------
    \603\ November Oversight Report, supra note 458, at 36.

               FIGURE 29: FEDERAL GOVERNMENT FINANCIAL STABILITY EFFORT (AS OF FEBRUARY 25, 2010)
                                              [Dollars in billions]
----------------------------------------------------------------------------------------------------------------
                                                     Treasury         Federal
                     Program                          (TARP)          Reserve          FDIC            Total
----------------------------------------------------------------------------------------------------------------
Total...........................................          $698.7        $1,555.2          $646.4        $2,900.3
    Outlays i...................................           278.9         1,198.7            69.4           1,547
    Loans.......................................            43.5           356.5               0             400
    Guarantees ii...............................              20               0             577             597
    Uncommitted TARP Funds......................           356.3               0               0           356.3
AIG.............................................            69.8            67.6               0           137.4
    Outlays.....................................        iii 69.8               0               0            69.8
    Loans.......................................               0         iv 67.6               0            67.6
    Guarantees..................................               0               0               0               0
Citigroup.......................................              25               0               0              25
    Outlays.....................................            v 25               0               0              25
    Loans.......................................               0               0               0               0
    Guarantees..................................               0               0               0               0
Capital Purchase Program (Other)................            50.1               0               0            50.1
    Outlays.....................................         vi 50.1               0               0            50.1
    Loans.......................................               0               0               0               0
    Guarantees..................................               0               0               0               0
Capital Assistance Program......................             N/A               0               0         vii N/A
TALF............................................              20             180               0             200
    Outlays.....................................               0               0               0               0
    Loans.......................................               0          ix 180               0             180
    Guarantees..................................         viii 20               0               0              20
PPIP (Loans) x..................................               0               0               0               0
    Outlays.....................................               0               0               0               0
    Loans.......................................               0               0               0               0
    Guarantees..................................               0               0               0               0
PPIP (Securities)...............................            xi30               0               0              30
    Outlays.....................................              10               0               0              10
    Loans.......................................              20               0               0              20
    Guarantees..................................               0               0               0               0
Home Affordable Modification Program............            48.5               0               0       xiii 48.5
    Outlays.....................................        xii 48.5               0               0            48.5
    Loans.......................................               0               0               0               0
    Guarantees..................................               0               0               0               0
Automotive Industry Financing Program...........        xiv 78.2               0               0            78.2
    Outlays.....................................              59               0               0              59
    Loans.......................................            19.2               0               0            19.2
    Guarantees..................................               0               0               0               0
Auto Supplier Support Program...................             3.5               0               0              .5
    Outlays.....................................               0               0               0               0
    Loans.......................................          xv 3.5               0               0             3.5
    Guarantees..................................               0               0               0               0
Unlocking SBA Lending...........................          xvi 15               0               0              15
    Outlays.....................................              15               0               0              15
    Loans.......................................               0               0               0               0
    Guarantees..................................               0               0               0               0
Community Development Capital Initiative........            0.78               0               0            0.78
    Outlays.....................................               0               0               0               0
    Loans.......................................             .78               0               0             .78
    Guarantees..................................               0               0               0               0
Help for Hardest Hit Housing Markets............             1.5               0               0             1.5
    Outlays.....................................             1.5               0               0             1.5
    Loans.......................................               0               0               0               0
    Guarantees..................................               0               0               0               0
Temporary Liquidity Guarantee Program...........               0               0             577             577
    Outlays.....................................               0               0               0               0
    Loans.......................................               0               0               0               0
    Guarantees..................................               0               0        xvii 577             577
Deposit Insurance Fund..........................               0               0            69.4            69/4
    Outlays.....................................               0               0      xviii 69.4            69.4
    Loans.......................................               0               0               0               0
    Guarantees..................................               0               0               0               0
Other Federal Reserve Credit Expansion..........               0         1,307.6               0         1,307.6
    Outlays.....................................               0     xix 1,198.7               0         1,198.7
    Loans.......................................               0        xx 108.9               0           108.9
    Guarantees..................................               0               0               0               0
Uncommitted TARP Funds..........................           356.3               0               0          356.3
----------------------------------------------------------------------------------------------------------------
i The term ``outlays'' is used here to describe the use of Treasury funds under the TARP, which are broadly
  classifiable as purchases of debt or equity securities (e.g., debentures, preferred stock, exercised warrants,
  etc.). The outlays figures are based on: (1) Treasury's actual reported expenditures; and (2) Treasury's
  anticipated funding levels as estimated by a variety of sources, including Treasury pronouncements and GAO
  estimates. Anticipated funding levels are set at Treasury's discretion, have changed from initial
  announcements, and are subject to further change. Outlays used here represent investment and asset purchases
  and commitments to make investments and asset purchases and are not the same as budget outlays, which under
  section 123 of EESA are recorded on a ``credit reform'' basis.
ii Although many of the guarantees may never be exercised or exercised only partially, the guarantee figures
  included here represent the federal government's greatest possible financial exposure.
iii This number includes investments under the AIGIP/SSFI Program: a $40 billion investment made on November 25,
  2008, and a $30 billion investment committed on April 17, 2009 (less a reduction of $165 million representing
  bonuses paid to AIG Financial Products employees). As of January 5, 2010, AIG had utilized $45.3 billion of
  the available $69.8 billion under the AIGIP/SSFI and owed $1.6 billion in unpaid dividends. This information
  was provided by Treasury in response to a Panel inquiry.
iv This number represents the full $35 billion that is available to AIG through its revolving credit facility
  with the Federal Reserve ($25.5 billion had been drawn down as of February 25, 2010) and the outstanding
  principal of the loans extended to the Maiden Lane II and III SPVs to buy AIG assets (as of February 25, 2010,
  $15.2 billion and $17.4 billion respectively). Income from the purchased assets is used to pay down the loans
  to the SPVs, reducing the taxpayers' exposure to losses over time. Board of Governors of the Federal Reserve
  System, Federal Reserve System Monthly Report on Credit and Liquidity Programs and the Balance Sheet, at 17
  (Oct. 2009) (online at www.federalreserve.gov/monetarypolicy/files/monthlyclbsreport200910.pdf). On December
  1, 2009, AIG entered into an agreement with FRBNY to reduce the debt AIG owes the FRBNY by $25 billion. In
  exchange, FRBNY received preferred equity interests in two AIG subsidiaries. This also reduced the debt
  ceiling on the loan facility from $60 billion to $35 billion. American International Group, AIG Closes Two
  Transactions That Reduce Debt AIG Owes Federal Reserve Bank of New York by $25 billion (Dec. 1, 2009) (online
  at phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9MjE4ODl8Q2hpbGRJRD0tMXxUeXBlPTM=&t=1).
v As of February 4, 2009, the U.S. Treasury held $25 billion of Citigroup common stock under the CPP. U.S.
  Department of the Treasury, Troubled Asset Relief Program Transactions Report for Period Ending February 25,
  2010 (Mar. 4, 2010) (online at www.financialstability.gov/docs/transaction-reports/3-1-
  10%20Transactions%20Report%20as%20of%202-25-10.pdf).
vi This figure represents the $204.9 billion Treasury has disbursed under the CPP, minus the $25 billion
  investment in Citigroup ($25 billion) identified above, and the $129.8 billion in repayments that are
  reflected as available TARP funds. This figure does not account for future repayments of CPP investments, nor
  does it account for dividend payments from CPP investments. U.S. Department of the Treasury, Troubled Asset
  Relief Program Transactions Report for Period Ending February 25, 2010 (Mar. 4, 2010) (online at
  www.financialstability.gov/docs/transaction-reports/3-1-10%20Transactions%20Report%20as%20of%202-25-10.pdf).
vii On November 9, 2009, Treasury announced the closing of the CAP and that only one institution, GMAC, was in
  need of further capital from Treasury. GMAC, however, received further funding through the AIFP, therefore the
  Panel considers CAP unused and closed. U.S. Department of the Treasury, Treasury Announcement Regarding the
  Capital Assistance Program (Nov. 9, 2009) (online at www.financialstability.gov/latest/tg_11092009.html).
viii This figure represents a $20 billion allocation to the TALF SPV on March 3, 2009. However, as of February
  25, 2010, TALF LLC had drawn only $103 million of the available $20 billion. Board of Governors of the Federal
  Reserve System, Factors Affecting Reserve Balances (H.4.1) (Jan. 28, 2010) (online at www.federalreserve.gov/
  Releases/H41/Current/); U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for
  Period Ending February 25, 2010 (Mar. 4, 2010) (online at www.financialstability.gov/docs/transaction-reports/
  3-1-10%20Transactions%20Report%20as%20of%202-25-10.pdf). As of January 28, 2010, investors had requested a
  total of $68 billion in TALF loans ($11.9 billion in CMBS and $56 billion in non-CMBS) and $66 billion in TALF
  loans had been settled ($11 billion in CMBS and $55 billion in non-CMBS). Federal Reserve Bank of New York,
  Term Asset-Backed Securities Loan Facility: CMBS (accessed Mar. 4, 2010) (online at www.newyorkfed.org/markets/
  CMBS_recent_operations.html); Federal Reserve Bank of New York, Term Asset-Backed Securities Loan Facility:
  non- CMBS (accessed Mar. 4, 2010) (online at www.newyorkfed.org/markets/talf_operations.html).
ix This number is derived from the unofficial 1:10 ratio of the value of Treasury loan guarantees to the value
  of Federal Reserve loans under the TALF. U.S. Department of the Treasury, Fact Sheet: Financial Stability Plan
  (Feb.10, 2009) (online at www.financialstability.gov/docs/fact-sheet.pdf) (describing the initial $20 billion
  Treasury contribution tied to $200 billion in Federal Reserve loans and announcing potential expansion to a
  $100 billion Treasury contribution tied to $1 trillion in Federal Reserve loans). Because Treasury is
  responsible for reimbursing the Federal Reserve Board for $20 billion of losses on its $200 billion in loans,
  the Federal Reserve Board's maximum potential exposure under the TALF is $180 billion.
x It is unlikely that resources will be expended under the PPIP Legacy Loans Program in its original design as a
  joint Treasury-FDIC program to purchase troubled assets from solvent banks. See also Federal Deposit Insurance
  Corporation, FDIC Statement on the Status of the Legacy Loans Program (June 3, 2009) (online at www.fdic.gov/
  news/news/press/2009/pr09084.html) and Federal Deposit Insurance Corporation, Legacy Loans Program--Test of
  Funding Mechanism (July 31, 2009) (online at www.fdic.gov/news/news/press/2009/pr09131.html). The sales
  described in these statements do not involve any Treasury participation, and FDIC activity is accounted for
  here as a component of the FDIC's Deposit Insurance Fund outlays.
xi As of February 25, 2010, Treasury reported commitments of $19.9 billion in loans and $9.9 billion in
  membership interest associated with the program. On January 4, 2010, the Treasury and one of the nine fund
  managers, TCW Senior Management Securities Fund, L.P., entered into a ``Winding-Up and Liquidation
  Agreement.'' U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for Period
  Ending February 25, 2010 (Mar. 4, 2010) (online at www.financialstability.gov/docs/transaction-reports/3-1-
  10%20Transactions%20Report%20as%20of%202-2-10.pdf).
xii Of the $50 billion in announced TARP funding for this program, $36.9 billion has been allocated as of
  February 4, 2010. However, as of January 2010, only $32 million in non-GSE payments have been disbursed under
  HAMP. Disbursement information provided in response to Panel inquiry on February 4, 2010; U.S. Department of
  the Treasury, Troubled Asset Relief Program Transactions Report for Period Ending February 25, 2010 (Mar. 4,
  2010) (online at www.financialstability.gov/docs/transaction-reports/3-1-
  10%20Transactions%20Report%20as%20of%202-2-10.pdf).
xiii Fannie Mae and Freddie Mac, government-sponsored entities (GSEs) that were placed in conservatorship of the
  Federal Housing Finance Housing Agency on September 7, 2009, will also contribute up to $25 billion to the
  Making Home Affordable Program, of which the HAMP is a key component. U.S. Department of the Treasury, Making
  Home Affordable: Updated Detailed Program Description (Mar. 4, 2009) (online at www.treas.gov/press/releases/
  reports/housing-fact-sheet.pdf).
xiv See U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for Period Ending
  February 25, 2010 (Mar. 4, 2010) (online at www.financialstability.gov/docs/transaction-reports/3-1-
  10%20Transactions%20Report%20as%20of%202-25-10.pdf). A substantial portion of the total $81 billion in loans
  extended under the AIFP have since been converted to common equity and preferred shares in restructured
  companies. $19.2 billion has been retained as first lien debt (with $6.7 billion committed to GM, $12.5
  billion to Chrysler). This figure ($78.2 billion) represents Treasury's current obligation under the AIFP
  after repayments.
xv See U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for Period Ending
  February 25, 2010 (Mar. 4, 2010) (online at www.financialstability.gov/docs/transaction-reports/3-1-
  10%20Transactions%20Report%20as%20of%202-25-10.pdf).
xvi U.S. Department of Treasury, Fact Sheet: Unlocking Credit for Small Businesses (Oct. 19, 2009) (online at
  www.financialstability.gov/roadtostability/unlockingCreditforSmallBusinesses.html) (``Jumpstart Credit Markets
  For Small Businesses By Purchasing Up to $15 Billion in Securities'').
xvii This figure represents the current maximum aggregate debt guarantees that could be made under the program,
  which is a function of the number and size of individual financial institutions participating. Of debt subject
  to the guarantee, $309 billion is currently outstanding, which represents about 54 percent of the current cap.
  Federal Deposit Insurance Corporation, Monthly Reports on Debt Issuance Under the Temporary Liquidity
  Guarantee Program: Debt Issuance Under Guarantee Program (Dec. 31, 2009) (online at www.fdic.gov/regulations/
  resources/tlgp/total_issuance12-09.html) (updated Feb. 4, 2010). The FDIC has collected $10.4 billion in fees
  and surcharges from this program since its inception in the fourth quarter of 2008. Federal Deposit Insurance
  Corporation, Monthly Reports on Debt Issuance Under the Temporary Liquidity Guarantee Program (Nov. 30, 2009)
  (online at www.fdic.gov/regulations/resources/TLGP/fees.html) (updated Feb. 4, 2010).
xviii This figure represents the FDIC's provision for losses to its deposit insurance fund attributable to bank
  failures in the third and fourth quarters of 2008 and the first, second and third quarters of 2009. Federal
  Deposit Insurance Corporation, Chief Financial Officer's (CFO) Report to the Board: DIF Income Statement
  (Fourth Quarter 2008) (online at www.fdic.gov/about/strategic/corporate/cfo_report_4qtr_08/income.html);
  Federal Deposit Insurance Corporation, Chief Financial Officer's (CFO) Report to the Board: DIF Income
  Statement (Third Quarter 2008) (online at www.fdic.gov/about/strategic/corporate/cfo_report_3rdqtr_08/
  income.html); Federal Deposit Insurance Corporation, Chief Financial Officer's (CFO) Report to the Board: DIF
  Income Statement (First Quarter 2009) (online at www.fdic.gov/about/strategic/corporate/cfo_report_1stqtr_09/
  income.html); Federal Deposit Insurance Corporation, Chief Financial Officer's (CFO) Report to the Board: DIF
  Income Statement (Second Quarter 2009) (online at www.fdic.gov/about/strategic/corporate/cfo_report_2ndqtr_09/
  income.html); Federal Deposit Insurance Corporation, Chief Financial Officer's (CFO) Report to the Board: DIF
  Income Statement (Third Quarter 2009) (online at www.fdic.gov/about/strategic/corporate/cfo_report_3rdqtr_09/
  income.html). This figure includes the FDIC's estimates of its future losses under loss-sharing agreements
  that it has entered into with banks acquiring assets of insolvent banks during these five quarters. Under a
  loss-sharing agreement, as a condition of an acquiring bank's agreement to purchase the assets of an insolvent
  bank, the FDIC typically agrees to cover 80 percent of an acquiring bank's future losses on an initial portion
  of these assets and 95 percent of losses of another portion of assets. See, e.g., Federal Deposit Insurance
  Corporation, Purchase and Assumption Agreement Among FDIC, Receiver of Guaranty Bank, Austin, Texas, FDIC and
  Compass Bank at 65-66 (Aug. 21, 2009) (online at www.fdic.gov/bank/individual/failed/guaranty-
  tx_p_and_a_w_addendum.pdf). In information provided to Panel staff, the FDIC disclosed that there were
  approximately $132 billion in assets covered under loss-sharing agreements as of December 18, 2009.
  Furthermore, the FDIC estimates the total cost of a payout under these agreements to be $59.3 billion. Since
  there is a published loss estimate for these agreements, the Panel continues to reflect them as outlays rather
  than as guarantees.
xix Outlays are comprised of the Federal Reserve Mortgage Related Facilities. The Federal Reserve balance sheet
  accounts for these facilities under Federal agency debt securities and mortgage-backed securities held by the
  Federal Reserve. Board of Governors of the Federal Reserve System, Factors Affecting Reserve Balances (H.4.1)
  (online at www.federalreserve.gov/datadownload/Choose.aspx?rel=H41) (accessed Mar. 4, 2010). Although the
  Federal Reserve does not employ the outlays, loans and guarantees classification, its accounting clearly
  separates its mortgage-related purchasing programs from its liquidity programs. See Board of Governors of the
  Federal Reserve, Credit and Liquidity Programs and the Balance Sheet, at 2 (Nov. 2009) (online at
  www.federalreserve.gov/monetarypolicy/files/monthlyclbsreport200911.pdf).
On September 7, 2008, the Treasury Department announced the GSE Mortgage Backed Securities Purchase Program
  (Treasury MBS Purchase Program). The Housing and Economic Recovery Act of 2008 provided Treasury the authority
  to purchase Government Sponsored Enterprise (GSE) MBS. Under this program, Treasury purchased approximately
  $214.4 billion in GSE MBS before the program ended on December 31, 2009. Treasury received $36 billion in
  principal and interest payments from these securities. U.S. Department of the Treasury, Fact Sheet: GSE
  Mortgage Backed Securities Purchase Program (Sept. 7, 2008) (online at www.mbaa.org/files/ResourceCenter/GSE/
  TreasuryFactSheetonGSEMBSPurchaseProgram.pdf); U.S. Department of the Treasury, 2009 Financial Report of the
  United States Government, at vii (updated Mar. 4, 2010) (online at www.fms.treas.gov/fr/09frusg/09frusg.pdf).
xx Federal Reserve Liquidity Facilities classified in this table as loans include: Primary credit, Secondary
  credit, Central bank liquidity swaps, Primary dealer and other broker-dealer credit, Asset-Backed Commercial
  Paper Money Market Mutual Fund Liquidity Facility, Net portfolio holdings of Commercial Paper Funding Facility
  LLC, Seasonal credit, Term auction credit, Term Asset-Backed Securities Loan Facility, and loans outstanding
  to Bear Stearns (Maiden Lane I LLC). Board of Governors of the Federal Reserve System, Factors Affecting
  Reserve Balances (H.4.1) (online at www.federalreserve.gov/datadownload/Choose.aspx?rel=H41) (accessed Feb. 4,
  2010).

                   SECTION FIVE: OVERSIGHT ACTIVITIES

    The Congressional Oversight Panel was established as part 
of EESA and formed on November 26, 2008. Since then, the Panel 
has produced fifteen oversight reports, as well as a special 
report on regulatory reform, issued on January 29, 2009, and a 
special report on farm credit, issued on July 21, 2009. Since 
the release of the Panel's February oversight report, which 
assessed Treasury's strategy for addressing issues in 
commercial real estate markets across the country, the 
following developments pertaining to the Panel's oversight of 
the TARP took place:
     The Panel held a hearing in Washington, DC on 
February 25, 2010, discussing the government assistance 
provided to GMAC under the TARP, the government's strategy for 
managing and ultimately divesting its 56.3 percent ownership 
stake in the company, and the company's plans to return to 
profitability and return the taxpayers' investment in it. The 
Panel heard testimony from senior Treasury officials and GMAC 
executives, including its CEO Michael Carpenter, as well as 
independent industry analysts.
     The Panel held a hearing in Washington, DC on 
March 4, 2010, to discuss the exceptional government assistance 
provided to Citigroup under three separate programs: the 
Capital Purchase Program, the Targeted Investment Program, and 
the Asset Guarantee Program. The Panel heard testimony from 
Assistant Secretary of the Treasury for Financial Stability 
Herbert M. Allison, Jr. and Citigroup CEO Vikram Pandit.
    Video recordings of the hearings, the written testimony 
from the hearing witnesses, and Panel Members' opening 
statements all can be found online at http://cop.senate.gov/
hearings.

Upcoming Reports and Hearings

    The Panel will release its next oversight report in April. 
The report will address ongoing efforts under the TARP to 
mitigate home foreclosures.
          SECTION SIX: ABOUT THE CONGRESSIONAL OVERSIGHT PANEL

    In response to the escalating financial crisis, on October 
3, 2008, Congress provided Treasury with the authority to spend 
$700 billion to stabilize the U.S. economy, preserve home 
ownership, and promote economic growth. Congress created the 
Office of Financial Stability (OFS) within Treasury to 
implement the Troubled Asset Relief Program. At the same time, 
Congress created the Congressional Oversight Panel to ``review 
the current state of financial markets and the regulatory 
system.'' The Panel is empowered to hold hearings, review 
official data, and write reports on actions taken by Treasury 
and financial institutions and their effect on the economy. 
Through regular reports, the Panel must oversee Treasury's 
actions, assess the impact of spending to stabilize the 
economy, evaluate market transparency, ensure effective 
foreclosure mitigation efforts, and guarantee that Treasury's 
actions are in the best interests of the American people. In 
addition, Congress instructed the Panel to produce a special 
report on regulatory reform that analyzes ``the current state 
of the regulatory system and its effectiveness at overseeing 
the participants in the financial system and protecting 
consumers.'' The Panel issued this report in January 2009. 
Congress subsequently expanded the Panel's mandate by directing 
it to produce a special report on the availability of credit in 
the agricultural sector. The report was issued on July 21, 
2009.
    On November 14, 2008, Senate Majority Leader Harry Reid and 
the Speaker of the House Nancy Pelosi appointed Richard H. 
Neiman, Superintendent of Banks for the State of New York, 
Damon Silvers, Director of Policy and Special Counsel of the 
American Federation of Labor and Congress of Industrial 
Organizations (AFL-CIO), and Elizabeth Warren, Leo Gottlieb 
Professor of Law at Harvard Law School, to the Panel. With the 
appointment on November 19, 2008, of Congressman Jeb Hensarling 
to the Panel by House Minority Leader John Boehner, the Panel 
had a quorum and met for the first time on November 26, 2008, 
electing Professor Warren as its chair. On December 16, 2008, 
Senate Minority Leader Mitch McConnell named Senator John E. 
Sununu to the Panel. Effective August 10, 2009, Senator Sununu 
resigned from the Panel, and on August 20, 2009, Senator 
McConnell announced the appointment of Paul Atkins, former 
Commissioner of the U.S. Securities and Exchange Commission, to 
fill the vacant seat. Effective December 9, 2009, Congressman 
Jeb Hensarling resigned from the Panel and House Minority 
Leader John Boehner announced the appointment of J. Mark 
McWatters to fill the vacant seat.

                            ACKNOWLEDGEMENTS

    The Panel wishes to acknowledge 13 industry experts/
analysts and 11 academics and industry participants who were 
willing to share their insight.
 APPENDIX I: LETTER FROM SECRETARY TIMOTHY GEITHNER TO CHAIR ELIZABETH 
  WARREN, RE: RESPONSE TO QUESTIONS ON EXECUTIVE COMPENSATION, DATED 
                           FEBRUARY 16, 2010

[GRAPHIC] [TIFF OMITTED] 54875A.016

[GRAPHIC] [TIFF OMITTED] 54875A.017

[GRAPHIC] [TIFF OMITTED] 54875A.018

[GRAPHIC] [TIFF OMITTED] 54875A.019

[GRAPHIC] [TIFF OMITTED] 54875A.020

[GRAPHIC] [TIFF OMITTED] 54875A.021

[GRAPHIC] [TIFF OMITTED] 54875A.022

[GRAPHIC] [TIFF OMITTED] 54875A.023

[GRAPHIC] [TIFF OMITTED] 54875A.024

[GRAPHIC] [TIFF OMITTED] 54875A.025

[GRAPHIC] [TIFF OMITTED] 54875A.026

[GRAPHIC] [TIFF OMITTED] 54875A.027

[GRAPHIC] [TIFF OMITTED] 54875A.028

 