As reported by Smart Money:
As Washington scrambles to save General Motors (GM: 2.92, -0.44, -13.09%), the politics behind any bailout means small investors will ultimately be the ones who get left behind. On Capitol Hill protecting jobs, propping up the economy and punishing greedy corporate executives are the catch-phrases du jour. Guarding the interests of mom-and-pop stakeholders garners little more than lip service.
In a world of more market access and individual retirement responsibility, many small investors took a broker's advice and bought into the GM story. And we're not talking about the auto maker's stock, which has lost 94% of its value over the last decade. These investors thought they were taking the safe and conservative route by purchasing GMAC SmartNotes. It turns out this unsecured debt is neither safe nor conservative -- nor very smart.
GMAC, once a wholly owned unit of General Motors, is the largest lender to GM's car dealers. In 2006, GM sold a 51% stake to private-equity group Cerberus Capital Management. That was back when GMAC was a strong source of profits for GM.
But today GMAC, which also has a home-mortgage arm in addition to its auto-lending business, has gone the way of other financial firms caught up in the housing and credit bubble. GMAC lost a net $2.5 billion in the third quarter, more than the $1.6 billion it lost a year earlier, and warned that its home-mortgage unit is on the verge of collapse. Its debt is well into junk territory.
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