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Do you know Ally Financial Inc.?
You've no doubt seen their commercials. They used to be all over the tube hawking their high-yielding certificates of deposit. Now they're all over the tube with their "no hidden fees" campaign.
I like the one where the woman is afraid to try new things because she's had bad experiences before. Her mechanical dog sparks a fire when he drinks water and her trainer hooks her up to electrodes that zap her. I like these commercials; they're funny.
But Ally isn't funny.
It recently announced that it's launching an initial public offering (IPO) of its stock at a price per share of $25 to $28. The shares will be offered by the U.S. Treasury as part of its planned exit of its investment in Ally during the subprime crisis in 2008.
I've heard some analysts say this could be a good deal for investors.
But I can't believe the U.S. government wants to unleash this on the public.
The Truth About Ally Financial
Ally was formerly GMAC (General Motors Acceptance Corporation), a finance unit of General Motors. They got stupid-greedy and got into subprime-mortgage lending instead of sticking to their auto-financing knitting.
GMAC looked clever for a while.
And all-too-clever Cerberus Capital Management (the giant hedge fund/private equity shop) bought a 51% interest in them in 2006. (Then Cerberus bought Chrysler. Not two of their better moves.)
GMAC imploded mostly because its subprime unit, Residential Capital LLC, sunk the company.
GMAC had to be rescued. The government bailed it out with $17.2 billion in TARP money. But it needed another $3 billion more (no one seems to remember that) in "liquidity" backstopping, which it got from the U.S. Federal Reserve after it begged to become a bank-holding company to feed at the Fed's free-money-for-failures trough.
Do you know what they did next, in a feeble attempt to give themselves a makeover and regain the public's trust?
About the Author
Shah Gilani is the Event Trading Specialist for Money Map Press. In Zenith Trading Circle Shah reveals the worst companies in the markets - right from his coveted Bankruptcy Almanac - and how readers can trade them over and over again for huge gains. He also writes our most talked-about publication, Wall Street Insights & Indictments, where he reveals how Wall Street's high-stakes game is really played.