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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 boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.
The work he did laid the foundation for what would later become the VIX - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.
Shah founded a second hedge fund in 1999, which he ran until 2003.
Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.
Today, as editor of Hyperdrive Portfolio, Shah presents his legion of subscribers with massive profit opportunities that result from paradigm shifts in the way we work, play, and live.
Shah is a frequent guest on CNBC, Forbes, and MarketWatch, and you can catch him every week on Fox Business's Varney & Co.