The Definition of Insanity

Posted on July 23, 2010

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Some wise person once defined insanity as doing the same thing over and over again and expecting different results.  After reading this Bloomberg story, I’m going to proclaim GM, and the Treasury Department by default, since they own 61% of GM, clinically insane:

General Motors Co., the automaker 61 percent owned by the U.S. Treasury, is facing criticism over its decision to pay $3.5 billion to buy a lender that specializes in auto loans to shoppers with less than top-notch credit.

While GM plans to use its new lending arm to write auto leases and provide a “modest” boost in subprime loans, U.S. Senator Chuck Grassley asked the watchdog of the government’s bank-rescue program to investigate the purchase. And a member of a think tank questioned the wisdom of a company that is majority-owned by the government lending money to people with poor credit after a financial crisis was sparked by risky loans.

“If GM has $3.5 billion in cash to buy a financial institution, it seems like it should have paid back taxpayers first,” Grassley, a Republican from Iowa, said in a statement on his website. “After GM’s experience with GMAC, which left GM seeking a taxpayer bailout, you have to think the company and, in turn, the taxpayers would be better off if GM focused on making cars that people want to buy and stayed clear of repeating its effort to make high-risk car loans.”

Not only are they repeating the same mistake in making sub-prime auto loans.  It is this same underwriting of sub-prime housing loans that caused the  housing market bubble and subsequent collapse with Fannie Mae and Freddie Mac.  Will we never learn?