Profits in G.M.A.C. Bailout to Benefit Financiers, Not U.S.

The following is an excerpt from an article in 

The New York Times
Wednesday, August 22, 2012

Profits in G.M.A.C. Bailout to Benefit Financiers, Not U.S.

By STEVEN M. DAVIDOFF

Among the companies that were bailed out by the federal government during the financial crisis, perhaps the most intractable is proving to be the company formerly known as the General Motors Acceptance Corporation. It's a case study in how bailouts can linger and profits, when they do come, flow not to the government but to the Warren E. Buffetts of the world.

G.M.A.C. was the financial arm of General Motors. In the years leading up to the financial crisis, it was also G.M.'s most profitable unit, which tells you something about the auto industry at the time. The company earned more profit from lending money to customers than in selling cars.

In 2005, desperate to raise cash, General Motors sold a 51 percent stake in G.M.A.C. to the private equity firm Cerberus Capital Management. Cerberus beat out a rival, Kohlberg Kravis Roberts, for the privilege, spurring BusinessWeek to write that Henry R. Kravis's loss "has to sting."

During the financial crisis, however, the sting was felt on the other side, as G.M.A.C. staved off collapse thanks only to a government infusion of $17.2 billion. The company was renamed Ally Financial - you have probably seen its catchy commercials on television. The Treasury Department owns 73.8 percent of Ally, with Cerberus retaining an 8.7 percent stake.

Almost since that time, the Treasury Department has wanted to rid itself of its Ally stake. Ally filed for an initial public offering in March 2011, but it has so far languished in the face of a weak market and concerns over Ally itself. The Treasury Department has been paid back about $5.7 billion and still controls the company through its stock ownership and appointment of a majority of Ally's directors.

Despite lingering concerns about Ally, the automobile sales market is recovering and Ally's auto finance operations turned a profit last year. But Ally is still suffering from legacy debts, primarily concentrated in its ResCap unit. While you might think that with a name like G.M.A.C., the company financed only automobiles, but the company was also one of the largest subprime housing lenders through its ResCap subsidiary.

For more, visit www.nytimes.com.

The Real Way to Build a Network

The February 6, 2012 issue of FORTUNE magazine contains an article with the above title.  The article is an excerpt of a book by Reid Hoffman (partner at Greylock and founder and executive chairman at LinkedIn) and Ben Casnocha (award-winning entrepreneur and author).  Just the first five paragraphs, which appear below, contain considerable wisdom.  Hoffman's and Casnocha's book is entitled, "The Start-Up of You."

Many people are turned off by the topic of networking.  They think it’s slimy, inauthentic.  Picture the consummate networker: a high-energy fast talker who collects as many business cards as he can and attends mixers sporting slicked-back hair.  Or the overambitious college kid who frantically e-mails alumni, schmoozes with the board of trustees, and adds anyone he’s ever met as an online friend.  Such people are drunk on networking Kool-Aid – and are looking at a potentially nasty hangover.

Luckily, building your network doesn’t have to be like that.  Old-school networkers are transactional.  They pursue relationships thinking solely about what other people can do for them.  Relationship builders, on the other hand, try to help others first.  They don’t keep score.  And they prioritize high-quality relationships over a large number of connections.

Building a genuine relationship with another person depends on at least two abilities.  The first is seeing the world from another person’s perspective.  No one knows that better than the skilled entrepreneur.  Entrepreneurs succeed when they make stuff people will pay money for – and that means understanding what’s going on in the heads of customers.  Likewise, in relationships it’s only when you put yourself in the other person’s shoes that you begin to develop an honest connection.

The second ability is being able to think about how you can collaborate with and help the other person rather than thinking about what you can get.  We’re not suggesting that you be so saintly that a self-interested thought never crosses your mind.  What we’re saying is that your first move should always be to help.  A study on negotiation found that a key difference between skilled and average negotiators was the time spent searching for shared interests and asking questions of the other person.

Follow that model.  Start with a friendly gesture and genuinely mean it.  Dale Carnegie’s classic book on relationships, despite all its wisdom, has the unfortunate title How to Win Friends and Influence People.  This makes Carnegie widely misunderstood.  You don’t “win” a friend.  A friend is not an asset you own; a friend is an ally, a collaborator.  When you can tell that someone is attempting sincerity, it leaves you cold.  It is like the feeling you have when someone calls you by your first name repeatedly in conversation.  Novelist Jonathan Franzen gets it right when he says inauthentic people are obsessed with authenticity.