Ally's ResCap Set for Bankruptcy

by 14 May 2012

(Bloomberg) -- U.S. Assistant Treasury Secretary for Financial Stability Timothy G. Massad said today that while Residential Capital LLC’s Chapter 11 bankruptcy filing is unfortunate, the “action puts taxpayers in a stronger position to continue recovering their investment in Ally Financial. (ALLY)”

Massad, in a statement issued in Washington, said the Treasury Department had consented to the filing. Massad said Chapter 11 provides a single forum “for reviewing and resolving” claims against ResCap, a residential mortgage company owned by Ally Financial Inc.

The Treasury Department, defending the Obama administration’s efforts to fight the 2008 financial crisis, last month said programs to rescue companies such as Ally Financial may earn a profit for taxpayers in the long term.

That assessment includes bailouts of banks and automakers under the Troubled Asset Relief Program as well as Federal Reserve crisis measures, such as large-scale asset purchases. It excludes the $825 billion stimulus package passed in 2009.

ResCap’s Chapter 11 filing may become a presidential campaign issue for presumptive Republican candidate Mitt Romney, who supported aid for banks while opposing help for automakers.

Republicans in Congress have criticized the bailouts, which began under President George W. Bush in 2008 and continued under President Barack Obama starting in 2009.

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