New government report: Treasury Department decision to bail out GMAC 'baffling'

The government could have let GMAC, the bank with longstanding ties to General Motors, go bankrupt instead of bailing it out with tens of billions in taxpayer dollars, a government watchdog said Thursday.

The Congressional Oversight Panel over the $700 billion bailout said there was nothing to prevent the government from pursuing a "strategic bankruptcy" for GMAC.

"A company that apparently posed no systemic risk to the financial system, that did not seem to be too big to fail, too interconnected to fail, or indeed, of any systemic significance, was assisted to the extent of a total of $17.2 billion of taxpayers’ money and became one of the five largest wards of state," the report said.

A year later, the government's decision to bail out GMAC appears as "one of the more baffling decisions" of the $700 billion rescue package, the panel said.

The panel said that bankruptcy could have preserved the company's automotive lending functions while winding down other operations.

GMAC received $5 billion in bailout money in December 2008 when General Motors and Chrysler first received taxpayer aid. In early 2009, the Obama administration moved to provide additional bailout aid to GMAC, which was included in the "stress tests" of large financial institutions.

The taxpayer bailout of GMAC stands at $17.2 billion and the federal government now owns more than half of the company.

The Treasury Department defended its handling of GMAC, arguing that a bankruptcy would have had a "crippling" effect on the auto industry and auto financing.