GMAC needs yet another bailout. It's already been "loaned" $12.5 billion in capital in two installments over the past year. According to reports out today, it might need another $5.6 billion to survive. I say let GMAC fail.

I should begin by pointing out that GMAC is not General Motors. The company began as a captive lender for many GM auto loans. But in the years that followed, it branched out a lot from there. As I mentioned back in September, it has expanded its auto loan portfolio to include more than just GM dealers and vehicles. Most of its problem stem from its getting involved with mortgages -- a little too involved. Like so many other financial institutions, subprime mortgages brought it down.

In the second quarter, GMAC lost $3.9 billion. So it hasn't rebounded like some of the big banks. It failed the government's stress test earlier this year and was the only firm with a failing score that was unable to obtain sufficient capital from the private market. That's why it's returning to the government, hat in hand.

Let's turn to the New York Times for what this new bailout would mean:

Any fresh injection of government money, or the conversion of its existing preferred shares into common stock, would give taxpayers a much larger -- perhaps even a majority stake -- in the company. The government's investment in GMAC would vastly surpass its nearly 34 percent stake in Citigroup, and could reignite the public debate over the Obama administration's role as a major investor in corporations.

The Times reports that GMAC is currently in desperate negotiations with the Treasury. As the above blurb explains, another bailout would put it in AIG-like territory. Yet, the government has made clear that it will save every firm. Few need to be reminded about its decision to let Lehman fail last year. But more recently, it also decided not to bail out lender CIT. So I'm trying to understand why GMAC should be saved. I'm having trouble.

Really, GMAC is a lot like CIT. It was a non-bank lender that's business isn't working out so well these days. It doesn't have a dramatic number of depositors like a Citigroup or Bank of America that failure might affect. It also isn't systemically relevant -- it doesn't have a web of complex derivatives or other financial instruments that would bring down the financial system if it failed, like AIG.

So who would suffer if GMAC failed? Here's its ownership from a June report by credit rating agency DBRS after GM's bankruptcy:

GM currently owns 9.9% of GMAC and a blind trust owns an additional 14.6% of GMAC. As part of agreement that allowed GMAC to become a bank holding company, GM has been required to sell its ownership in the trust by Dec. 24, 2011. Additionally, following various capital support actions the U.S. Treasury owns approximately 35.4% of GMAC with Cerberus owning 22% and other Cerberus investors owning the remaining 18.1%.

As you can see, GM owns a relatively small portion. Really, this bailout would mostly protect private equity firm Cerberus and its investors. Of course, such investors are precisely the ones who should suffer a loss if an acquisition goes sour. I can't understand why the government wouldn't just let GMAC fall.

But it looks like the Treasury may defy this logic. The Times further says this about the style of the negotiations currently taking place:

With all three helpings of federal aid, it is possible that the government could wind up owning at least half of the company. But GMAC and Treasury officials are discussing ways to structure the investment in a way that could limit the government's ownership interests. One possible option would be to also ask some of its private preferred stockholders to convert their investments into common stock.

Why? If the government is going to capitalize the firm so it has invested the equivalent of an ownership share, then why wouldn't it want the power that comes with it? I'm the first person to say that the government shouldn't own private firms. But in a bailout scenario, where it effectively purchases ownership, why shouldn't it also receive the distinction as owner? This is the problem with excessive bailouts -- they get messy, because the government doesn't want to own companies. The easiest solution? Just let them fail instead.