What the Fed?: GM Sells U.S. a Lemon

SWIFT takes on the wholesale loans made to car dealers. The National Automobile Dealers Association estimates 700 new-car dealerships will close this year, up from 430 last year. But Fitch insists that the dealer loans will not experience any problems. According to NADA, 590 new-car dealerships this year closed through September. GMAC which provides financing for most of the nation's General Motors dealers raised those lending costs recently.

Conduits are not an uncommon method for monetizing loans. Home lenders IndyMac, which was seized by federal regulators earlier this year, and Countrywide Financial, which was bought by Bank of America (BAC Quote), created special purpose statutory trusts in Delaware to protect themselves from bankruptcy and other pitfalls.

But chicanery in financial operations and ratings agencies willing to assign high marks to sometime questionable collateral deep into the mortgage crisis is part of what got us into this mess in the first place. Moody's Investors Service, Standard & Poor's and Fitch are all subject to lawsuits alleging they assigned excessively high ratings to bonds backed by risky subprime mortgages and deceived their own shareholders.

To be sure, most people that purchase cars and arrange for financing do pay off the debt on time. But, according to an overview of trends by Experian Automotive, nearly $25 billion in loans from the second quarter of 2006 to the second quarter of 2008 are past due. The analysis found that loans 30 days past due were up 9% year-over-year in the second quarter of 2008, while loans 60 days past due were up 11%.