The financial crisis has caused GMAC bonds, considered an ultra-safe investment by many individual investors, to drop 75% in value. Although GMAC has made good on its SmartNotes until now, its $7.5 billion of losses in the past year raise doubts about its abilty to pay future debt. Find out what are truly safe investments.
What It Means to You
SmartNotes were designed to appeal to investors seeking interest income, such as older people and retirees. They were sold in denominations of $1,000 and allowed investors' spouses to sell the bonds back to the issuer if the owner died. Last week, GMAC said its mortgage unit may fail, thanks to the subprime mortgage crisis. If GMAC does go bankrupt, the outstanding SmartNotes will be treated like senior unsecured debt, on which investors will probably only get 40 cents on the dollar. (Source: Bloomberg, GMAC Leaves Individuals Holding Car Lender's Junk, November 7, 2008)Best Moves Now
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