How Cerberus's Cost Cutting Threatens the US Economy

There's bad news at Cerberus, and that could mean bad news for all of us. Cerberus has lost a lot of money on its mortgage-servicer investments, and is now hoping to merge its main mortgage asset, GMAC, with Chrysler's lending operations. According to Business Week, "by doing so, it could reap massive savings on back office and loan processing operations, boosting returns at both GMAC and Chrysler".

Tanta is alarmed:

Cut back office at a mortgage servicer. Put people who can service car loans in charge of mortgage loans. That's exactly what we need right now...
Let me just observe that GMAC's mortgage servicing unit was already pretty "stripped down" in its heyday. That was its business model: cheap servcing. I can't wait to see what happens when you make it cheaper.

Mortgage servicers need to be beefed up right now: it takes much more work to deal with delinquencies and foreclosures than it does to deal with lots of people paying their mortgages on time. Cost-cutting in this environment is, shall we say, contraindicated from a broader economic perspective. But of course there's no stopping Cerberus from doing whatever it wants.