GM: Bankruptcy or Bailout?
@redyellowblackdog (10629)
United States
November 12, 2008 9:52am CST
Yes, it is true.
The share price of common shares of General Motors Corporation are in imminent danger of going to zero over the next 1 year. Here are three charts produced with experimental, yet advanced algorithms, that each put the low range of possible GM price projections at or below zero. These charts are sometimes wrong, and the projections include the possibility of not going to zero. Still, the risk is extremely high of a financial disaster. Click the link to see the charts.
http://fp1.centurytel.net/polydimensional/miscellaneous.htm
There are three possible remedies for this problem.
1) Labor and management recognize the problem and their mutual interest in solving it and go to work together to fix things.
2) Bailout by the government
3) Bankruptcy in federal court.
As #1 above is not going to happen here is an article that intelligently discusses the bankruptcy vs. bailout question.
http://www.ridelust.com/the-economics-of-another-gm-bailout/
I say that the article makes a convincing arguement for bankruptcy in preference to a bailout. With a bailout, the taxpayers get screwed and there are not serious iron clad controls that the money would just not be squandered. A federal judge in bankruptcy proceedings would do a much better job of overseeing fixing GM than has happened in previous bailouts. Bailout? NO! Bankruptcy? YES!
What do you say?
4 people like this
6 responses
@coffeechat (1961)
• New Zealand
12 Nov 08
A few years ago I read a book "My years with General Motors" by its acclaimed CEO and management guru Alfred P. Sloan. Then I read the book highlighting Ralph de Lorean's critique called "On a clear day you can see General Motors".
GM's current woes can be traced back to the corporate culture that Sloan celebrates and de Lorean exposes. It can be traced back to its complex relationship with the UAW; and the stranglehold the UAW has on US automakers and Capitol Hill.
A former CEO of GM. Charles Wilson said "What is good for GM is good for America".
The 1974 Employee's Retirement Security Act-colloquially known as "ERISA" in some ways is responsible too for some of GM and similar companies woes. ERISA, rhyming with Melisa spawned giant pension funds that made investments in corporate America, without the necessary safeguards and CEO accountability that individual investors would demand.
Today, GM shares are largely held by these ERISA spawned behemoths; and that means every American and his mother. (all right that is a bit of an exaggeration but it did sound cool while writing). So GM's failure will hit every American in the pocket, one way or another, as will a bailout.
I think Chapter 11 costs will be far greater than the cost of a bailout for the average American.
@redyellowblackdog (10629)
• United States
13 Nov 08
I'm afraid an "arm's length bailout" is what everyone had in mind. Managment at Gm definitely is not trustworthy enough for that.
@coffeechat (1961)
• New Zealand
13 Nov 08
Red,
Dialectic is cool and debate wonderful. Bail out yes - arm's length bail out NO is what I think.
A Chapter 11 style bailout with very stringent controls, equity position and rationalization is what I had in mind.
The eighties and roaring nineties saw huge privatization of government owned industry and services. The first decade of the new millennium has seen the pendulum swing in a number of countries.
GM has an awesome portfolio of strategic IP that has long term implications if Chapter 11 style dismemberment happens.
In the wake of the global slowdown, I am afraid that the baby will get thrown out with the bathwater of sentiment.
So from that perspective a bailout is not altogether bad but I am afraid you are right and GM will be forced to Chapter 11.
1 person likes this
@yusuf_nugroho32 (1)
• Indonesia
13 Nov 08
This is a kind of situation that we have to ready for it. We must realize that the condition of the world is crowded. The government of USA has made the right decission for giving a bailout. We just have to wait for market's responses. We hope with the new president of USA, he could brings a new hope for USA and for the world.
1 person likes this
@redyellowblackdog (10629)
• United States
13 Nov 08
Well, I did not vote for the new President, but I hope he has success and makes the USA and the world a better place.
@angelface23 (2494)
• United States
12 Nov 08
me and my husband were just talking about this. We feel that the government should not bail them out and should let them go under. It's their own fault and it's not like another car company won't pop up again after this. How is bailing them out going to help us anyway?
1 person likes this
@speakeasy (4171)
• United States
12 Nov 08
Actually, right now their fate rest in Obama's hands.
Obama asked Bush to let them be part of the $700 Billion bailout, which Bush can do simply with an executive order.
Bush told Obama he will, on ONE condition; Obama has to get Bush's trade bill approved (Obama and other Democrats have been holding it back - it would ease trade restrictions with Columbia, Panama, and South Korea).
So far, Obama has refused and unless he relents and uses his influence to get it passed GM and the other automakers will have to wait until Obama is sworn into office in mid Jan.
The question is whether GM and the rest can hold on until Obama can bail them out. I would also like to point out that in SEPTEMBER $25 BILLION was given to these three automakers to bail them out then. Where did all the money GO in just 2 months????
1 person likes this
@redyellowblackdog (10629)
• United States
12 Nov 08
That 25 billion dollars eaten in 2 months is why GM should just declare bankrupcty instead of getting another bailout. They will continue to squander taxpayer money for as long as we let them.
@whiteheather39 (24403)
• United States
12 Nov 08
I did read that if we start bailing out individual companies it would be like opening a flood gate and where would we draw the line? Although if we do not then our unemployment will skyrocket. Seemingly 1 in every 10 Americans is affected/employed by the auto industry.
I do not understand why the government cannot have auditors overseeing exactly how the bailout dollars are spent/distributed by the recipients? It seems that some of the money already given out did not go where it was intended!
1 person likes this
@redyellowblackdog (10629)
• United States
12 Nov 08
I am sure you are right about the misspent funds and the need for accounting controls.
@Barb42 (4214)
• United States
12 Nov 08
I say let them go bankrupt! There should never have been any bailout for any of them! I hope Bush doesn't cave in and sign a bill to give them money if Nancy Pelosi gets one passed! Although we are GM buyers, they should have managed their money more responsible. Look at AIG and how they are squandering the money they received for their bailout - still taking those expensive trips. One of the executives said,'this is the way we do business. And besides, it was only $23,000 we paid of the $300 or $400 thousand it cost.' A woman congressman said, 'yes, and it was $23,000 too much of the taxpayers money that they spent'. And she is right. They do not act responsible even when they are given the chance to shape up!
1 person likes this
