Let GM go Bankrupt

@okie,

okie wrote:

I think we've bought into the idea that "too big to fail" is a sound principle, but count me as one not sold on that principle. In the economics books I've read, it is "demand," not "supply," that drives the economy. Perhaps the question is what would have happened to GM or Chrysler if they had gone bankrupt? In other industries I've had the pleasure of observing more first hand, often the bankrupt companies are sold to another company, or the company re-emerges with new investors, as allowed and supervised by a bankruptcy court.

Yeah, but you seem to forget that GM was failing right in the middle of the 2008 financial crash. There was great concern that securing new investors was not a possibility at that time due to the liquidity crisis. Banks certainly weren't lending and most people don't have billions of dollars of cash sitting around with which to buy pieces of GM.

It's also incontrovertible that such an action would have ended up with massive losses of jobs, both amongst former GM employees and all the way up their supply chain. Anyone who claims that a breakup wouldn't have resulted in this is kidding themselves.

Quote:

The new company or different company ends up doing pretty much the same thing and producing the same products as they did before filing bankruptcy. Often, the new company ends up healtier and managed better than if the old company had been artificially propped up. Eventually at least, that will be the end result because consumers will demand quality at a competitive price.

It sounds like you're more interested in the theory of what SHOULD happen in a capitalistic society than what ACTUALLY happens, or what the circumstances of the situation were.

Cycloptichorn

0 Replies

okie said:

Quote:

The new company or different company ends up doing pretty much the same thing and producing the same products as they did before filing bankruptcy. Often, the new company ends up healtier and managed better than if the old company had been artificially propped up. Eventually at least, that will be the end result because consumers will demand quality at a competitive price.

That's exactly what did happen, okie, without the chaos of collapse and bankruptcy. It wasn't so much being "artificially propped up", as you call it, as being given the capital to keep going while undergoing a badly needed mandatory restructuring. And it worked. New capital was brought in, labor costs were reduced, unprofitable and underperforming products were replaced or sold off, dealer costs which whipsawed the company were reduced, quality which had been abysmal was greatly improved, new technology was introduced, and a bunch of exciting new products were brought online, massive debt load which hampered any new development was reduced, an inbred management which completely misjudged the changing automotive market and badly misread consumer wants was shelved, and sales took off. That whole process was required as part of the "bailout"., which was far more than a simple "bailout"--it is in fact an example of government being much smarter than GM's business-as-usual.

3 Replies

@MontereyJack,

All true,but that does not change that a company which deserved to die did not die. it was rebirthed by the government. This is bad for morale, and it will cost us down the road as privatizing profits and socialing losses always does.

1 Reply

@MontereyJack,

Bankrupcy doesn't mean chaos or destruction. Indeed it would have been about as quick as the process that GM did experience with the government, except that the law would have been followed and bondholders would have recovered some of their money. The government "bailout" was done to save one of the Administration's primary sources of political funding, the UAW.

1 Reply

georgeob says

Quote:

except tha the law would have been followed and bondholders would have recovered some of their money

. It was and they did. The major bondholders signed off on the agreement. It's basically one loudmouth attorney who started the bitching about the agreement and he's been disowned by a lot of his clients. Bondholders actually did about as well as they could have expected, given the state of the company--a fair-sized equity share in the new GM and warrants that let them buy a much larger stake in it at prices between a third and a half of current prices (and likely to be an even lower percentage of traded price in the future)

1 Reply

@MontereyJack,

As I recall 85% of the bondholders had to sign, and having been deprived of there legal standing they did not have much choice. The adminstration I am sure made it clear that there would be retribution if they did not sign. This is not how the process should work.

1 Reply

@georgeob1,

Quote:

Bankrupcy doesn't mean chaos or destruction. Indeed it would have been about as quick as the process that GM did experience with the government, except that the law would have been followed and bondholders would have recovered some of their money. The government "bailout" was done to save one of the Administration's primary sources of political funding, the UAW.

I am curious how you think bondholders would have recovered money in a GM chapter 7 bankruptcy. Where was this money going to come from?

0 Replies

@hawkeye10,

hawkeye10 wrote:

As I recall 85% of the bondholders had to sign, and having been deprived of there legal standing they did not have much choice. The adminstration I am sure made it clear that there would be retribution if they did not sign. This is not how the process should work.

The bondholders were told sign and you will get something or don't sign and you may get nothing in the bankruptcy. Gosh.. why do you think they signed?

According to US bankruptcy law bondholders are unsecured creditors.
http://www.sec.gov/investor/pubs/bankrupt.htm

Quote:

Bondholders, and other unsecured creditors, will be notified of the Chapter 7, and should file a claim in case there's money left for them to receive a payment.

0 Replies

@hawkeye10,

Quote:

All true,but that does not change that a company which deserved to die did not die. it was rebirthed by the government. This is bad for morale, and it will cost us down the road as privatizing profits and socialing losses always does.

Lord and your opinion that GM deserving to die mean that the US government should had allow another decade similar to the 1930s to had occur!!!!!!!

For that matter the shareholders came away with zero and the people on the top running it was removed so in that sense GM did die even if the name and the ability to manufacture millions of cars a year did survive.

The government in this case did a wonderful job and got the best possible outcome given the situation.

And last but not least it look like those so call losses are in fact going to be profits in the end.

2 Replies

@BillRM,

Are you therefore in favor of scrapping bankruptcy laws across the board in favor of government bailouts for each and every company that is broke and cannot pay its bills? In other words, if the government should treat companies equally, why do we still need bankruptcy laws?

0 Replies

@BillRM,

Quote:

Lord and your opinion that GM deserving to die mean that the US government should had allow another decade similar to the 1930s to had occur!!!!!!!

there is no reason to think that this would have happened, a judge could have run GM for several years until the assets could be disposed of. The Chinese and others would have bought much of the good stuff (that which was kept by GM) after the financial system got unfrozen.

Quote:

The government in this case did a wonderful job and got the best possible outcome given the situation.

Most of the stakeholders came out better ahead, which is a big part of the problem. Those who invested in the old GM should have gotten in return what justice demands, which is to get their asses kicked. I dont buy the argument that letting GM die would have meant that the American market production would have shifted greatly to foreign factories, I think that foreign money would have come in to buy GM assets, and restarted production, using mostly American suppliers. I think that you Bill completely fail to understand what the death of GM would have looked like....you have been sold a bill of goods by your government as it has attempted to justify its idiotic and costly to the taxpayers decisions.

1 Reply

@hawkeye10,

Quote:

there is no reason to think that this would have happened, a judge could have run GM for several years until the assets could be disposed of. The Chinese and others would have bought much of the good stuff (that which was kept by GM) after the financial system got unfrozen.

There would not be any US car companies by the time the economic would had unfreeze and the robots and other tools could indeed had been sold to the Chinese at one cent on the dollar.

Without the federal deal a thousand part supply companies would had been gone taking Ford with them and ability to build cars would have been gone in the US forever.

Yes instead of still having working and in the black car companies I can see why we should had shot ourselves in the head instead.

Oh the shareholders was wipe out what the hell more do you wish for/

1 Reply

@BillRM,

Quote:

THere would not be any US car companies by the time the economic would had unfreeze and the robots and other tools could indeed had been sold to the Chinese at one cent on the dollar.

The only good argument for saving GM in my opinion is that had we not done something the suppliers would not have been paid and would go under as well, but I think that we could have fixed that by running GM in through the banruptcy court and then paying the suppliers but not anyone else. In that case letting GM die would have helped Ford, not sunk them.

One of the main arguments for rebirthing GM was that if we used the normal process the Chinese would have bought a huge chunk of an American industry for 20 cents on the dollar. My response is that stuff is worth exactly what someone is willing to pay for it under market capitalism, which we claim is our system.

1 Reply

@hawkeye10,

Once more Hawkeye the shareholders loss every damn dime and GM will shortly be put back on the open market for anyone to buy including the Chinese.

Doing it as it was done just mean that not only did we save the manufacturing capabilities of this country but gave the best economic possible outcome for the whole society.

GM will be sold in total as a going and profitable concern as a result not in little bits at a fraction of it worth.

I can not see for the life of me why you have a problem with the solution and outcome. A bankruptcy judge could not had pump in the cash to keep everything from collapsing until the mess was clear up.

No one bailed out the shareholders or the top management of the old GM in any case and it was a total loss as far as those two groups are concern.

2 Replies

@BillRM,

Quote:

I can not see for the life of me why you have a problem with the solution and outcome. A bankruptcy judge could not had pump in the cash to keep everything from collapsing until the mess was clear up.

Because Ideology is more important to a lot of these guys than results. And they don't like when government steps in and solves things, because it's contrary to their constant claim that government is the problem and not the solution.

Cycloptichorn

2 Replies

@Cycloptichorn,

Quote:

Because Ideology is more important to a lot of these guys than results.

You are not paying attention. Not only am I saying that the ends do not justify the means but I also assert that in this case the ends are undesirable. What we did cost the Taxpayers more than properly ending GM would have, and we got a bad result to boot...there is nothing here to like.

1 Reply

@BillRM,

Quote:

A bankruptcy judge could not had pump in the cash to keep everything from collapsing until the mess was clear up.

Congress was going to have to put in money no matter what, but after the Bankruptcy judge took over GMC the gusher of an IV that Bush put in could have been reduced to a trickle. Once the judge voided the UAW contract, replaced management with relatively low paid temporary public servant types and stopped all GMC payments to everybody but employees, suppliers and utilities the cash flow situation would have improved considerably.

0 Replies

@MontereyJack,

Quote:

It wasn't so much being "artificially propped up", as you call it, as being given the capital to keep going while undergoing a badly needed mandatory restructuring. And it worked.

You are a grade A chump ain't you? ....who says it worked besides GM and the Government? What do they base this assertion on?

0 Replies

@Cycloptichorn,

Cycloptichorn wrote:

Because Ideology is more important to a lot of these guys than results. And they don't like when government steps in and solves things, because it's contrary to their constant claim that government is the problem and not the solution.

Cycloptichorn

No, Instead I don't like it when government steps in and acts contrary to established law to protect its own - as opposed to the public - interest. The government bailout was in effect a bankrupcy process, but with special provisions to benefit a poorly managed UAW retirement & reetiree health care fund at the expense of bondholders some of whose claims in bankrupcy court would have taken precedence. The rather thin rationalization was that another government insurance entity micht have been liable for some of the retirement fund losses had they done otherwise. The real explanation, of course is that organized labor is far and away the Democrat's major financial contributoe and political acttion supporter.

Either process would have produced the same result with respect to the subsequent health of the auto companies involved.

What I don't like is the steadily advancing power and intrusiveness of our government into our lives. It starts with a program to "help" some targeted beneficiary; continues with the coordianted support of the now well-organized beneficiaries; and proceeds with yet additional intrusions, justified on the basis of "protecting" previous intrusions. etc. etc.

2 Replies

@georgeob1,

Quote:

poorly managed UAW retirement & retiree health care fund

this would be the same fund that is underfunded by $17 billion, that was just given a load of shares instead of money thus diluting the suckers who bought the stock (with every indication that GM will keep diluting its stock in order to pay its bills) and the same pot of money that GM is using as a piggy bank for downsizing through its early retirement program, thus putting more stress on an already underfunded plan.

The UAW desperately does not want for the plan to get taken over by the government, because the government plan for defaulting pensions at most will only pay a portion of what was promised. The UAW pension is so generous that I would expect that the default payout would be somewhere around only half of what these boys and girls expect to get every month, and I am probably being overly optimistic when I say half..

Note: I have been a union man for much of my working life, I consider myself to be a union man, but criminy, let's speak truth!

0 Replies

Let GM go Bankrupt

Related Topics

Quick Links

My Account

able2know