GM = Bankrupt

Just think this through with me.

GM says they must have government money to survive. President Obama says he will use bankruptcy to restructure and refinance the company, according to the WSJ today.

Two thoughts.

Doesn’t that make them technically bankrupt? If both sides have already firmly committed to the logic I laid out above, GM is in effect informing investors they are filing bankruptcy. GM closed today down 92 cents at $2.70. Who still owns this stock at any price? A bankruptcy filing means the value of these shares becomes $0.
And for those who would complain about the government firing a CEO, remember that the government had no leverage to do that except this government bailout money. Understand the consequences of government bailouts before you accept them.

Lots more to talk about on GM, and I hope to do so, but those are just my first thoughts.

Ben

Lots of companies come out of bankruptcy restructuring with shares still intact. If you would have bought PG&E shares when the company was in bankruptcy you’d be wealthier today. I’m curious who really thinks Government Motors can restructure a mountain of debt when they have no cash and their sales have fallen off the planet.

http://www.aaronklein.com Aaron Klein

I suppose that’s true, but it’s so very rare. I don’t know the exact percentage, but something north of 85% of bankruptcies end with common shareholders holding nothing, and debtholders holding all of the equity.

It appears the strategy is to split the company into two: one destined for reorganization and a quick exit from bankruptcy, and the other destined for a slow liquidation. The latter will hold the retiree health care benefit obligations.

GM = Bankrupt

Markets change. Do your investments still fit you?

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