Monday, June 1, 2009

GM and Chapter 11

We tax all the others and pass the revenue on to you

So GM finally filed for a Ch. 11 reorg. Who could have seen that coming? And only the night before the head of its 60% ownership group - the American people - took his wife out to dinner and a Broadway play... on your tax money. Just ask Mel Brooks: "It's good to be king."

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There are around 610.5 million outstanding shares of GM stock. It closed up a nickle today, at $0.80/share on the penny sheets. We - you, me and the rest of America - own 60% of GM after loaning/investing/giving them 19.4 bil. Do the math: We paid 19.4 bil for an interest worth $342 million, an overpayment of 56 times its value. The administration just committed to propping up GM with another 30 bil. Total "investment" to date: $49.4 bil, an overpayment of 144 times its value.

There are 235,000 GM employees. If we had, instead, allowed GM to fail, locked the plants and given each of those employees $100,000 in tax-free cash to use to start their lives over our investment would have been $23.5 bil and this nightmare would be over.

But noooo. (Thank you, John Belushi.) We're in for $49.4 bil and counting and what did we get in return? An interest in a company that lost $6 bil in the first quarter, despite our initial $19.4 bailout. Who does this make sense to?

Let's review: We bailed out Chrysler which will be taken over by Fiat. Fiat isn't much of a car company but at least they're in the same industry. There is at least some tiny chance that the new owners will do a better job than the old owners or the owners before them, the Daimler Group. Fiat might succeed where Mercedes failed. Maybe.

We bailed out GM and WE'RE the new owners. The prez, TimmyG, Barney, Nancy, Harry, Chris and the whole Capitol Hill gang are our front men. Do you see anyone... any single one of this gang of blank idlers... who knows what to do NOW? Someone who might know how to design and market a new car and make a buck at it when the presumably world's best have just failed? No, me neither.

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Whole new sections of the tax and bankruptcy codes are being re-written to make this bankruptcy seem to make sense. Of course, they will have narrow application, mostly to companies the government bails out. Doesn't matter that similarly-situated but not as favored debtors won't get that kind of protection.

That's a giant "WTF?" you just heard from Fiat. Seems that the enormous tax breaks that Congress is creating for GM won't be available to companies taken over by other private companies. Look for that to change or for Fiat to back out. You heard it here first.

The prez's only campaign issue at first was the Iraq War. Heck, he didn't even have much to say about Afghanistan, just Iraq, Iraq, Iraq. Remember?

Now that he's won the Iraq War all by himself he needs the war in Afghanistan to divert our attention from the ongoing economic calamity that he and his minions have engineered. (No offense to real engineers, none of whom have much influence on current events.)

So our "investment" (and would you knowingly invest in a company that is losing $2 bil a month at last count?) and the Ch. 11 are faits accompli. Now what? Who is looking after our investment now that we've made it? Congress, TimmyG, the car czar committee? Merrill Lynch, maybe? You know better than that.

Here's a useful rule for you: It's not an investment if you can't sell it.

Today's spin is that this will be a quick and painless bankruptcy and GM will emerge as a leaner, meaner car maker able to adapt to the new market realities. No, it won't. These are the same people who said they could deal with GM's bondholders and avoid a bankruptcy in the first place. The bankruptcy is a measure of their performance as much as of GM's.

We have squandered our descendant's fortunes and the money won't be coming back. To believe otherwise would be to believe that a bigger fool than the US government will come along and pay 144 times more than an asset is worth. Sorry, kids.

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Capitalism without bankruptcy is like Christianity without hell. -- Frank Borman

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