Do the rich need Americans?

Post by [deleted] » Mon, Feb 07, 2011, 7:39 PM UTC

anamax wrote: post #8

CWuestefeld wrote: post #6

Earlier quoted context omitted.

They were treated unfairly compared to the union, yes. But it still beats Chapter 11 (probably). Update: the more I think about it, the more convinced I am that this is true. If the company really had to be liquidated, the bond holders may have been paid off. But the equity holders would have really taken a bath. So the government did, in fact, keep the equity market rolling.

The bondholders disagreed. They'd have rather had a real bankruptcy. One of the consequences of not honoring the usual rules of debt in bankruptcy is that loans to govt favored industries/companies are now seen as more risky, which makes them more expensive.

Post by CWuestefeld » Mon, Feb 07, 2011, 8:34 PM UTC

jbooth wrote: post #22

yummyfajitas wrote: post #16

Earlier quoted context omitted.

What I was responding to: "When the government invests hundreds of billions of dollars into the market, by way of dumping money into the financial and automobile industries,..." CWuestfield and I were discussing actions taken by the government during the bailout, not a business plan the UAW and GM entered into in the 60's. During the bailout, the administration funneled billions of taxpayer dollars (many of which wer…

Only sort of. There's a case to be made that, without government assistance, bondholders would be receiving less money in a liquidation than they'll wind up receiving post-haircut. Of course, they wouldn't get to blame unions for their poor investment decision, so it might not be worth the lack of emotional gratification :)

Post by CWuestefeld » Mon, Feb 07, 2011, 10:49 PM UTC

yummyfajitas wrote: post #24

CWuestefeld wrote: post #23

Earlier quoted context omitted.

This may or may not be true, depending on specific details that I don't know. But it's certainly true that equity holders came out quite a bit richer than they otherwise would have. Owners of common stock are last in line in a liquidation, so they likely would have gotten very little. But now they've got more equity than at the time of the bailout. Thus, the government pumped taxpayer money into GM shareholders.

As far as I'm aware, GM shareholders received nothing. In the bankruptcy, the Motors Liquidation Company purchased all the valuable assets (including the names and trademarks) from GM. The proceeds were (and are still being) used to pay bondholders and other creditors. Anything remaining would be given to shareholders, but the proceeds of the sale are not expected to be even close to sufficient for this to occur (tha…