Shares of General Motors (NYSE: GM) fell 21% yesterday on concerns that the $9.4 billion in taxpayer-funded loans to be doled out to the company over the next 24 days will not be enough to stave off bankruptcy. Standard & Poor's has said that there is a "high" likelihood of bankruptcy for the company.But even after the beat down doled out by the market yesterday, GM still had a market cap of more than $2 billion. This tells me that our elected officials are not being nearly tough enough in securing the best terms for taxpayers.
Here's the problem: Without government aid, General Motors would without a doubt be headed for bankruptcy, with the creditors facing enormous losses. Shareholders would, without question, be completely wiped out under that scenario.
So why is the government allowing its generous loan to prop up the company's stock price? Given the strong possibility that GM is headed for bankruptcy even with these loans -- and taxpayers will lose their investment just like bondholders -- the government should be getting a bigger chunk of the upside if things somehow end well for GM.











Reader Comments (Page 1 of 1)
12-23-2008 @ 10:52AM
cabri said...
You might as well ask the same question about AIG or Citicorp or any of the other insolvent financial companies still trading. Why is Chrysler being subsidized - it's owned by a private venture capital firm. The entire spectacle is appalling.
12-23-2008 @ 11:42AM
Terry said...
The government is being ambushed on all sides for financial help. They are afraid if they don't throw billions of taxpayers dollare at the problem there will be a citizen revolt like never seen in recent decades. The govt. could care less about the auto makers and banking system. It's about Bush's legacy as he leaves his failed presidency in disgrace. Throwing money at these companies without oversight is an even bigger disgrace.
12-24-2008 @ 4:27PM
Neil said...
Who the hell died and made you God of stocks. Its people just like you who have caused the market so much turmoil. Opinions are like assholes most people have them and they like yours stink. I bet you drive a hyped up Prius. I would like to meet people like you just once. I think I could change your brain for the better!
12-25-2008 @ 1:32PM
Phillip Logan said...
What has the American government got better to do with American taxpayers' money than support American businesses that provide Americans jobs and make up the American taxpaying base? Maybe spend our money in Iraq when they have their huge money surplus; or bail out Mexico, one of the most currupt countries in the world; or maintain those 1000 military bases in foreign countries to protect them when they should be taking responsibility for their own security; or what?
12-25-2008 @ 2:16PM
john said...
The stock market discounts all known and suspected out comes. The fact that GM and F still have some value means; they still have some value. Get over it. Since the reality is that the automakers had made huge strides which no one in the media or congress seems to want to acknowledge before the financial system and government made doing business nearly impossible, maybe the stock market is saying that once you guys fix the incompetent banks, they will be better than ever. Did I notice gas at $1.50? Do you still think Americans want a death trap at those prices? Think again. John
2-19-2009 @ 12:07PM
Jerome said...
Oh come on... stop looking at what has been going on in the past two weeks and look at the past 50-60 years... Look at how for the most part, America helped destroy many European Countries (twice) and then nuked Japan...
Now, in response to those two things, America has both funded many of these European countries, and Japan... and in that wake they always have the most up to date factories. In the meantime, American factories were known to be highly antiquated and many workers reported that they felt it would only be a matter of time before they collapsed.
Foreign nations always had better equipment and thus were able to 'better' their vehicles faster and were still cost efficient. Toyota has some of the highest MPG ratings (and screw the Prius... I'm talking about their Corolla, Highlander... things like that). Nissan has come out with design after design that catches the attention of many people on both American seaboards (350z, 370z, Altima).
Then you have your Euro cars, Porsche prices are becoming slightly more reasonable (especially if you want a two year old car), BMW is still at the top on just about everything, and Saab (which was taken over by a different company not long ago) is already seeing a drop in projected (destroyed economy) sales.
The issues we are facing today are part of an end-result that is decades in the making. Basically, it's like a huge Jenga game, and the pieces are finally starting to topple over.
2-19-2009 @ 1:23PM
Dana said...
Chevrolet is America , If it dies so does America , Chrysler is already gone
2-20-2009 @ 3:20PM
grindork said...
GM SHOULD TAKE THE 9BILLION FROM THE GOVERNMENT AND JUST GIVE IT TO THE SHAREHOLDERS! THE SHAREHOLDERS RUN THE COMPANY RIGHT???
2-20-2009 @ 3:22PM
grindork said...
COMPANIES ARE ONLY INVESTMENTS. INVESTORS ARE BETTING THEY WILL MAKE A MAXIMUM RETURN ON THEIR INVESTMENT. NOTHING MORE....NOTHING LESS. COMPANIES ARE NOT SACRED COWS OR RELIGIOUS INSTITUTIONS AND THEY DO NOT NEED TO BE SAVED!!!!