Street Talk - Maybe GM Should Just Go Bankrupt

Would it be better for taxpayers if GM went into bankruptcy? That's what some are saying on Wall Street this morning.

Here's the dilemma: Merrill Lynch's John Murphy noted this morning that GM has a debt burden of about $62 billion, but the government has already lent them $13 billion and is on the verge of providing another $17 billion, for a total of $30 billion in ADDITIONAL debt that is owed to the government.

There is a simple issue here: why should the federal government put an additional $17 billion into GM when there is a high probability it will go bankrupt and the money will be lost?

A better plan would be to put it into bankruptcy, THEN take an additional stake in the company. The government can then assume a position certainly senior to the unsecured creditors (who presumably would be wiped out), but also probably ahead of the secured creditors as well (the government is also a secured creditor, since it lent $13 billion with the foreign subsidiaries pledged as assets).

By doing that, it would be in a far better position to protect the taxpayer's investment.



Questions? Comments?