Can you explain the GM thing for me?

[jitterbug]

I'm going to sound like an idiot because I don't understand the situation, exactly. But maybe someone can explain it to me without emphasizing I'm an idiot?

So, GM went bankrupt, right? Everyone who owned stock in GM lost their investment, right? Then the government bailed them out and suddenly they are a "new" GM, making shiny new cars that everyone is buying - but everyone who owned stock or bonds in the old GM have completely lost their investment?

If what I say above is true - I don't understand why there isn't more uproar over it. Didn't thousands of employees buy GM stock with every paycheck? I understand that any investment is a risk - but it just seems wrong that they can walk away from their obligations and then start all over with a new company.

Am I wrong for thinking I don't want my next car to be a GM car, because I feel like they screwed too many people over with this deal?

[Deleted]

stock holders understand that every equity is risky...a company going belly up is not unusual in that respect

what was unusual here....is that the bond holders got screwed

the unions got a portion of the company when they gave up a few items in the negotiation

and the american people owned a considerable portion for fronting the cash to bail it out

but the bond holders should have held FIRST position in all leins....and it didnt happen that way

they changed (circumvented) the law to get around that aspect

[thyme4change]

Well - no matter what stock you buy, they could go bankrupt. They don't necessarily need government money to keep up and running. And if they do dissolve because they are that insolvent, all the 'big dudes' go down the street and start up a new company. So, the stock holders are equally screwed.

[Sum Dum Gai]

Normally in a bankruptcy the stock holders get nothing or next to nothing, since they're last in line to get a share of the assets when the company liquidates. Creditors and bond holders come first.

In this case they did it the other way, and the bond holders got nothing. Probably because as you pointed out, way too many middle class voters in swing states in the midwest owned GM stock. For some reason no matter how many times you tell people that it's a horrible idea to rely on the same company for your entire income stream and your retirement savings, people still do it. Probably will until a seriously huge US company goes bankrupt and completely fucks over tens of thousands of people.

Anyway, as part of the deal the union got a big share of the new GM, after agreeing to some concessions, so they didn't get screwed over on the deal.

This time the workers got off easy, but it was still a good example of why I hate companies that give you your 401k match in company stock. Every company I've worked for has an employee stock purchase, and I've never participated in any of them. I don't want to own so much as a single share of the company I work for. I'm already relying on them to keep a roof over our heads, food on the table, etc. I don't need to lose my job and my savings if they fuck up, and as the GM case has shown even huge well known companies that make an in demand product can go under.

[bimetalaupt]

Nov 6, 2012 14:15:24 GMT -5 Sum Dum Gai said:

Normally in a bankruptcy the stock holders get nothing or next to nothing, since they're last in line to get a share of the assets when the company liquidates. Creditors and bond holders come first.

In this case they did it the other way, and the bond holders got nothing. Probably because as you pointed out, way too many middle class voters in swing states in the midwest owned GM stock. For some reason no matter how many times you tell people that it's a horrible idea to rely on the same company for your entire income stream and your retirement savings, people still do it. Probably will until a seriously huge US company goes bankrupt and completely fucks over tens of thousands of people.

Anyway, as part of the deal the union got a big share of the new GM, after agreeing to some concessions, so they didn't get screwed over on the deal.

This time the workers got off easy, but it was still a good example of why I hate companies that give you your 401k match in company stock. Every company I've worked for has an employee stock purchase, and I've never participated in any of them. I don't want to own so much as a single share of the company I work for. I'm already relying on them to keep a roof over our heads, food on the table, etc. I don't need to lose my job and my savings if they fuck up, and as the GM case has shown even huge well known companies that make an in demand product can go under.

DH, Good advice..K4U..Think Enron !!!
It was my understanding that the Union Trust made out better under this deal then normal.
The entity that was saved was the Retirement Guaranty. The think the value of the stock owned by the Treasury is about 10 Billion dollars and they are into the government for about 18 to 20 billion ( not counting interest as they own the stock).. So the government will lose about 10 billion dollars.. Bet it will not sell stock until after the election.

Just a thought,
BiMetalAuPt

[jitterbug]

Thanks to all who responded and NONE of you made me into an idiot!

I think what probably gets me the most is that it's not like they went bankrupt and then a few management people went down the street and started up a new business - it's really like they just absolutely walked away from their obligations and then suddenly they're back in the exact same business, with the exact same employees and the exact same name and address. I realize that they kept a lot of people employed and that's a positive - but I really, REALLY hope I love a few Fords when I go test driving cars in a few months! (And I need to buy a car from one of the Big Three because there's no other dealership within an hour of where I live).

[kittensaver]

jitterbug - test drive the Escape :-)

[Sum Dum Gai]

I think what probably gets me the most is that it's not like they went bankrupt and then a few management people went down the street and started up a new business - it's really like they just absolutely walked away from their obligations and then suddenly they're back in the exact same business, with the exact same employees and the exact same name and address.

Yes and no. They weren't able to walk away from their obligations completely, like they would have been if they'd had to liquidate. The government stepped in and helped them work out a deal with creditors where they forgave some debts but agreed to pay others.

It really wasn't anything like a normal bankruptcy at all. It's almost better to think of it like a private equity buyout. In this case Uncle Sam took the role usually filled by firms like Bain Capital. They came in and bought out a struggling company that would have had to declare bankruptcy otherwise. They structured a deal with the employees where they agreed to concessions on pay and benefits in exchange for not losing the part of their pensions that were in the company stock. They cut a deal with the creditors where they'd take a haircut, but less than they'd take if the company went under completely, and the bond holders drew the short straw.

Now Uncle Sam is in the same position firms like Bain find themselves in when a company turns around. They own a big piece of it and they need to figure out how and when they're going to exit.

[jitterbug]

Dark - excellent analogy! Thanks!

[bimetalaupt]

Nov 6, 2012 22:53:21 GMT -5 jitterbug said:

Dark - excellent analogy! Thanks!

How about a 90% tax rate on anything you earned and did not spend.. Obama would love that!

[ModE98]

Do not believe it would make it through the house. ;D Well, maybe when pigs fly.

[bimetalaupt]

Nov 12, 2012 10:27:17 GMT -5 ModE98 said:

Do not believe it would make it through the house. ;D Well, maybe when pigs fly.

Start,
Well who do you know that said "quagmire" or "saving is money not spent" ...Richard Fisher of the Dallas Federal Reserve... I can not find the exact quote...But I have used it in the past,..

[Driftr]

Used to be savings were the capital base that a business was built upon. Now they're the quagmire. I could understand how Dick would support that revisionist thinking seeing as a banker doesn't earn any interest and fees when evil savers try to start up their own business without the debt slavery shackles he and every other banker on this planet wish to put on them. Jackals one and all.

[bimetalaupt]

Nov 13, 2012 12:08:12 GMT -5 Driftr said:

Used to be savings were the capital base that a business was built upon. Now they're the quagmire. I could understand how Dick would support that revisionist thinking seeing as a banker doesn't earn any interest and fees when evil savers try to start up their own business without the debt slavery shackles he and every other banker on this planet wish to put on them. Jackals one and all.

driftr,
Richard has been on the offence to save savers and increase none m2-m3 with higher paid interest.. Best $100,000 jumbo CD is about 1.05%.. That is up


BiMetalAuPt