Would a General Motors bankruptcy really be a disaster?

30 12 2008

Would a General Motors bankruptcy really be a disaster?

Posted by: admin in Stocks Money News

Filed under: Deals, General Motors (GM), Recession

With talks swirling about low-interest taxpayer funded loans for General Motors (NYSE: GM), there’s a lot of discussion about whether the automaker is too big to fail.

Center for Automotive Research David Cole estimates that a GM bankruptcy could cost America two million jobs. With that in mind, some defenders of the industry have pushed for billions in loans for the industry, arguing that the costs of keeping the guy in a coma on life support are outweighed by the catastrophic fallout that would result from the company’s failure.

They may be right about that, but here’s the issue: any bailout could be structured in a manner that transfers the ownership of the company to the federal government. Does that sound socialist? Perhaps — but so is billions in low-interest loans for a private company.

The problem is that General Motors stock is trading at an artificially high price on hopes that the company will receive a bailout — a bailout for GM that leaves the company’s equity intact amounts to a handout to Wall Street speculators. That’s wrong.

GM workers’ jobs can be saved without saving the holders of the company’s common stock. If a bailout should happen, that’s the way it should happen.

Would a General Motors bankruptcy really be a disaster? originally appeared on BloggingStocks on Tue, 28 Oct 2008 10:55:00 EST. Please see our terms for use of feeds.