|
I hate to say write your congressman but we need to stop them from throwing money away on worthless stock or junior debt. I tend to agree that we bail them out, but we need to be keep an eye on who is getting bailed out.
These are the book values of Ford and GM. They are both insolvent.
GM Net tangible assets (38.16 billion) negative Ford Net Tangible assets (3.7 billion ) negative
If you throw billions at the auto companies in exchange for junior debt, or preferred stock, the money is gone forever. It may be time to force these companies into Chapter 11, and wipe the shareholder equity out. Next step would be to determine liquidation value of the assets and wipe out debt-holders that are unsecured and to the extent their secured debt exceeds liquidation value. Then and only then could we put money into keeping them going. It is going to be a long road ahead for the auto industry and it is not clear whether they make it or not, but we can’t just throw money at it without securing greater rights than current creditors.
Remember. We bailout companies because of the net benefit to the economy. We should not bailout shareholders and/or creditors of companies. It is time to get tougher on these bailouts, actually get better stakes in the companies, and insist on reductions in pay for at least all executives of companies receiving assistance.
Bailouts are to keep the economy moving, not to save investors.
|