Talk of The Villages Florida - View Single Post - GM Government money to pay loan.
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Old 04-24-2010, 11:43 PM
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Default VK, you and everyone else

has very good reasons to be POd. Had GM gone into bankruptcy, the creditors would have assumed ownership, the company would be able to renegotiate all of its union contracts and get wage scales comparable to non-union automakers, amounts owed to suppliers would be radically adjusted, property leases and dealer contracts would be cancelled, etc.

If this sounds radical, consider K-Mart. K-Mart went into chapter 11 in 2002. It did not stop doing business,but it did close a number of unprofitable stores - no longer being obligated for the lease on these stores. In two years K-Mart went on to acquire Sears and formed Sears Holdings, an entity that owns both chains. The combined companies are reporting record earnings despite the recession. How much did this cost the taxpayer? Nothing, zero, nada!

This same scenario could have played out at GM. The company would not have shuttered its plants, GM cars and trucks would continue to be made and the creditors would have assumed ownership.

Instead, the government stepped and and through loans for stock emerged as the owner of GM. The company was not allowed to go through bankruptcy and the primary lenders got very little. The UAW contracts were left intact, making a competitive position in the marketplace impossible or at least very difficult in the long run. The taxpayer is out many tens of billions and the chance of being repaid? Nothing, zero, nada!

In which instance did the creditors, the company US international financial strength and the taxpayers come out ahead? The answer is obvious. The question is do we want our government to own major companies at the expense of the taxpayer or do we want the free market to work?