GM getting ready for Surgery

The Treasury is directing GM to prepare a bankruptcy plan.

Treasury officials are examining one potential outcome in which the “good G.M.” enters and exits bankruptcy protection in as little as two weeks, using $5 billion to $7 billion in federal financing, a person who had been briefed on the prospect said last week.

The rest of G.M. may require as much as $70 billion in government financing, and possibly more to resolve the health care obligations and the liquidation of the factories, according to legal experts and federal officials.

‘Surgical’ Bankruptcy Possible for G.M.

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Wall Street on the Tundra --Michael Lewis

Michael Lewis is at it again with this long but interesting article in Vanity Fair--Wall Street on the Tundra.

Iceland’s de facto bankruptcy—its currency (the krona) is kaput, its debt is 850 percent of G.D.P., its people are hoarding food and cash and blowing up their new Range Rovers for the insurance—resulted from a stunning collective madness. What led a tiny fishing nation, population 300,000, to decide, around 2003, to re-invent itself as a global financial power? In Reykjavík, where men are men, and the women seem to have completely given up on them, the author follows the peculiarly Icelandic logic behind the meltdown.
by Michael Lewis April 2009

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Bob DeMarco is a citizen journalist, blogger, and Caregiver. In addition to being an experienced writer he taught at the University of Georgia , was an Associate Director and Limited Partner at Bear Stearns, was CEO of IP Group, and is a mentor. Bob currently resides in Delray Beach, FL where he cares for his mother, Dorothy, who suffers from Alzheimer's disease. Bob has written more than 500 articles with more than 11,000 links to his work on the Internet. His content has been syndicated on Reuters, the Wall Street Journal, Fox News, Pluck, Blog Critics, and a growing list of newspaper websites. Bob is actively seeking syndication and writing assignments.

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• Who Caused the Financial Crisis?


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Fears of systemic risk rising

I defined systemic risk in a previous article--Systemic risk defined--Too Big to Fail. Fears of systemic risk are rising and this is being evidenced in the widening of interest rate spreads for credit default swaps (CDS). The credit default swaps on the venerable Berkshire Hathaway widened to more than 500 basis points this week. This, a clear sign that the market is worried about mounting losses at the company headed by Warren Buffett. Spreads in the CDS market are rising across the board. Investment grade spreads are now out to the 200 basis point area. In the junk area spreads have widened to more than 1100 basis points.

The jitters in the market continue to spread. Much of the focus this morning is on GE, GM, and HSBC.

My guess is that GM is nearing bankruptcy, an event that would lead to a market capitulation in stocks.

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Bob DeMarco is a citizen journalist, blogger, and Caregiver. In addition to being an experienced writer he taught at the University of Georgia , was an Associate Director and Limited Partner at Bear Stearns, was CEO of IP Group, and is a mentor. Bob currently resides in Delray Beach, FL where he cares for his mother, Dorothy, who suffers from Alzheimer's disease. Bob has written more than 500 articles with more than 11,000 links to his work on the Internet. His content has been syndicated on Reuters, the Wall Street Journal, Fox News, Pluck, Blog Critics, and a growing list of newspaper websites. Bob is actively seeking syndication and writing assignments.

More from All American Investor

• Systemic Risk Defined--Too Big to Fail


• Ray Dalio on the current state of affairs in the market


• Roubini Predicts U.S. Losses May Reach $3.6 Trillion


• Six Errors on the Path to the Financial Crisis


• Who Caused the Financial Crisis?


• Option ARM--The Toxic Mortgage


• Debt Binge--The Perfect Financial Storm


• Warren Buffett's Annual Letter to Investors (Cliff Notes Version)

Bold Endeavors: How Our Government Built America, and Why It Must Rebuild Now

Should GM and Chrysler File for Bankruptcy?

From time to time I like to look back and get some perspective. I was reminded of this interesting article by Edward Altman that I read back in November. He wrote these words:

With GM's financial profile--based on my "Z-Score" bankruptcy-prediction model--now clearly deep into the distressed-firm zone and with the global economy facing a severe and likely prolonged economic recession, the correct choice is to file for bankruptcy and seek an immediate significant liquidity boost from the post-bankruptcy debtor-in-possession (DIP) financing mechanism. This traditional option for failing companies will require a unique twist: assistance of the U.S. government as a meaningful player, but at little risk and attractive returns to the U.S. taxpayer.

It should be obvious by now that there is little chance that these companies will survive in their current form. We can only hope that more taxpayer money won't get thrown down this rat hole.

I continue to be amazed as taxpayer dollars get wasted by our elected officials. Why the people in Washington don't look at these situations from the eyes of a top notch investor--like Warren Buffett--and then take action mystifies me. If Buffett was putting his money on the line what would he demand in terms of investment terms, management, and board changes? If politicians are going to bailout public corporations with long histories of poor management they should first identify the problems and then select the solution. Not, BS on television for a while and then write the check because they have no clue.

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Should GM/Chrysler File for Bankruptcy?
- Edward I. Altman