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Bankruptcy, Brains and Bailouts

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So how do you all feel about your new ownership position in GM?  Stephen Harper refers to it as ‘regrettable but necessary‘.

The federal and Ontario governments’ contribution to the restructuring is set at $9.5 billion U.S., according to a joint statement Monday from the prime minister and U.S. President Barack Obama. For that, Canadian taxpayers will hold a 12 per cent equity stake and will also appoint one independent director to the company’s board.

Canadians could remain holders of that equity as long as 2018, with sales of the shares expected to occur within eight years of a stock offering in the new company.

One of the more interesting aspects of this saga for me is seeing how people think about stocks and money.  As I’ve said before I’m not a financial expert, but I know that buying up the ‘cheap’ shares of a company that is headed towards bankruptcy is a risky bet.  Browsing the Google finance message board it looks like this is not necessarily common knowledge.

The GM restructuring is already wreaking havoc on the real estate markets of some industry towns in Canada, but what about the larger implications?  How will this move help or hinder the Canadian economy at large, and what sort of impact will we see here in the lower mainland?

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no debt!!!!!!!!!!!!

#16 The TV show, till debt us.. I enjoy watching this show, but wonder are people really that stupid about money? How can one possibly need all that junk that some spend good hard earned money on? How?? I am trying to figure this behaviour out. Are they kids that have been given everything in their life and never been pointed out by parents that the money had to be earned? Who are these people?! I dont have a clue. I could easily go out to restaurants, stores, trips if I wanted to, but, I am planning for a day when I may need that money more than I need the cappucino machine or the hot ass jeans. We dont live in the movies, shit happens in real life and that is why you have a savings account or some… Read more »

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Kim

We should not have to subsidized incompetence. Why should I subsidize someone's pension when I don't have one myself? These boobs who are running the big three have run them into the ground. Would you invest in a business facing bankruptcy? Well, we are being forced to by bailing these clowns out. These people have better benefits than most other Canadians. The CEO's should forfeit their salaries and benefits, as they have destroyed their workers livelihoods. The unions greed has also precipitated this. Most of these people are unemployable and would be working for a quarter of their wage if they weren't in the union.

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patriotz

other ted:

The unions and their ridiculous wages played a big part in the demise of the big three.

The problem is not wages but benefits, particularly retiree benefits. The Big 3 have more retirees than employees. Health care expenses for these people are huge, especially for early retirees under 65 in the US who are not eligible for US Medicare.

The biggest single problem for the Big 3 is that management did not anticipate the decline in their market share and consequent growth of retiree costs versus current revenues.

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Deliverator

The unions and their ridiculous wages played a big part in the demise of the big three.

Poor contracts entered into by management = poor management

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Warren

$1.4 million of your tax dollars for every job saved. Go hug a union member.

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other ted

Patriotz I don't agree. Stop spreading myths. The big 3 built cars people wanted. I see nothing but SUV's out there. The unions and their ridiculous wages played a big part in the demise of the big three. Also government policy. Another factor is demographics. They got too big and had too many outstanding obligations that they were going to pay by selling more. Well look in an almanac and tell me which year auto sales peaked for the US.

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patriotz

oracle:

what a waste, auto workers are over-paid for years, and i support them with my taxes. what a waste…

The auto workers did not decide to build cars that people didn't want to buy, or couldn't afford to run when gas got expensive.

Nor did they decide on their compensation package unilaterally.

Oh one more thing:

Although General Motors', Ford's and Chrysler's combined losses totaled $7.5 billion last year, their top executives were together paid $5.3 million. Their counterparts at Toyota, Nissan and Honda collectively made $1.8 million.

http://www.time.com/time/magazine/article/0,9171,…

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patriotz

rp:

In Tokyo families took out intergenerational mortgages to pay for apartments, paying astronomical prices.

The effect on mortgage payments of going beyond 40 year amortization is minimal. Find a mortgage calculator and check it out.

Also, the US went all the way out to infinity with interest-only mortgages, and then past infinity and back on the minus side with negative-am. How did that work out?

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patriotz

rp:

And 5% inflation allows you to borrow an extra 5% of income year and never pay it back, but it still doesn’t add up.

You mean 5% wage inflation, not price inflation.

So who's got that these days?

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Yalie

I’m hoping those GM buyers in the forum were joking. Otherwise, that is a pretty depressing read.

====

I doubt they were joking. In fact, reading those posts just reaffirmed to me the pitiful level of financial knowledge that most people posses. You know – the people in California who bought RE from 2003-2007, or the people in Vancouver who are still buying in full view of what happened south of the border?

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T-1000

rp Says: June 2nd, 2009 at 1:27 pm "I don’t think GM’s bankruptcy and the dealership closings will have any particular impact on Vancouver, other than to contribute to the general economic malaise. Honestly, I don’t understand Vancouver’s economy. So many people are working service jobs, and yet so many others are spending far more than could possibly be sustainable. It’s like everyone is a millionaire…" Some reasons why the decline is slow: 1) It takes a lot of time for Lenders to foreclose (homes, cars, etc). Most are so busy, they only get around to foreclosures 6 months after a delinquincy (I observed this 1st hand on the commercial side). And even then, the negotiations, hearing and forebearance can add another 6-12 months on top of that. 2) Consumers have learned how to shuffle debts around to buy time.… Read more »

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read on

hehe, morals…. finance industry…. such quaint ideas…

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Anonymous

But like I said, I don’t understand the economy anymore. The stock of a bankrupt company (GM) surged 20% on Monday when its value was precisely zero. I’m glad I don’t have any money in the market. I just wish I could decouple myself from the entire looney enterprise.

….How true!

They're trying to reinflate a limp balloon which was originally pumped up with cheap money, with even more cheap money. Is there anyone left in charge of the monetary system with morals?

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squidly77

wanna read some spin as a calgary condo developer becomes desperate

The first mortgage would be at four per cent for a five-year term on only 50 per cent of the purchase price. Payments on the first mortgage are interest payments only, calculated as simple interest.

The second mortgage will be calculated at six per cent, simple interest, for a seven-year term on the remaining 40 per cent of the purchase price. There will be no payments required on the second mortgage until the end of the term where by the accrued interest will be due.

Prices have already been slashed by an average of $100,000 per unit in the condo tower with 60 per cent of the 106 units occupied.
http://www.calgaryherald.com/Business/Calgary+con…

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reboot

next up..bailing out insurance companies!

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other ted

I think the entire popluation is delusional. Its as if no one cares about the implications of the auto industry going dead. I keep hearing myths like they build cars no one wants. Or now we can create jobs in the green economy. I think the stock market is more inflated now than real estate. Maybe the bulls were right it is a safe investement. Don't get me wrong i am not buying a house now but I can't believe this madness.

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oracle

what a waste, auto workers are over-paid for years, and i support them with my taxes. what a waste…

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Dagwood

Surprise surprise, Canadian banks started jacking up those mortgage rates today. Considering these upward cycles are seldom less than 5 years, I think a brief flurry of activity by the last suckers wanting to lock in will be followed by the REAL PLUNGE.

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realpaul

Ignatieff is a Liberal parachute candidate brought in from off shore because of the entire line up of elected Liberal douchebags could'nt win out established Liberal ridings. Too bad they couldn't have respected party and national tradition by elceting a leader, says a lot about the Liberals and Ignatieff. I applaude the Conservatives for ramming it to these phonies. The truth is the truth and obviously the Liberals find it inconvieniant. No one has brought up the fact that we aren't just pouring billions into a faltering GM automotive division with money that the FED isn't going to try to get back but we have just subsidized the legacy pensions for all past workers. WTF is up with that? Who here has a fat pension guaranteed by the CDN taxpayer? A rare few I'd bet. Is it just me or… Read more »

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frank

I am glad Harper has something else to worry about apart from writing attack ads on Ignatief.

I didn't realise Ignatief was Prime Minister!..sheesh you would think Harper woould spend his time trying to fix this mess rather than play childish political games. This will come back to bite them hard.

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Boombust

‘regrettable but necessary‘.

That's Harper alright. But, leave out the "necessary" part.

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rp

I don't think GM's bankruptcy and the dealership closings will have any particular impact on Vancouver, other than to contribute to the general economic malaise. Honestly, I don't understand Vancouver's economy. So many people are working service jobs, and yet so many others are spending far more than could possibly be sustainable. It's like everyone is a millionaire. Now I'm sure many people are millionaires ($10M is the new $1M). And 5% inflation allows you to borrow an extra 5% of income year and never pay it back, but it still doesn't add up. It seems that the city is infected with a permanent bubble mentality, and people pay more "just cuz". As long as there are a sufficient number of lunatics, maybe Vancouver is sustainable. I'm not seeing any change in psychology here. For that we can thank the… Read more »

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/dev/null

"$30 billion. No wait, $50 billion. "Ish". Maybe a smidge more, but that's it. OK, fine! $167 billion! What difference does it make any more?"

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Vansanity

A Federal Bailout that failed? Who would've thunk it. Oh ya… Peter Schiff and I, and I'm sure a few others on here.

I actually met with my MP last December and went off about the bailouts that they were proposing and that the US had already given. Throwing tax dollars down a bottomless pit, why? To save a few votes, er I mean jobs?

Foolish waste of money. Now, because they've wasted so much time, energy and money on the issue, they have to become buyer and take ownership. There are many conflicts of interest going on, too many to get into. Bottom line is: Stop meddling with the free market and allow it to operate.

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Incognito

My best friend wants to buy a townhome near Patterson station for $500,000.00 and flip it because it is such a good deal! Bob Renie says its a great time to buy. We are all shareholders of GM now!

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