A MODEL FOR RECOVERY

A deal was floated by GM and the Government today that would leave The Government (us) and the UAW in control of about 89% of Gm stock ($1.87 today) and total control of the companies direction.  Now I know the big business types are going to hate this deal, but who cares what they like. Were talking about a chance to save a lot of jobs, a chance to build the kind of cars we need (high mileage , green cars) hell maybe even an electric that makes sense.  The bond holders (GM bondholders)are going to get screwed there is no doubt about that.  Estimates vary they will get between .05 to 48 cents on the dollar if they take this stock trade for their bond holdings.  Keep in mind GM bonds have been rated as junk since 06 so if your pension fund has them in their portfilio shame on them.  The other fly in the ointment is some of these bond holders bought CDS’s to cover a bond default and these guys would prefer bankruptcy over this deal.

Yep, this in Nationalizing the company and screams of Socialism will sound out of the right wing, (but hey , they are a small minority in Congress and the country) so let them scream.

Now for the Model part.  This kind of plan has been talked about not only for the car companies but for the banks too.  In the banks case the Government would buy up the bank bond holders in exchange for stock which accomplishes a couple of things.  The important part is it clears the banks books of most of their debt , cleaning up their balance sheets , and freeing up money so they can start lending again.   This idea has been out there for a long time by some of the smartest economic guys out there who are not heard very often on the public media.  It’s where even the folks who don’t like the idea think will end up at when all else has failed.  Once again the bond holders (who are)  will get little in exchange for their bonds.  In this case as in the GM deal they will get stock in the company.

Given the current stock prices of the companies involved they could actually end up making money in time.  Some say the Nationalization of these banks and other companies will never happen because the rich, banks  and pension funds hold most of these bonds.  I didn’t see them bring the crying towels for you when they wiped out your 401K , did you?  Gee the rich sharing in the pain doesn’t make me feel all that bad.  The pension funds give me pause for concern but you must keep in mind you the owner of the pension fund hire the manager of said funds and if they are still holding these bonds today, shame on them.  They already lost tons of your money playing in the funny money market so one more hit will hurt but with smart investment in the future it can be made back up.

The alternative is the whole country goes into deep depression with no one sure how a manufacture less economy can pull itself up again.  So to me the choice is damn simple.  Nationalize them, save the jobs, give the rich a haircut and just maybe, just maybe we can save the country.

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Explore posts in the same categories: CHECKBOOK ECONOMICS, FUTRURE, THE BIG 3

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