Bailout Watch 185: Ask A Capitalist
Here’s a crazy idea. Instead of relying on a bunch of politicians with little to no business experience to sort out GM’s problems, let’s find out what someone who actually turns around failing companies for a living would do. How about, say, William Ackman of Pershing Square Capital? After all, his Fannie/Freddie restructuring ideas seemed pretty well put-together. What say you, Mr Ackman? “GM should be allowed to succeed, and the only way GM can succeed is if it has a balance sheet its business can support,” Ackman tells Reuters. He goes on to say that he would expect GM to get to that position by agreeing to a “prepackaged bankruptcy in which GM’s creditors erase large amounts of liabilities in exchange for equity in the newly restructured GM.” Should a newly restructured GM still need more liquidity for its balance sheet, “then the government can play an important role while protecting taxpayers from losing money.” This, in a nutshell, is why Treasury Secretary Hank Paulson refused to let GM into his TARP. Unless GM massively corrects its balance sheet blues, any federal loans will just be so much good money thrown after bad. Restructuring means jobs will be lost, but if the alternative is subsidizing jobs for their own sakes, then we’ve reached an impasse. Now, all GM and the UAW need to do is stop worrying and learn to love the bankruptcy court.
More by Edward Niedermeyer
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JeremyR, the problem with the federal government as a DIP lender is that the current powers that be in the federal government will not support GM's rejection of its collectivee bargaining agreements with the unions. Since that would be a primary goal of a Chapter 11, I don't see it happening. The government probably would support getting rid of Wagner et al, and that would probably be a good thing also, but without shedding the union contracts, I can't see how GM can compete long-term against the Japanese. Astronut: I agree with kazoomaloo that you should not resort to personal attacks, even if you disagree with him.
Now that you mention it, I'm not sure that the government would be able to make such a tough (i.e. politically charged) decision.
Thank you guys for bringing both Ackman and Ross to my attention. Fun to read the 2 sides. What is a DIP? We keep thinking that GM has a choice in whether or not to use bankruptcy as a way to reorganize. Can't their suppliers get tired of the way GM has been treating them and force bankruptcy? I liked the analogy someone used a while back about the mother who starves her kids and when the police come to arrest her she says, "but you can't take me away - who will feed my kids".
Just one more vote for the "let them go bankrupt" side of the argument. Chapter 11 bankrupcty is a time-honored, highly developed method to save companies that are FUBAR. Seems like the right medicine for GM. All this bailout will do is bailout the unions. Bankruptcy gives GM the opportunity for a clean slate. Giving out more government money is making me feel somewhat nauseous.