The Two-Billion Dollar Solution
posted by tiggerporn
12/12/2008 09:25:25 AM EST
"It's over," exhales Harry Reid, exhausted, disgusted and finally just relieved. All options were exhausted and they just didn't have the votes for cloture. So they let Dodd blabber on for ten more minutes and decided to hold the cloture vote at 10:40 PM anyway, just because.
It's over for GMAC and for GM. General Motors, home of over nine brands including the mother of 'em all, the Caddy. Formed in 1908, they've been for many years the number one car manufacturer in the world. It's over. It's over. GM recently hired a consultant on the unthinkable, bankruptcy, but decided it was not doable. And yet they also came to the conclusion they could not continue to exist without the bailout. They need the money right now, this month, 4 billion, or they go belly up.
Is it possible they could make due with less? Why 4 billion, how about 2 billion? Could Harry muster 60 votes for 2 billion instead of the full monty 14 billion? Is it already too late because it was going to be an amendment to a tax bill that is already going through at 10 AM today? Is there any hope left?
2 billion dollar loan to GM, GMAC goes through a structured bankruptcy and Cerberus and John Snow agree to wait for any money for Chrysler until next year. Chrysler is the most likely of the three to go bankrupt in the long run, because through Cerberus they have more ties to subprime and because they are the smallest of the big three. But as with SUV's and horsecocks, bigger is not always better, GM's strength is precisely its weakness as well. It might be too big to fail, but it also might fail precisely because it is too big, some giant behemoth that teeters under its own weight. Its month to month operating costs are just too much for it to keep up, its cash reserves are dwindling and it has limited availability to credit and in some cases negative cash flow. Which means cutting costs, liquidating assets, renegotiating contracts, beg borrow steal.
The point is though, part of what is making Americans squeamish is the idea that there is no difference between 100 billion and a trillion and say 2 billion. The numbers have lost all meaning and relevancy. Why 50 billion, why 25 billion, why 14 billion?
Why not 4 billion? Why not 2 billion?
4 billion is the number that GM needs right now, this month, to stay solvent. But people say why throw 4 billion at them if next month they will need that plus more and still be in the same case, it doesn't make sense. On the other hand Ford isn't asking for the money right now, but the way these things get done, it is all lumped together, partially because if you are going to get concessions from the UAW it makes sense to deal with the big three as one entity.
But is it possible that GM could make due with 2 billion this month? Is it also possible Ford and Chrysler could put off their own needs until next year? Ford needs less but they will still need it eventually when they run out of cash if their operations don't pick up, which has a lot to do with the market and with credit. But while GM needs 4 billion right now, is part of that involved with GMAC? If GMAC went bankrupt, could GM do with 2 billion?
Apparently Cerberus wants GMAC to go bankrupt, because then they get to screw over their stock holders. They are offering some stockholders a chance to get closer in line to getting paid in a bankruptcy if they take a discount, I don't know maybe fiddy cents on the dollar or less. If they spread enough panic and fear, if they can tip the balance where enough of the shareholders say fuck it, I want to at least get something, then they essentially buy their votes, the company will go bankrupt, those that didn't take the deal get nothing and those that did still get screwed, but less so.
John Snow, former head of treasury must have cooked some of this up with Paulson when he planned to get Cerberus and GMAC and Chrysler under the "Tarp" protection, but GMAC does not qualify as a bank holding company.
Americans might be able to stomach a 2 billion loan for GM right now. And things will be very different next month with a new congress, new administration and new president. But apparently it is already too late for GMAC. And if something doesn't happen then it is apparently too late for GM. And if GM goes under, then eventually Ford and Chrysler will to. There is no option for the big one or the big two, because all the suppliers will go bankrupt first.
Of course all this might be moot. Obama might swoop in after GM has gone bankrupt and work his magic, who knows, anything can happen. I haven't heard any talk of a more limited bailout, a 2 billion dollar plan for GM, though, and Harry Reid says it is all over. And according to GM, they say bankruptcy isn't an option but that they can't survive without this bailout right now. Which means?
