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GM Bankruptcy; A question
Tweet Topic Started: Jun 1 2009, 10:11 AM (523 Views)
Mr Gray Jun 1 2009, 10:11 AM Post #1
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Ok, can someone smarter than me (apparently) please answer a question that I haven't even heard asked by the media or anyone anywhere? Why did we give billions of dollars to prevent bankruptcy, only to encourage bankruptcy 2 months later? (we meaning the government) My confusion is beyond words on this subject.
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The body knows what fighters don't: how to protect itself. A neck can only twist so far. Twist it just a hair more and the body says, "Hey, I'll take it from here because you obviously don't know what you're doing... Lie down now, rest, and we'll talk about this when you regain your senses." It's called the knockout mechanism.
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boilergrad01 Jun 1 2009, 10:19 AM Post #2
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Jun 1 2009, 10:11 AM
Ok, can someone smarter than me (apparently) please answer a question that I haven't even heard asked by the media or anyone anywhere? Why did we give billions of dollars to prevent bankruptcy, only to encourage bankruptcy 2 months later? (we meaning the government) My confusion is beyond words on this subject.
AaronK,

I totally agree.......
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HoosierLars Jun 1 2009, 10:39 AM Post #3
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My positive spin on this is The Messiah wanted to buy Chrysler and GM more time to prepare for the inevitable bankruptcies, giving them a better shot at survival.

My negative spin is the Dems were paying back the labor unions for their unwavering support, and are so arrogant they actually believe they know how to run auto companies better than the free market.

http://republicanleader.house.gov/News/DocumentSingle.aspx?DocumentID=130211
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thePhilosopher Jun 1 2009, 11:10 AM Post #4
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Bankruptcy, in this case (Chapter 11), is allowing the gov't to restructure the company as gov't sees fit. Obviously not all Chapter 11 cases involve the gov't in this way: this is a very unique situation. We won't lose our "investment" just because GM declares bankruptcy, but since I and many others believe this will ultimately be unsuccessful, we'll likely sink even more in the company than the $50B we're currently in for.

If GM would have filed Chapter 7, another form of bankruptcy, then they would have been liquidated and their assets would have been sold off in order to pay of their creditors and such. This is what the gov't is trying to avoid, though GM could have declared Chapter 11 on their own and we could have stayed out of it and allowed fresh business people restructure the company. There's a way to get a blue chip company like GM to work on the free market, and gov't intervention is the worst decision for GM considering they didn't have to go into Chapter 7.

I hope this helps. I don't know a whole lot of bankruptcy protection, but I'm sure I will learn a lot more over the next three years in law school.
Edited by thePhilosopher, Jun 1 2009, 11:10 AM.
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BoilerUpAT Jun 1 2009, 02:04 PM Post #5
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aaronk2727
Jun 1 2009, 10:11 AM
Ok, can someone smarter than me (apparently) please answer a question that I haven't even heard asked by the media or anyone anywhere? Why did we give billions of dollars to prevent bankruptcy, only to encourage bankruptcy 2 months later? (we meaning the government) My confusion is beyond words on this subject.
what are you talking about? I have been bitching about this for a long time.

Its spiraling out of control.
Close by the Wabash, In famed Hoosier land, Stands old Purdue, Serene and Grand, Cherished in Memory, By all her sons and daughters true, Fair Alma Mater, All Hail Purdue
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HoosierLars Jun 1 2009, 02:11 PM Post #6
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And S&P lowers GM's bond rating to "D" only after bankruptcy is declared:
http://finance.yahoo.com/news/Standard-amp-Poors-cuts-GMs-apf-15401752.html?sec=topStories&pos=3&asset=&ccode=
No shit, Sherlock.

A few years ago I needed to park some home equity someplace for a few months, and a Schwab adviser got me into some short term GM bonds. He said he didn't recommend them for the long term, but "they wouldn't be going out of business in the short term."
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thePhilosopher Jun 1 2009, 03:47 PM Post #7
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HoosierLars
Jun 1 2009, 02:11 PM
And S&P lowers GM's bond rating to "D" only after bankruptcy is declared:
http://finance.yahoo.com/news/Standard-amp-Poors-cuts-GMs-apf-15401752.html?sec=topStories&pos=3&asset=&ccode=
No shit, Sherlock.

A few years ago I needed to park some home equity someplace for a few months, and a Schwab adviser got me into some short term GM bonds. He said he didn't recommend them for the long term, but "they wouldn't be going out of business in the short term."
Sounds like you need to be a Euro Pacific investor B)
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brumdog44 Jun 1 2009, 04:06 PM Post #8
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HoosierLars
Jun 1 2009, 10:39 AM
My positive spin on this is The Messiah wanted to buy Chrysler and GM more time to prepare for the inevitable bankruptcies, giving them a better shot at survival.

My negative spin is the Dems were paying back the labor unions for their unwavering support, and are so arrogant they actually believe they know how to run auto companies better than the free market.

http://republicanleader.house.gov/News/DocumentSingle.aspx?DocumentID=130211
There's Mr. Partisan Hack at his game. Read below to see how it hurt numerous unions.
Edited by brumdog44, Jun 1 2009, 04:11 PM.
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brumdog44 Jun 1 2009, 04:10 PM Post #9
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thePhilosopher
Jun 1 2009, 11:10 AM
Bankruptcy, in this case (Chapter 11), is allowing the gov't to restructure the company as gov't sees fit. Obviously not all Chapter 11 cases involve the gov't in this way: this is a very unique situation. We won't lose our "investment" just because GM declares bankruptcy, but since I and many others believe this will ultimately be unsuccessful, we'll likely sink even more in the company than the $50B we're currently in for.

If GM would have filed Chapter 7, another form of bankruptcy, then they would have been liquidated and their assets would have been sold off in order to pay of their creditors and such. This is what the gov't is trying to avoid, though GM could have declared Chapter 11 on their own and we could have stayed out of it and allowed fresh business people restructure the company. There's a way to get a blue chip company like GM to work on the free market, and gov't intervention is the worst decision for GM considering they didn't have to go into Chapter 7.

I hope this helps. I don't know a whole lot of bankruptcy protection, but I'm sure I will learn a lot more over the next three years in law school.
I do know that a lot of investors because of the bankruptcy that was allowed to take place had to go to the back on the line in getting repaid.

The TRF (teacher's retirement fund) had a contract on its investments that stipulated that they would recieve 55 cents on the dollar in the case of bankruptcy. Because the laws were changed midstream on the GM bankruptcy, they were pushed to the back of the line and will recieve 23 cents on the dollar.

And before you talk about it just being a teacher's union issue, there were many groups that got held up in the same boat.
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BoilerUpAT Jun 1 2009, 04:18 PM Post #10
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I can't explain how much this whole bailout thing (especially the auto industry-banks could be argued, maybe) pisses me off. This is so f'ing absurd. How did it come to this?

I really like GM cars. I do. But, I will NEVER BUY ONE based on this crap. Never again. I don't care if its the best car and the best deal out there, never. These crooks (from the top to the bottom, white collar to blue collar) have milked the system and poorly managed it for years, and now are swallowing BILLIONS of tax dollars to pay for living high on the hog.

I shouldn't take it out on the namebrand itself, but what else can I do to express my anger? Don't say vote either: I vote Libertarian most of the time and have since 1996. Maybe not pay my taxes? I don't care, I'm not buying one ever again.

I'll buy a Ford though.........at least they did it right and didn't take the money.

EDIT: And, don't bring the UAW into this. They had a hand in a good majority of it and are just as guilty as the management, if not more so. FYI-I have 2 relatives and a good friend who work at Subaru and another friend at Toyota in KY. No union there, business is great and they make pretty damn good money and have better health benefits than I do. They aren't going bankrupt either BTW.
Edited by BoilerUpAT, Jun 1 2009, 05:37 PM.
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HoosierLars Jun 1 2009, 04:59 PM Post #11
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brumdog44
Jun 1 2009, 04:06 PM
HoosierLars
Jun 1 2009, 10:39 AM
My positive spin on this is The Messiah wanted to buy Chrysler and GM more time to prepare for the inevitable bankruptcies, giving them a better shot at survival.

My negative spin is the Dems were paying back the labor unions for their unwavering support, and are so arrogant they actually believe they know how to run auto companies better than the free market.

http://republicanleader.house.gov/News/DocumentSingle.aspx?DocumentID=130211
There's Mr. Partisan Hack at his game. Read below to see how it hurt numerous unions.
No sir, I gave both my positive and negative spins. The workers don't need to worry because The Messiah will guarantee free health care and full employment for all, not to mention a much cleaner environment and a world where we can all get along and live together in peace.
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thePhilosopher Jun 1 2009, 07:56 PM Post #12
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Jun 1 2009, 04:10 PM
thePhilosopher
Jun 1 2009, 11:10 AM
Bankruptcy, in this case (Chapter 11), is allowing the gov't to restructure the company as gov't sees fit. Obviously not all Chapter 11 cases involve the gov't in this way: this is a very unique situation. We won't lose our "investment" just because GM declares bankruptcy, but since I and many others believe this will ultimately be unsuccessful, we'll likely sink even more in the company than the $50B we're currently in for.

If GM would have filed Chapter 7, another form of bankruptcy, then they would have been liquidated and their assets would have been sold off in order to pay of their creditors and such. This is what the gov't is trying to avoid, though GM could have declared Chapter 11 on their own and we could have stayed out of it and allowed fresh business people restructure the company. There's a way to get a blue chip company like GM to work on the free market, and gov't intervention is the worst decision for GM considering they didn't have to go into Chapter 7.

I hope this helps. I don't know a whole lot of bankruptcy protection, but I'm sure I will learn a lot more over the next three years in law school.
I do know that a lot of investors because of the bankruptcy that was allowed to take place had to go to the back on the line in getting repaid.

The TRF (teacher's retirement fund) had a contract on its investments that stipulated that they would recieve 55 cents on the dollar in the case of bankruptcy. Because the laws were changed midstream on the GM bankruptcy, they were pushed to the back of the line and will recieve 23 cents on the dollar.

And before you talk about it just being a teacher's union issue, there were many groups that got held up in the same boat.
Not to be rude, but what exactly are you saying? I'm afraid I've missed your point, though I'd like to understand it if I can.
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brumdog44 Jun 1 2009, 10:10 PM Post #13
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This is from an e-mail from the president of the TRF (teacher's retirement fund):

INDIANAPOLIS, IN (May 20, 2009) -- Steve Russo, Executive Director of the Indiana State Teachers' Retirement Fund (TRF), is announcing that TRF will join forces with State Treasurer Richard Mourdock to seek recovery of monies that would be lost should the Chrysler bankruptcy be approved in its current form. TRF would incur a $4.6M loss should the current bankruptcy plan be approved.

As explained in a separate press release from the State Treasurer's office, the proposed bankruptcy settlement overturns nearly two hundred years of established law by redefining "secured creditors" to mean something less. In the past, to be "secured" meant that an investor was first in line to receive payment in the event of a bankruptcy; "non-secured" creditors would receive payments after secured creditors were paid. In the Chrysler bankruptcy, however, secured creditors are slated to receive $0.29 on the dollar while non-secured creditors receive higher values and end up with a 55% ownership of the newly restructured company.

Russo noted, "When TRF's investment manager took the decision to make this investment, it was under the well established presumption that in the event of bankruptcy, TRF--along with the other secured creditors--would be first in line. With the unprecedented proposal before the bankruptcy court, TRF is being asked to move to the back of the line behind non-secured creditors. Moving to the back of the line means receiving less money than what we would have received in a 'normal' bankruptcy.

"TRF has a legal obligation to act in the best interest of TRF members. Agreeing to the current terms of the bankruptcy is not in the best interest of Indiana's hardworking teachers. It would be irresponsible for TRF to ignore this loss of funds on behalf of its members. No matter how small or big the obstacle, TRF will use all legal means necessary to protect the best interest of our teachers' retirement future."

-----------------------------------------------------------------------------
The government made a settlement that went against previous bankruptcy precedent. And this is where a huge bulk of where teacher's union dues go...protecting what was already promised for our retirement. Note that in this case both the TRF and state treasurer's office are in agreement.
Edited by brumdog44, Jun 1 2009, 10:12 PM.
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thePhilosopher Jun 2 2009, 10:20 AM Post #14
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Ooohhhh, I see. Sorry I was a little dense earlier, and sorry about this crappy situation for you and your colleagues. Keep us updated on this, Brum. I do agree, this isn't a teacher's union issue, but a general problem with this kind of intervention by gov't.
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brumdog44 Jun 2 2009, 04:26 PM Post #15
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Jun 2 2009, 10:20 AM
Ooohhhh, I see. Sorry I was a little dense earlier, and sorry about this crappy situation for you and your colleagues. Keep us updated on this, Brum. I do agree, this isn't a teacher's union issue, but a general problem with this kind of intervention by gov't.
That's the kick in the pants: the TRF (teacher's retirement fund) is not a part of the ISTA (Indiana State Teacher's Association). However, the ISTA has to invest a huge amount of money into legally fighting to make sure the money in the TRF is properly funded by the state.

I also suspect that those in charge of the TRF would NOT have even looked to invest in GM had the state been keeping up their share of the bargain by putting in the funds that had been properly paid to them out of teacher's salaries or from school districts. Instead, the TRF is forced to invest in what should have been a low risk investment to help make up the missing fund and now the federal government screws that up.

Anyway, the missing $4.6 million lost in the bankruptcy by the TRF is just a drop in the bucket to what the state owes the teacher's retirement fund. In the end, you'll see the state government increase taxes to pay off the debt.

One way they already have done this is on the percentage of teacher salary that they must pay into TRF (this is money above what a teacher gets paid). Don't quote me directly on this, I am still working on getting a total grasp on it, but this is how it works I believe:

Prior to a few years ago, the district paid 6% of what a teacher's salary was to the state in TRF. Some school systems paid 3% while the teachers matched that, but a vast majority of teacher's unions negiotated the teacher's 3% share into the corporation paying it in lieu of getting a raise one year. This actually was a win-win situation: teacher's gained from the fact that legally once a corporation starts making the complete TRF contribution, it can never go back to be a teacher responsibility to pay it; the administration gained from the fact that they weren't paying a raise one year plus that 3% not going to raises would keep future salaries down as they wouldn't be paying raises on that 3% (i.e., a 2% raise would be on the lower amount, not the amount plus the 3%).

But the state didn't pay the TRF what they had properly recieved from school districts. So what short-sighted remedy did they give? I'm still trying to grasp this, but I believe that a few years ago they upped any new teacher's retirement fund pay to 10% instead of 6%. It wasn't a big difference to corporations at the time, because a 6% of a retiring teacher's pay compared to 10% of a new teacher's pay was about the same...plus they were paying the new teacher less in salary. When the cycle ends and the bulk of teachers are on the 10% rule instead of the 6%, you will see school districts have to make adjustments to fit this excess tax money they are having pulled from them. In terms of a teacher's retirement, it doesn't make a difference whether they were pulling 10% or 6%...the tables will be adjusted based on starting year.

Now, the money that is given to the state is not like a pool of money that teacher's have when they retire...our monthly pension is partially based on the amount of money that has been contributed from our pay.

What do I think will happen in the end, when the TRF starts to dry up? The Indiana government will come up with new taxes to fund it. The teacher's union is a powerful one, which makes some people upset. But the bottom line is that if someone is stealing from your pension, you sure as hell want someone of influence fighting for you.

So the result is this:

1. The government spends money that rightfully belongs to the TRF.

2. Teachers pay high union dues to make sure the TRF is being funded.

3. I believe at some point, when the TRF is in dire straits, the government will increase taxes in some manner to help fund it. Hell, this is where the lottery money was supposed to go.

4. Now the general public gets screwed by increased taxes.

So teachers get screwed by having to spend money to chase the money that is wrongfully getting taken away from their pension; the Indiana public gets screwed by paying additional taxes that they shouldn't have to in order to cover the asses of previous administrations that took money from the TRF to pay for other projects.

When you hear that the Daniels administration had a surplus of funds (which has occurred), the first question should be not 'where will we spend it?' but rather 'why isn't it going to cover outstanding debts that we have?' The TRF can't be the only fund that is in this category, either.
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