G.M. is in trouble, according to the latest news. The company has some contracts and other obligations that it can’t afford. What can the government do to help?
Answer: The government has already done everything that it needs to in order to help G.M. The government established bankruptcy courts so that a company like G.M. can go through a Chapter 11 reorganization. During the Chapter 11 process, a judge has the power to adjust the company’s obligations so that they can be paid from the company’s likely future revenue. Chapter 11 was designed specifically so that employees can keep their jobs, albeit possibly at lower salaries, while shareholders and creditors suffer and/or are wiped out.
The stockholders, creditors, and employees of G.M. do not deserve to be spared the pain of the recession. The rest of America will be taking pay cuts, losing jobs, giving discounts to customers, etc. What is special about G.M. that they should be able to live as though 2008 never happened?
[Note that the current market capitalization of G.M. is only about $2.8 billion (compare to over $100 billion for Google). The shareholders have already lost almost 100 percent of their investment. The world won’t come to an end if these shareholders go from losing 95 percent to losing 100 percent. An evaporation of $2.8 billion will barely register compare to the losses that the S&P 500 holders suffer nearly every day.]