irreality

GM told to prepare for bankruptcy

The Treasury Department is directing General Motors to lay the groundwork for a bankruptcy filing by a June 1 deadline.

The goal is to prepare for a fast “surgical” bankruptcy, the people who had been briefed on the plans said. G.M., which has been granted $13.4 billion in federal aid, insists that a quick restructuring is necessary so its image and sales are not damaged permanently.

Treasury officials are examining one potential outcome in which the “good G.M.” enters and exits bankruptcy protection in as little as two weeks, using $5 billion to $7 billion in federal financing, a person who had been briefed on the prospect said last week.

The rest of G.M. may require as much as $70 billion in government financing, and possibly more to resolve the health care obligations and the liquidation of the factories, according to legal experts and federal officials.

Of course, GM could theoretically reach an agreement with the UAW and GM bondholders to exchange roughly $28 billion in debt into GM Equity before the deadline, but I’ll not start holding my breath now.

Remember CNBC reporter Rick Santellii?  He’s the guy you may have seen on tv, ranting on the floor of the stock market, arguing against the $275 billion mortgage bailout.

Apparently Rick had agreed to come on Jon Stewart’s “Daily Show”, but then canceled at the last minute.  Jon changed things up and instead of scheduling another guest, he delivered a scalding commentary on Wall Street’s hypocritical opposition to the homeowner bailout and on CNBC themselves.

You can watch the 8 minute clip here, thanks to Consumerist.com.

Jon Stewart on CNBC, Rick Santelli

It is a sad commentary on the state of the Nation and the Media when it takes a commedian to point out the foolishness that has been taking place.

In his column yesterday at Time.com, Joel Stein explains exactly why so many people are angry about President Barack Obama’s Homeowner Affordability and Stability Plan.

A lot of optimistic people bought houses near the historic height of the market, say November 2005, for absurdly high prices, say $1.12 million, in places like the eastern Hollywood Hills section of Los Angeles. These people are very, very sad. Trust me on this. But the sudden drop in housing prices hasn’t made it any harder for these people to pay their loans. That’s because your home’s value is utterly irrelevant until you want to sell it…

…The only people affected by plummeting real estate prices are the ones who bought a house that cost more than they could afford, hoping for a spike in value so they could sell at a profit or take out a new loan based on an increased value. Their home wasn’t just a place to live; it was an investment they thought they could liquefy at will. If we’re saving these poor souls from the 26.7% drop in their investment, we should give twice as much aid to everyone who has lost approximately 50% in the stock market since its peak.

My wife and I bought a house we could afford, we drive pre-owned cars, we perform in depth price comparisons while shopping for anything, and then we wait for the item to go on sale before actually buying it.

Due to massive amounts of underemployment/unemployment, we’ve been forced to work with roughly half our regular income for the last 3 years.  We made adjustments, cut expenses, and somehow managed to not make any late payments.  But we’re now deeper in debt than we were, and even though we did the right thing and managed our finances responsibly, there’s not much we can look forward to receiving in the way of relief.

If we reimbursed people who lost cash on risky investments — or “subsidize the losers’ mortgages” — we’d create a moral hazard, telling everyone there’s no risk to gambling. It’s why parents fight their instinct to save their kids from the consequences of their mistakes.