The danger of bailing out "everybody"

GM: Almost out of cash

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General Motors shook an already embattled auto industry Friday as it reported a huge loss that was much worse than expected and warned it is in danger of running out of cash in the coming months.

GM, the nation's largest automaker, reported it lost $4.2 billion, or $7.35 a share, excluding special items. That's up from the loss $1.6 billion or $2.86 a share it reported a year earlier and was far worse than the forecast of analysts surveyed by earnings tracker Thomson Reuters, which had forecast a loss of $3.70 a share.

But the most shocking news came in its statements about its cash position. GM said it had burned through $6.9 billion during the quarter and warned that it "will approach the minimum amount necessary to operate its business" during the current quarter.

In addition, the company said that in the first half of next year its "estimated liquidity will fall significantly short" of what it needs to continue operating. It said the only thing that would save it would be a significant improvement in economic and automotive industry conditions, help from the federal government, better access to capital markets or some combination of those options.

We Have a Debt to Discharge

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All the US government is doing is creating a bigger bubble. What will happen when the Treasury auctions fail, or, stretch the yield curve so wide that there is panic. We don’t want our financial institutions to fail, so we are willing to wager the creditworthiness of the nation in order to save them. I don’t like that bet. Many empires have died choking on debt. Is the US to be next?

When I wrote articles opposing the bailout, I did so because I did not think it would work, and that one-off conservations/liquidations would be preferable, but not optimal. Optimal to me would be using the bankruptcy code on a expedited basis, wiping out junior capital, and making senior capital take haircuts.

But in the present, we contemplate borrowing to bail out all manner of problems — bail out homeowners, automakers, banks, insurers, guarantors, etc. The end to this phase will come when the creditors of the US write off their prior lending, and decide not to throw good money after bad. I have no idea when that time will come, but the dreamy schemes of politicians aiming to solve every financial hurt will help to force such a time to happen.

U.S. Carmakers Said to Seek $50 Billion in U.S. Loans

Excerpt:

General Motors Corp., Ford Motor Co. and Chrysler LLC, strapped for cash as sales plunge, are seeking $50 billion in federal loans to help them weather the worst auto market in 25 years, a person familiar with the matter said.

The package would be $25 billion for health-care spending and $25 billion for general liquidity that could be delivered in different ways, including short-term borrowing from the Federal Reserve, said the person, who asked not to be identified because the plan isn't public. In return, the companies would be willing to take steps such as granting stock warrants, the person said.

Comment: I have my own personal investment in GM: I have been a GM car buyer for decades, I currently have 2 GM cars (S-10 pickup & an Impala), I have a nephew who owns a GM dealership, etc. As an investor, I own GM stock somewhere (in one mutual fund or another, or in an ETF). Nevertheless, I am concerned about bailout after bailout. GM is burning through cash, so are Ford and Chrysler. The question is this - at what time are we chasing good money after bad? And who will bailout the one who bails out? "Many empires have died choking on debt. Is the US to be next?"