My thoughts about the news that GM has announced they are most likely going to file for Chapter 11 bankruptcy on Monday.
Okay, so let me get this straight. The American taxpayers gave GM $19.4 Billion dollars to put this economically inept company on life support for 6 months only to have them file the bankruptcy that they should have at the beginning of the year? Was it really that smart to buy GM time in the hopes that a miraculous restructuring could be negotiated with the bondholders and UAW without filing for bankruptcy? Let’s see, what could we have done with that $19.4 Billion…perhaps that could have been used to help refinance struggling subprime, Alt-A, ARMs and prime mortgages that have gone into default? Maybe we should have rewarded those hard working Americans who are still trying to pay their mortgage every single month despite being out of work?
Let’s do some math. If $19.4 Billion were enough to facilitate a refinance to a 4.5% fixed rate mortgage for the 473,000 Americans whose loans went into default in the first quarter of 2009 that would give us a little more than $41,000 per person to get their loans modified. Those loans in total represent $224 Billion that Banks are now having to put back onto their books as bad debt…which is going to require more TARP money for the Banks. Now let’s assume that only 50% of those modified loans were successful in keeping their mortgages current…we’ve still saved our banking system $112 Billion of bad debt. Now the banks are going to have to sell that bad debt to another person or entity for $0.50 on the dollar leaving a $61 Billion net loss. Granted, there are a few assumptions made above, but I challenge you to do math that justifies the GM Bailout over a reasonable home owner refinance plan.