[Marxism] When "companies to big to fail" go bankrupt
dougsmiley at sbcglobal.net
Sun Mar 20 13:25:42 MST 2005
Today, we don't make men gods. Instead society has made our financial system
into a false god.
On March 15th, 2005, (the ides of March) we may have just witnessed the
beginning of the death of our financial system as General Motors stock took
a nosedive from $34/share down to $30.
It does not seem like much (GM down just over 10% in one day), but as of
March 17th, the stock is down to $28.35, and the market cap is down to $16
billion. (GM is down nearly 18% for the week.) It's the type of volatility
that we usually only see in silver stocks!
What does this mean?
GM's stock price decline is like a dagger right into the heart of the U.S.
financial system, and the dollar itself!
Why did it happen?
Apparently, someone in power did the equivalent of shouting "the emperor has
no clothes" and people woke up, and are beginning to see more clearly! The
media decided it was time to expose the truth that GM is nearly insolvent,
and will expect to lose $1.50/share in the first quarter alone!
But the story is worse than that! GM has $300 billion in debt
...and has a market cap, now, of $16 billion. See the problem there? The
bondholders could buy the company nearly 20 times over if they used their
money to buy stock instead of loan it to the company. The implication is
clear--that GM is headed towards bankruptcy, and will default on the
bondholders, who will then own a company worth less than $16 billion
For every one point that interest rates rise, refinancing GM's debt will
cost an additional $3 billion in annual interest payments -- money that they
clearly do not have! Where is GM going to get another $3 to $6 to $9 billion
as interest rates rise by 1%, 2%, and 3% more? Selling cars? Nope. Selling
stock? Unlikely in this market! Borrowing more? From whom? The U.S.
government itself is propping up this bond market, and there are no buyers
even for U.S. bonds, and there haven't been for months now!
So, therefore, GM will soon be a $300 billion dollar blow-up!
How big is that? It's bigger than Enron, Global Crossing, LTCM, K-Mart, and
the IRAQ war all put together!
$300 billion going belly up is a big enough event to topple the U.S.
government! How so? It will shake the confidence in the entire financial
system. Companies as big as GM are not supposed to go bankrupt in our
"normal" world. They are "supposed" to be "too big to fail".
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