Tuesday, June 30, 2009

Will the U.S. lose money on its investment in GM?

The Bush administration gave GM $20 billion in emergency loans in December 2008 and the Obama administration plans on giving GM another $30 billions as it comes out of bankrupcy court. In exchange, for this $50 billion, GM will owe the government about $6.7 billion in secured debt and about $2.1 billion in preferred shares and the government gets the 60 percent equity stake. Assuming the government is repaid the debt and preferred shares, the value of the company's common shares would then have to rise to roughly $68 billion to pay back the remaining $41 billion in direct GM investment. GM’s total value peaked at $56 billion in 2000.

http://www.washingtonpost.com/wp-dyn/content/article/2009/06/29/AR2009062904105_2.html?hpid=moreheadlines&sid=ST2009063000573

I have liked the ledes for virtually all of my Beat Blog articles. This is an exception. This article’s lede just doesn’t seem to do the article justice.

Also, this article doesn’t seem to be balanced. We are given to conclude that the government may not recoup the entire amount invested to date. Still, one piece of information is conspicuously absent. We know how high the value of GM stock would have to go for the government to recoup its investment. We know what GM’s all time high was in 2000. We are not told what GM’s value might be today. That it, how much might the government receive?

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