General Question

walterallenhaxton's avatar

If the government steals from GM's bondholders will the interest rates on new bonds generally go up?

Asked by walterallenhaxton (888points) May 27th, 2009
Observing members: 0 Composing members: 0

10 Answers

dannyc's avatar

Yes. The bondholders have a great point. The U.S. Treasury has attempted to circumvent the rules of security, they know it, and probably have planned the bankruptcy. Welcome to the world of socialized government controlled business. However given the alternate world of Wall Street corporate theft, not sure what side deserves whatever medicine is being prescribed more and who is guiltier of theft.

wundayatta's avatar

Well, we could have let GM go bankrupt; it’s assets be sold off, and the bondholders get what they can. I don’t know if they would get more that way, or less. I suppose they would have preferred bankruptcy.

ragingloli's avatar

@daloon the loans they gave to GM are highly insured, so they would profit more from it if GM went bankrupt.

wundayatta's avatar

Ah, yes. Moral hazard.

walterallenhaxton's avatar

@ragingloli Some of them might be. What the government is doing it taking away that insurance for all bondholders not just Gm bondholders or those that have additional insurance.

walterallenhaxton's avatar

@dannyc A bankrupt government owning a bunch of bankrupt companies. I wonder how long before both are liquidated. The ability to print currency will not erase the facts of economics. You have to make a profit to sustain an enterprise.

ragingloli's avatar

@walterallenhaxton actually, you just have to break even to sustain it.

walterallenhaxton's avatar

@ragingloli To do that you have to pay for the money involved in your enterprise or it will go away. I am not talking about a luxury. Profits are an expense of an enterprise. Breaking even will not sustain it beyond the moment.
The customers will go to the competition when they find out that you can not fufill their orders for increased products as well. That takes new investors or more money from existing ones. Substituting bank credit for investors leaves a company in a bad place in an economic downturn. Bye Bye Circuit City. They should have survived. They were a much better store than the competition.

ragingloli's avatar

@walterallenhaxton profit is what remains if you subtract all expenses from all revenues.
if you want to expand or produce a higher amount of products, then the costs to do that are also expenses that your revenues must cover.

walterallenhaxton's avatar

@ragingloli Profit is exactly the same as wages financially and with out bailouts the same thing happens to a company if it does not pay it. It goes out of business. Profit is a cost of doing business. It is not just a residual number on some balance sheet. It is a real vital thing.

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