By the way, for those of you who think bankruptcy for GM, Chrysler and/or Ford is a viable option (i.e., Chapter 11 reorganization) I have one word for you: financing. Who do you think is going to provide the all necessary debtor-in-possession financing (a/k/a DIP financing) which is an absolute necessity if any Chapter 11 reorganization is going to be allowed to proceed. As a former bankruptcy attorney, I can tell you right now it isn't coming from the private sector. There isn't a white knight lender out there willing to make that kind of commitment in our present economic climate. Not without full guarantees from the US government. The funds needed, even over the short term, are too great, and the asset values that would secure this new debt financing would fall too precipitously if the reorganization failed and turned into a liquidation for any private bank or other lender to seriously consider taking on that risk.

Why? Because the value of most of the automaker's hard assets (e.g., inventory, factories, receivables) are directly tied to the continuation of GM, et alia, as ongoing concerns. Once a manufacturer shuts its doors, the value of its real estate drops dramatically because the structures on that land are primarily there to serve a single use: the manufacture of vehicles, or office space for headquarters and other operations. My guess is that these properties are already leveraged with so much mortgage debt that no lender has any hope of recovering the loan balances. In the midst of a real estate slump, no one will buy those properties except at values roughly one third or less of their "fair market value" as currently listed on the balance sheets of the automakers. The equipment in those factories and buildings would fetch far less, and is also likely mortgaged to the hilt.

Regarding receivables, it is a standard measure that once a firm goes into liquidation, the value of its accounts receivable (money owed to the failed company from its dealers, etc.) would fall by at least 50% in value, and that's in a period when no recession exists. Under the current conditions existing in the world economy, any lender would be lucky to collect 10% of the stated value of the receivables once the auto companies cease doing business.

As for the inventory (in this case cars, auto parts and the materials to make them) who is going to buy a car from a company that doesn't exist anymore? With no warranty? With no reliable source of parts after the original ones need replacing? If you answered virtually no one you would be correct. Those vehicles become essentially worthless the moment any company shuts its doors and goes out of business.

So, who would take that chance and provide the billions of dollars necessary to keep GM up and running while it reorganizes? Nobody. Not unless they had another deep pocket to collect from should GM crater. And the only deep pocket available to a lender providing DIP financing in this case is the government. And our government, therough the auspices of Senate Republicans, just told any potential DIP lender that it isn't a likely option of fulfilling the role of surety in Chapter 11. Hell, they wouldn't authorize a $15 Billion bridge loan to keep GM and Chrysler up and running until next year. Any lender (and in this case it would have to be a large consortium of lenders) is going to look at that and ask themselves this question: if Congress won't provide the loan guaranties now to keep GM and Chrysler out of bankruptcy, what makes anyone think they will provide the loan guaranties needed for the vastly larger sums needed to operate GM and Chrysler once they file a Chapter 11 petition? And without a DIP lender lined up before the the Chapter II reorganization is filed, GM and Chrysler are just as likely to go out of business and have their assets liquidated regardless of whether they go the Chapeter 11 route.

And once the inevitable liquidation starts, all the suppliers and dealers who do business with GM and Chrysler (and maybe Ford, too) will find themselves facing bankruptcy or will be forced to go out of business as well. And though smaller, no one will want to lend them the money to reorganize either, not when their biggest customers (or sources of inventory in the case of retail car dealerships) no longer exist. Thus we have a ripple effect across our country. Parts manufacturers go under first. Automobile dealerships tied to American cars go next. Suppliers of steel and other materials needed to manufacture cars also start to become distressed. Job losses mount. Unemployment costs to government skyrocket. Detroit becomes a hollowed out shell of a city. Internal migration out of rust belt states becomes a tidal wave, a mass of internal refugees not seen here since the Dust Bowl era. The rest of the economy, especially the retail and transportation sectors, already reeling, will receive a body blow from which it is unlikely to recover anytime soon. If you think things are bad now, just wait. Killing off the auto industry will forever change the landscape of this nation, and not for the better.

But at least the Republicans in the Senate will have made a point. Stood by the ideological principle that government should not intervene in the free market to help industries in distress (at least, not unless that industry is centered in or around Wall Street). Eliminated one of the most powerful labor unions remaining in the US and one of their chief political adversaries. Not to mention making millions of their fellow citizens suffer untold misery.

Surely a "good act," as the ancient stoic philosophers might have said. One can only stand in awe of their hubris.

Update [2008-12-12 9:48:51 by Steven D]: Bush may use TARP bailout fund monies to help the Big Three:

ABOARD AIR FORCE ONE (AP) -- The White House says it is considering using the Wall Street rescue fund to prevent U.S. automakers from failing.

President George W. Bush's press secretary says it would be "irresponsible" to further weaken the economy by letting the Detroit car companies fail. Dana Perino says the White House normally would prefer to let the financial markets determine the companies' fate.