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We already have a bailout system, it is called bankruptcy. This is how it works: GM petitions the court for bandruptcy protection. The court grants temporary protection to GM from creditors, then decides which of GM's creditors have the most claim to any GM assetts. Since the only way GM can pay their creditors is if they make money, most of GM's creditors have a big interest in keeping GM producing. So, the bankruptcy court usually decides what GM can spend money on and what they can't to keep them operating while the bankruptcy proceeds. The end result is typically that the court bundles the profitable businesses of GM and sells them to someone who wants them, then uses the proceeds to pay off as many creditors as possible. The unprofitable businesses of GM would then be sold essentially for salvage value.

What this amounts to is that the bankruptcy court finds someone with money who wants GM, then that someone buys GM, and the court tries to pay off as many of GM's claimants and creditors as possible.

General Motors, in this scenario, continues as GM. It's assumable that a new owner would stick with the recognized brand name and large chunks of the product line. However, in this scenario, all contracts with the old GM are null and void, including labor contracts. The new GM starts over.

What GM wants to do is to get the money from the government to keep this from happening.

In the bankruptcy scenario, the existing GM management and stockholders (I own some stock by the way, and I'll lose it) lose all ownership, and the new stockholders/investors/owners assume all the business risk. Under a bailout, the taxpayers assume business risk.

The way I see it is a bailout is a way of getting money injected into a productive but not profitable business, bankruptcy can also serve this function. In the bankruptcy scenario, the new investors/owners put thier money into the company and assume the risk but aslo get any potential reward. In the bailout scenario, the taxpayers put their money into the company, assume all the risk, but do you think they will be the benficiaries of any reward from their investment?

One argument used against bankruptcy is that no one will buy cars from a bankrupt company. The simple solution to this is for GM to buy third party warrantees, something within the power of the courts to mandate as part of the restructuring.

The cry for a bailout is rooted in executives who don't want to lose their cushy positions and union who know that all of their contracts are unsustainable and will be voided under bankruptcy law. GM and the others need to file for bankruptcy, the businesses need to be sold off to new investors that will provide the capital to move to more favorable labor markets, and to restructure the businesses.

Yeah but what happens to people who are retired and depend on GMAC bonds for retirement income? Do their bonds expire worthless and they start having to eat out of Meow Mix bags?

Yes. Their bonds expire worthless, but they only have to eat Meow Mix if GM bonds were their only source of retirement income, then, they'd probably still be eligible for both foodstamps and welfare.

What is GM's pension structure?

Whatever it is, it is garunteed by the Pension Benefit Garuntee Corporation, which is a government supported entity similar to Freddy Mac. It insures pensions. GM pensioners will get some percentage of promised benefits, usually about 60%.

That's yet another reason to stick with a 401K. Do you want to be at the mercy of some Fannie or Freddie type company?

This is a really complex issue and I am very concerned that the US Congress does not have the brain power to comprehend the whole thing. I watched Barney Frank and Nancy Pelosi on TV talking about it and I am sure they don't have a clue.

Bankruptcies happen every day. It's not that complicated. The only reason Nancy and Barney are fighting to get some government intervention is to try to save the UAW contracts, because they will be voided as part of any bankruptcy.

The Big 3 business model definitely has to change going forward.

Understand, the Auto industry is already one of the most heavily government regulated industries in the US. The government is all over the automobile, mandating all kinds of design, emmission, and even performance characteristics, and even in the labor market, and they change those regs like they change clothes.

The current state of the US Auto industry is the result of 40 years of progressively increasing massive government involvement in the industry. No, the government isn't soley responsible for the Auto MFR's current state, but its hand is all over it. If the government could make it better, then our autos should be the best in the world.