General Motors turns to bankruptcy today in the hopes of finding a new start. The move comes after a majority of those holding $27 billion in GM bonds agreed to swap that debt for a stake in the new General Motors.
Debra June is a small bondholder who six years ago invested $70,000 in GM bonds. She predicts that investment is now worth less than $200. She spoke to John Roberts on CNN’s “American Morning” Monday.
John Roberts: You invested $70,000 in GM bonds some six years ago. As a result of this deal, that is going to be converted to equity shares. What's that investment worth now?
Debra June: Well, what happened, John, I got this booklet at the original thing. This is a 200-page booklet and they sent this in the mail and the offering was two shares of stock for every $1,000. That's 140 shares of stock. They said originally in the booklet it was going to be 225 shares, but as you kept reading the booklet it said they were going to convert that to 101 reverse-split, which would be two shares of stock. $70,000 for 140 shares of stock.
There was no way I was going to take the deal. Then they came out and they sweetened the deal. And I tried to contact General Motors. I left a message with the people I called up. I talked to the people on the phone. I e-mailed two e-mails, “Please let me know what the deal is.” I'm with GM Bondholders Unite, the 60-plus group and also the Main Street Bondholders. What they're doing to the people is ridiculous. It's horrible. You're wiping out common people that saved money. I'm not a corporation.
Roberts: No, you're a school teacher, we should point out. So $70,000 is a huge amount of money to you.
June: It is. It is. And it's a shame. I mean what they're doing, they're saying 10% and this and that. I don't know what they're doing. People out there have saved their money. We've done the right thing. I pay my bills and here all of a sudden, they want to give me two shares. 140 shares of stock.
Roberts: And that stock, all in total is worth about what, $200?
June: I believe so right now.
Roberts: Maybe less than that.
June: Even less. When they regroup, even if the stock was $10. That's unbelievable. I mean I can't imagine someone doing something like that.
Roberts: So Debra, what was your reaction when you heard General Motors was going to go into bankruptcy? You said you resisted this plan, you didn't agree with this. The major bondholders were the ones who said go ahead and do this debt for equity swap. What did you think when you heard they were going into bankruptcy and that was the deal?
June: Well, I'm in shock. When I bought into GM, I thought it's a safe thing. I bought six years ago. I always thought it was safe even when the government came in. I was so excited, I said "Well they’re going to take over." But Obama’s task force, these people came in, they didn't negotiate. We had no say. The private investor had no say in the matter. They dealt with the big corporations. Obama is for the people, he said. How can you be for the people? How can he do this?
Roberts: So do you blame the task force? Do you blame the company, the unions? Who do you blame for getting in this situation?
June: I blame, originally, GM, for letting it go like this. It's like Bernie Madoff was their bookkeeper. It's ridiculous, but also for the task force to come in and not let anyone from the main sector, just a representative to go in there and try to negotiate. They never let us do that. I would have given...I'm not joking on this, I would have said to GM, "Here don't give me any interest, just take that." That would help them immensely… I mean to send this booklet out, the task force actually did this?
Roberts: So do you have any hope of recouping your investment? If this company gets lean and mean and agile, do you have any hope you can recoup that $70,000 and beyond that if the price of the stock goes up?
June: Nothing. Right now, I'm not even in on the new deal, the sweetened deal, I couldn't even get in on it. And that's - and it's in the paper. They didn't care about the people. It's in the paper.
Roberts: So you really feel robbed, do you?
June: I feel robbed. I know that there's an attorney out there for the GM bondholders Unite. That’s the gentleman Thomas Lauria and he's supposed to represent the small people. I hope and pray the judge, whoever gets this, is going to say “Wait, this isn’t right what's happening to the people, it's not right what's happening to the workers.” The dealerships are going to close. It's going to be a trickle down effect but they're taking income from me and thousands and thousands of other people who are in worse shape than I am and it's not right.
Roberts: We'll keep following this and maybe we can stay in touch with you and keep checking back.
June: Please, please people out there – contact your congressman. Do something. Say it's not right. I remember Michelle Obama said she was not proud of her country until her husband was in office. I'm a school teacher. If I was teaching her children, would she say she was proud that this is happening to a common person like myself? I mean you can't, you can't do it.
My wife and I are retired on a fixed income and have $160,000 in GM bonds that are quoted to be worth about 25 cents on the dollar today, I can't help but think that the division of assets between workers, government and bond holders would have been quite different if the latter had a record of voting for liberal democrats. I also wonder if someone is keeping a record of how many lies Obama has spouted. What's next, is he going to declare himself president for life? It's time to JUST SAY NO TO OBAMANISM !!!!
Barbara, I wouldn't count on it.
They knowingly committed a crime when they screwed the bondholders.
There is no reason to think they'll be tossing you any crumbs.
The politicians and bankers are following the same scripts we've seen play out in Argentina and other nations.
Already many people are finding out that they can't withdraw their 401k funds. At some point the bankers will be stealing those outright. And say goodbye to pensions.
The problem is that too many people are going to retire at once. The sheer volume of withdrawals for retirements, will result in tremendous losses in the banking profits and in the markets.
Our politicians will let the banks simply seize those accounts, to keep them profitable.
I also had gm bonds. and was told by my broker I would receive something for them So far it has been a year and I have received nothing. Does anyone know if there will be any thing being given to bond holders
Allbummedout. Good reply and thanks. I would like to think my ego is not that big, and I do not like to often promote myself in that fashion, but I was irritated with the constant comments about how stupid republicans are. As I said they can't represent the half of America that is oppressed and uneducated and poor and then claim we are stupid. As to Sarah Palin, I honestly have little opinion on her. I do my best to resist the temptation of judging based on what the media presents about her. I do not trust the media and if the media decides that they wish to demean you, they can and will. I will wait and judge her on what I hear her say and if that is in conflict with her past. I just hate inconsistencies, and thus if a person says one thing and does another without reasonable explanations, then I am at once skeptical of their ability to lead. I do not accept the premise that experience in government is necessary to lead. Obama is probably the least experienced person ever elected president, yet while I may not agree with him on most issues, there is no doubt in my mind he is an effective leader. As to your last point about picking a political party, I think I made it quite clear that I have come to feel that lawyers are lawyers and looking out for themselves be they democrat or republican. I joke each time congress gets us going on issues such as health care, or global warming, or bringing POW's from Gitmo, and look at each of how it screws the public and helps attorneys. If you do that most often you will see the real motive behind them all. Every move is calculated to allow maximum attorney time, such as providing attorneys to defend POW's, I call each bill "another attorney full employment act". Health care is not about us, but allowing more attorneys to sue, but now it will be tax payers footing the bills, Global warming and trading pollution credits, more attorneys get work. And of course each time some democrat or replublican does something they have to hire some independent council to investigate..all of course at your and my expense.
My politics are limited to what we should do to make us better and more efficient and competitive with the Germans, to the Chinese, and they look at it from the perspective of getting rich off the massess. Until we change our thinking, we will die a slow death economically, with each downturn in the economy a bit worse than the last. We see that now do we not?
You are correct. I wanted to keep it short and understandable.
Most importantly, we forgot we needed each other,(democrats and republicans) workers needed a job, and business needed workers. Workers thought they were irreplacable. They found out the hard way, they were replaceable, unfortunately, many other businesses and workders also suffered as the cornerstones to communities relocated to other countries, support businesses folded and more jobs were lost.
Let me make this clear, I am the grand daughter of immigrents. They came, they learned the ENGLISH language, they worked hard, they became educated, the lessons that were passed along to me were profound. One of which is 'Don't cut your nose off to spite your face', if only more people had learned that lesson.
For any of you who have your doubts as to what you can accomplish, I would suggest you get ahold of a series of tapes and books by Nedo Queban. He was an immigrent who came to America at 17, not knowing any English, but with a burning desire to learn. The story is all inspiring, and can be the key to unlock our potential as human beings, no matter what our background. No matter. Yesterday is gone, tomorrow is not here yet, but today, today we can choose to make a difference in our lives and those around us, by simply putting jealousy aside, and start with me. When I improve me, then we can do many great things together.
Addison: I agree with everything you said to my chagrin, particularly because your ego is likely the size of your net worth. I digress; to each his own. What I would like to ask someone with degrees in Nuclear Physics and engineering (to give you the benefit of doubt) is this: explain Sarah Palin. Is she Bush's "mini me" (like the little dumb twerp on Austin Powers)? Seriously, her stupidity is mortifying, although I'd be stupid any day of the week for the money she is raking in! You said in the beginning of your right-on rant "the democrats are just about equal with republicans" and so I'm supposing your statistics about Democrats and Republicans is supposed to be considered as credible given your impressive almost aristocratic education and credentials. That is why in the spirit of free speech, sticking my head out of the foxhole to risk getting it blown off, I challenge those statistics as meaningful. My sister and brother in-law are academics who graduated with Ph.D.s from Stanford, and he heads a science department of a major university; both have tenure and will make their full salaries for life on retirement. (Their salaries are in the comfortable six-figures.) They live in a wealthy enclave and travel the world several times a year (to conferences, grant paid field trips or whatever you call it, and so on). I'm just your little unimpressive college grad with a bachelor degree from an unimpressive university, not the sharpest tool in the shed so to speak compared to the honor students (although I was an honor student in high school, hehe, with straight A's in math including calculus, as I digress again). My point of this little rant is to say my sister and brother in-law are (horrors!) Democrats, and voted for Obama. And me? I was a diehard Republican for most of my life until my sister talked me into voting for Obama. I guess my disputable point is that those impressive statistics are meaningless in the real world, IMO, although I perversely agree with your post in literal content! It's late so instead of picking apart my delivery, I'm curious to hear (unless you figure it's a waste of time to lower yourself to someone at my academic level) if you really believe those statistics mean anything from a practical standpoint? Isn't picking a political party really pointless, where you could throw a dart at a dart board labeled "Democrat" or "Republican" to decide? We were up a creek with George W. Bush (whose dad Bush Sr. I voted for and still believe did an excellent job given the circumstances) and we're up a creek with Obama... but we would have been even more up a creek with John McCain. If that old geezer kicked the bucket after getting elected, we would have been really, and I mean REALLY up a creek! I mean, Palin is such a bad girl they ought to cast her in an Austin Powers sequel!! (I use the phrase up a creek instead of a more graphic word, to avoid getting censored.)
JB in SanFrancisco,
I find your type amusing. Since the democrats are just about equal with republicans, and democrats represent the poor and oppressed, unions, and immigrants who now have the right to vote, and those on welfare and minorities, in particular hispanic and black, and republicans represent the wealthy, business, white collar workers, white middle america correct? Then I think we can break that down into the fact that statistically (according to) that blacks make up 12 percent of the population, vote about 93% democrat, make up 67% of all highschool dropouts, and hispanic are close behind, that labor and blue collar workers are typically labor not educated beyond high school, and immigrants are also not educated either, I think then we can conclude other than a few snob intellectuals the democratic part is NOT the party of the educated. Obviously white collar, business and weathy are more likely to have higher education. So who are the so called liberal intellectuals? Probably some degree in political science, or psychology or history or some education that only requires time and money and not much intelligence. My degrees are in both Nuclear Physics and engineering and dude I am a republican. If you wish to compare intelligence I will gladly take you on. This year alone I have been to Moscow, St Petersburg, Novosibersk, Fukuoka, Toyko, Nagasaki, Kiev, and a number of other cities. I also know history quite well, and geography as well. Whatever your degree is in, I could easily get it if I so chose to do so, but willing to bet a sizeable sum you could not reciprocate. You liberal dems constantly attack republicans as being stupid, yet your part is largely made up of the least educated, and most easily manipulated people. You attack republicans for their power and greed, yet say we are stupid? How can you get power (eg money) and be stupid? Can't have it both ways. We are all waiting to hear what your degree is in. I have a feeling I have already come close. Intellectually you do not even stand on the podium with me and never will. Look at a map of the world and wonder why we, our tiny bit of land became so wealthy once and so powerful? Why? And then ask yourself if those values that got us to that level are still strong in America today. Even you have to intelligence to know the truth to that question. Mary was on the most part correct, although a bit simple in her explanation. We are a country living off the backs of our ancestors, and that will last only so long. The values that made us strong are now making China strong. Obama asked them what they are doing right? The answer is just about everything the opposite of what Obama wishes to do. And I do not blame Obama, Bush was not a lot better. As long as we keep electing Attorneys to run things we will decline. Does not matter which party. We need liberals and conservatives who have accomplished things in their lives, who actually know how important it is to build wealth. I think what Mary was trying to say, was that we have pushed a huge percentage of wealth building jobs overseas, and I think anyone can figure out if you keep spending more than you make, that leads to trouble.
Digging at each other, will accomplish nothing. I'm referring to the comments 'Because you are as uniformed as most Republicans' and Repulican's adore ignorance'.
Democrats and Republicans forgot they needed each other, and with comments like those above, it is evident.
Getting past that. Traditionally, Republicans were more conservative, and yes, capitalistic. Democrats were more liberal, anti-capitalistic and unionized - purporting to be in 'support' of the labor class.
But let's look to see what's happened. Unions pushed too far, demanded excess for little effort. Allowed workers to be high and drunk and asleep, and yet have union representation and 'a paycheck'.
Democrats forgot they need capitalists to invest in business so that thier 'workers' would have jobs.
Republicans, being capitalists, got tired of paying for sub standard work, and bickering, and found new ground to invest in - out of the country.
So now what? I think a start is to stop calling names and insinuating such nonsence.
Don't get mad. Get even. How? Become a better employee instead of a bitter employee. Buy American made, support yourself, your neighbor, your friend, your family member whose job depends on it.
Remember, Bill Clinton signed NAFTA, which has gutted our country of jobs.... why? Because nearly everything can be made cheaper (not necessarily better) in third world countries where slavery (sorry .25 and .50 and hour is slavery) is acceptable. What's amazing though, is the worker's attitude of gratitude for a job, which has been lacking in our country for decades.
In fact in Europe more territory was won by the Russians which is why they dominated the Eastern lands and east Germany. We won against the Germans in Western Europe. Though strategic bombing and factory output from the US was critical...and that great liberal program "Lend/Lease" which Republicans opposed was the centerpiece of both victories. Most Republican opposed fighting Germany at all until Pearl Harbor.
Many Nazi were allowed to escape by the Allies because they were considered assets to fight the Soviets in the next war.
Because you are as uniformed as most Republicans, you probably didn't know the Berlin Wall wasn't built until the 60s.
Again, some reading would help you know that McArthur specifically left Hirohito in place because by showing dominance over the emperor the psychological power to control the population was more easily established. That is why the emperor was compelled to speak over the radio for the first time to tell the Japanese they were defeated.
Funny that you thought I meant Bush Jr when I wrote "pretended to be elected president and his family are all crooks." that may be true, but I was referring to Karzai and his brother.
Republican's adore ignorance. Sarah Palin, Bush Jr, Hannity...
...after Buckley died you guys sure are lacking intellectual heft, and obviously prefer invective and bluster.
You still haven't answered "what does a victory look like in Afghanistan?"
JB..by your twisted logic.. we did not win in WW2 against Germany because Berlin was divided and walled in and the other countries around germany were dominated by the russians, and some Nazi's escaped to other countries etc etc etc.. and we did not defeat the Japanese because most Japanese still believed the emperor was a God, and some Japanese still continued to fight.. right? And of course you had to say the guy who pretended to be elected? Really? I would love to debate you in person.. I would rip your liberal ignorant ass with logic that would just shut that pansey mouth of yours permanently
The United States lost the war in Iraq twice.
The first time is when the US returned control of Kuwait to the degenerate royal family and left Saddam in power, leaving his helicopters and mechanized divisions to kill massive amounts of the Shia population in the south and Kurds in the north, all while continuing his reign of torture.
Bush Jr. unleashes the chaos that has been let loose currently. Nothing has been won or solved. Saddam is gone, but he had was ready to leave in 1991 except Bush the elder didn't want him deposed. He was the considered the strategic cork on Iran.
The clear winner in Iraq is Iran and oil companies in other countries that has just inked oil deals with the Iraqi and Kurdish governments.
In Afghanistan, the Taliban is not a foreign force, they are a political party of sorts with a vast following. You'd have to kill 1/3 of the country in order to "win." And the guy who pretended to be elected president and his family are all crooks. What's does victory look like?
You must be doing your research by watching Glenn Beck.
The financial issue is that every cent of these ill conceived wars have been paid for with money borrowed from China, money they have because we have exported our industry to increase the margins for companies like WalMart.
I am calling you out – why do you even bring up the two wars? You are trying to redirect because you have nothing else constrcutive to say.
Also, dolt, we won the iraq war, it is being transitioned to the iraqis now. – we would also win the war against the taliban if the president put half as much effort into the war campaign as he does thinking up ways to dig us deeper into dept with wasteful domestic policies.
It's not NAFTA that is the problem. It was the change in China trade policy. Mexico has not accumulated a giant trade surplus and using that surplus to loan us money for the two unconstitutional wars we are fighting and losing.
Gambling in the stock market is not investing.
Yes, companies raise cash by selling stock, but as that stock is traded over and over, the company no longer makes money on the trades.
After that initial sale, speculators place bets as to whether the stock price will rise or fall.
When more money is going in than going out, the price rises. When more money is going out than going in, the price drops.
This is the reason the government is funneling a river of the taxpayers money through GS into the markets. Only a continuous flow of exponentially increase debt can keep this bubble going. the taxpayers are losing their jobs fast, and with that the funds that used to prop up pensions and 401ks.
Only rapidly expanding debt can keep the market from imploding now. America will have to be hollowed out to nothing , to save the markets.
You know, sometimes I really wonder about those who post comments. The grammar leaves much to be desired so it makes me wonder how and why they even wish to comment. Do they truly understand the rules of investment? I think not. As this depression worsens, and it will, there will be plenty of time for all those who post, to take some classes in English, so that when they go to apply for the next job, they will be hirable.
In the meantime, everyone should be thank-ful for those who do invest, without those investments, there are no jobs. See what's been happening? With NAFTA the investments went to other countries, where supposedly those people are willing to work and not fight with their boss every day....... the lessons we still have to learn.
A huge number of those who have responded to Debra's plight do not understand the system in the slightest. Time and again writers referred to "investing in the stock market" and "boo-hooed" her. She invested in BONDS, not stocks. People invest in BONDS for several reasons, one of them being that it is agreed upon upfront that in a bankruptcy, the bondholders are paid off first for their investment in the company. Those are the rules. It's not a "boo hoo" situation. It's not a "hey, I lost money in the stock market too, diversify next time Debra". It’s the rules of investment. Bondholders are paid off first. But Obama shafted bondholders, who made their investment decisions years ago, by handing over the GM's assets to the unions. "Bate and switch" is not an acceptable investment policy and all you writers who don't understand this had better be ware of your own investments and 401k decisions.
Can't believe the venom displayed in these comments. The "throw her to the lions" attitude displayed is apalling. She made a comment, I wonder how Michele Obama feels. Get over yourselves and stop making every comment a racial connection. Since when is it a crime to wonder how the President's wife is feeling (or would feel) on a subject.
It appears to be easy to be callous and nasty when you can do so under the cover of an anonymous nickname. All Ms June did was state her feeling about a topical issue. The fact that it concerned her gave her a reason to do so. CNN solicates comment, from the public, so as to present more than one side of an issue.
You may not agree with her; however she did state her opinion and feeling about the GM bondholder's plight. Remember, the operative word is "bondholder" (in the event of a bankruptcy, the bondholder traditionally comes before others. When GM needed to borrow money, they solicated $$ from the public. They then become bondholders in GM). None of us are doing very well now on our investments. Would you have us put our 401 Ks in a pass-book savings or in a sock? There are rules you know. Last time I looked, this is America, let her expound on her opinion. She didn't call anyone a moron, an idiot, stupid. She didn't hide and write anonymous letters to CNN. She stepped up to the plate and gave a live opinion. With the sorry state of our politicians these days, your venom is directed at the wrong person.
Basically, GM, Chrysler & Ford cars have not sold well ... for years and years. Why?
You may blame the designers for the look & efficiencies, the unions may be a factor in the pricing and quality, the congress in the safety, fuel & corporate tax regulations, etc.
You may blame the foreign completion for having (falsely) low foreign employee wages & lack of employee health care/retirement benefits or for being 'smarter' by anticipating fuel shortages, etc.
You may blame the American public for having what may be a false perception that "foreign cars are better made/buys than American".
Whoever you blame, simply put ... We Americans don't buy "our cars" ... period.
We didn't buy our clothes, toys, steel, TV's, radios, furniture, telephones, computers/chips, etc., either. All of which are now outsourced so Wal-Mart, Best Buy, the Dollar Store, etc., can have low, low prices every day, etc. Autos are just the most recent item we have chosen … no make that “demanded” … to have outsourced to the rest of the world.
If you check out the world market on food production & distribution, you will see we are loosing market share there now. Quality/Safety issues and wages/prices are now factors in this industry just like they were/are with the auto industry ... I expect your nest eggs could get cracked here next.
Either we all buy American or we all had better change our investing to non-American ... our choice, but remember our countries, our childrens and our own long-term future depends on the short-term decisions we make today.
Demand American firms compete internationally on both quality & price!
Peter it is your math that is a failure.
GM has/had 610.5 million shares outstanding.
Now to "Create" these 225 shares per 1,000.00 of debt we must "expand" the number of outstanding shares. So 27Billion / 1,000 = 27,000,000 * 225 shares = 6,075,000,000 more shares. That is a 10x increase. So we do the 100 – 1 reverse and end up with 66,855,000 shares or 10% ish. so if the shares were 1.00 (they ended at 63 cents) then they are 10.00 now. So she has 75K / 1000 = 7500 * 225 = 16,875 shares / 100 = 168 shares. Or $1,680.00, of course you can expect the shares to free fall when they are listed. Why? Because we also have to adjust the value. GM was a 50B company and now hopes to be a 15B. So the shares should get priced accordingly.
I blame failure in basic math on this one.
225 shares per $1000 in bonds would give her 15750 shares, after a 101 reverse stock split is 156 shares. However, the company after a reverse stock split is no longer worth $1/share, it would be $101/share (assuming it is $1 today)
So she gets $15,750 for her original $70k investment. Not the greatest but a lot more than $200.
If she isn't intelligent enough to understand this she isn't intelligent enough to be investing in the markets.
It is scary and pathetic how so many people on here are posting about how stupid this woman was when most of the comments are displaying an equal amount of ignorance and stupidity. The comments are pretty solid evidence of why this country is quickly losing it's competive advantage to others.
the level of financial ignorance is astounding. Stocks are not the same as bonds as worse, even after multiple comments pointed this out people continued to post about her owning stock. The lack of reading comprehension is also quite scary as some people seem so intent on posting their thoughts they don't even bother to read what has already been stated.
For the first 4-5 people who wrote in about stocks being risky and she should have diversified- thanks for the tremendous insightI. To the dozens who continued to post the same comment, this is not a very complex theory and I am pretty sure the 2-3 people who did not know this before were able to figure it out well before the 20th iteration.
Most of the posts also are mistaken in their understanding of the bankruptcy code. What this woman should be complaining about is not her crappy investment skills but how badly the bondholders are being screwed by the government, which has no real business getting involved.
The financial bailout, which was not a wall street bailout as everyone calls it, was a necessary injection of liquidity to stem a potential collapse of the entire financial system. The problems all stemmed from a specific identfiable event- the sub prime/mortgage meltdown. The auto bailout is not at all on the same level and the fall of the u.s auto industry has been going on for years and just throwing good money after bad. Aside from the obvious long term problems with conflicts of interest with the gov't owning the majority of the company i have 2 major problems with how the whole thing went down.
None of the mainstream media has bothered to look into these 2 issues, showing just how easy they are on questioning obama.
1-How is it that the uaw, holding less debt than the bondholders, winds up with significantly more ownership in the new company than the bondholders when in a true bankruptcy proceeding, creditors of similar standing all receive equal treatment of their claims. There was absolutely zero rationale for the new ownership structure other than arbitrarily favoring the union, which we all know spent alot of money supporting obama.
2- Obama's use of the media to blatantly lie and mischaracterize the facts in the chrysler deal is downright despicable. In his press conference, he called the hedge funds speculators and only looking to benefit at the expense of the company. This clip was played over and over on the news and helped fuel more anti wall street rhetoric from the ignorant public who were ready to lynch the hedge fund managers. No one bothered to point out that the hedge funds were not speculators and represented pension funds, endowment funds, etc (Indiana is still trying to sue over the $5 million dollar loss incurred by the employee pension funds that had money with the hedge funds in question).
They were not being greedy like obama implied but merely protecting their legal rights as creditors and exercising their fiduciary duty as managers of pension plans. Again, the point is that the bondholders were only looking to be treated equally with other creditors as their legal standing allowed and not the greedy people obama made them out to be. He forced the bondholders to accept less money than they would have been legally entitled to had the company filed and went through a full court proceeding which makes absolutely no sense except that the majority of bondholders were large banks who had TARP money and did not want the negative publicity.
Obama has been making all sorts of declarations about how quickly and successfully GM will rebound but really has not identified anything specific that is different than what they have been doing. It is estimated that the company will need to reach a valuation of $80 billion just for the gov't to break even and the company has never been anywhere near that value in the past 10+ years (or longer)
I suggest most of you should spend less time posting and more time learning basic financial concepts. The ignorance and stupidity most of you have displayed explains why you believe all the b.s. obama spouts about the economy and why you probably will never make enough money to worry about being in the top 1% who are expected to pay even more taxes even though we already pay more than our fair share of the tax burden.
Since you are one of the few that actually grasp the concept of a bond, you are one of the few actually worth conversing with on the topic. The issue at hand here is the fact that, normally, when a company declares bankruptcy, the bondholders are the first to be compensated when the company liquidates its assets. Would she have recovered the entire $70,000 she invested? Maybe not, but probably a good portion of it. Even so, few bondholders really want to see the company declare bankruptcy, since that would mean they will lose their interest payments. In return, they can expect around 5-7% APR for their money loaned. This just covers the rate of inflation, and doesn't really come close to the +10% gains that one can sometimes find in the stock market.
The problem here is that the government stepped in and pre-empted the bankruptcy laws in place, offering the bondholders an extremely small percentage of the principal that they loaned to GM. Since the majority of the bondholders are more like this woman as opposed to large investment firms, they refused the offer. The large investment firms, since they own fewer bonds, but in much greater amounts, negotiated a better deal with the government. The other bondholders probably weren't well represented, if at all, during the deal, and weren't included in the better deal. So now, instead of getting the principal back ($70,000), she now gets 140 shares of stock (at $1 and decreasing rapidly).
I'm all for trying to get these companies in better shape, but I would think there's a better way than making a government entity out of GM. GM probably should have simply started bankruptcy proceedings, settled with all bondholders appropriately, then there would be fewer issues, since the rules wouldn't have been circumvented. That's how the airlines do it, so why should the automotive industry be forced to do something else?
I know a lot about cars and the vanity associated with them.
IF IGNORANCE WEREN’T SO SAD IT WOULD BE AMUSING.
IF ANY ONE READ CONSUMER REPORTS WHILE LOUNGING UNDER THEIR COMFORTABLE BLANKETS OF IGNORANCE
THEY WOULD BE ENLIGHTENED TO FIND THAT HYUNDAI IS SUPERIOR TO ACURA, HONDA, LEXUS, TOYOTA, etc. AND THE QUALITY OF BMW AND MERCEDES IS A MYTH. CONSUMER REPORTS STATES THERE IS LITTLE DIFFERENCE IN QUALITY BETWEEN FORD AND THE ASIAN PRODUCT.
MANY OF YOUR CALLERS BASH AMERICAN CAR COMPANIES & GM FOR POOR QUALITY
YET WHO AMONG THEM WOULD NOT WANT A CORVETTE, AN ESCALADE, OR A CADILLAC CTS-V
THAT DOES the Nurburgring in 7:59.32 THE FASTEST TIME EVER RECORDED FOR A PRODUCTION SEDAN.
INSTEAD IGNORANT AMERICA HIRES FOREIGN WORKERS BY PURCHASING A BMW M-5 THAT IS A LOT SLOWER.
Being in the experimental lab for United Technologies (who makes the on board computers, keyless remotes, etc. in American, with American workers that go into all the cars including BMW, HONDA, RANGE ROVER, insert all other brands here.) I am exposed to a lot of information such as BMW did own Range Rover but the product was so unreliable they tried to keep it a secret. Then BMW sold Range Rover and began making SUV’s. Ford went to the low tolerance new world class standard at the same time Honda did etc.
Knowing what I do about cars, I usually buy Fords. Recently I bought the spunky 2008 Chevy Malibu LTZ for $24K. It gets 30MPG hwy, 25 around town and looks good doing it. The oil only has to be changed every 11,000 miles! I have 24K trouble free miles on the car. I love the pained expression on BMW owners’ faces as I leave them behind at traffic lights.
THE SAD PART IS THAT NOW DETROIT IS MAKING THE SUPERIOR PRODUCT AND AMERICA WON’T WAKE UP AND CONSIDER THEM. BEFORE FORD OWNED VOLVO I BOUGHT ONE. IT WAS THE SAFEST CAR IN THE WORLD. I COULD NOT KEEP IT OUT OF THE GARAGE. IT WAS REPAIRED 8 TIMES IN THE 1ST 10K MILES. I HAD A BMW 528. WHAT A DOG AND THE TECHNICIANS WERE INSUFFICIENTLY TRAINED TO REPAIR IT. ONCE THEY DRILLED A HOLE IN A LIGHT LENS COVER FOR RAIN WATER TO DRAIN OUT SO THE LIGHT BULBS WOULD QUIT EXPLODING BECAUSE THEY COULDN’T SEAL THE LEAK. LOOK AT ALL THE PROBLEMS WITH BMW 750. I DON’T KNOW ANYONE WHO IS BUYING A SECOND ONE. ALL MY FRIENDS ARE DUMPING THEM AND BUYING THE NEW JAG that MAKES PEOPLE DROOL. IT IS A FORD PRODUCT JUST LIKE VOLVO.
Wow, it truly amazes me how many ignorant comments there are here.
Everyone who thinks this woman "risked her money in the stock market", please take a black magic marker and write I AM AN IGNORANT TWIT on your forehead. Then, do yourself a favor and learn about the difference between stocks and bonds. Once you are capable of understanding and explaining the difference, you can go ahead and wash it off.
So, let's have a chat about bonds, then. Over and over the financial wizards have been commenting here that she lent money to GM, it was low-risk and she has every right to complain.
Let's talk about lending money. Let's say you have a friend who wants to borrow money. Your friend owns a restaurant and your friend's restaurant is in debt. You want to help your friend; he wants to borrow $70,000 (twice your yearly salary), and promises to pay you interest in addition to the initial loan. This sounds like a great deal, even if the initial investment is steep; your friend's restaurant has been open for a very long time, it's practically a local institution. But probing just a bit deeper might lead you to see that the restaurant really isn't doing too well at all. Not only is it not seating enough diners, but restaurant trends have bypassed it by decades and it needs a major overhaul just to keep up with competition in the neighborhood. Your friend hasn't been planning to change anything about the restaurant and seems oblivious to the problems. Is this such a wise loan, even with the promise of repayment and interest?
There's a reason that banks go through a pretty lengthy process to lend someone $70,000; they want to make sure that the person is going to repay them. They're bonded to repay, but that doesn't mean the loan is a good risk for the lender. As we've learned from the mortgage industry fiasco, being bonded to repay something doesn't mean that it's going to happen. She should have done her homework better before deciding to sink her life savings into a failing company. Also, her bond was unsecured–so basically, she was throwing her money into the ring based solely on the reputation of GM, which had been in a steady decline. Not smart.
Secondly, this woman was complaining that they had no representation, which is simply not true. In fact, the bondholders had rejected another offer previously which they found unsatisfactory. And the union would get 17.5% (an additional 2.5% if the company reached a market value of $75 billion), while the bondholders could get as much as 25% overall. Over half of the bondholders agreed to the new deal, but I haven't read elsewhere that the entire debt has been eliminated; it has been said that only 14.5 of 27 billion dollars has been recouped through trading bonds for stock. That indicates to me that the bondholders who did not agree to the terms own debt that is still considered outstanding for GM. Ms. June is part of a smaller group that rejected the offer.
Finding ways to minimize debt is part of filing bankruptcy; working with creditors to make alternate arrangements is part of digging a company out of debt and into a viable position again. Unfortunately, GM took on more debt than it could handle at the expense of of people like Ms. June. It seems that Ms. June is a woman who understands only a small part of what is happening, and feels cheated because she has lost money–and truly, if GM really can reorganize and rebuild, perhaps the bondholders will be able to recover their debt and more. But I think all of those who said "Don't invest more than you can lose" really strike at the heart of the issue with Ms June; even if it's a "sure bet" or "low risk," buying unsecured bonds in a failing company with your life savings is not a smart idea for anybody.
What happen to all that money we already gave GM? They suck!!
MATT, WHY DO GUYS WITH SMALL WEEWEES LIKE YOU AND I INSIST ON CAPITALIZING OUR COMMENTS?
How obnoxious. These are the same type of people that bought investment homes in the real estate boom that are now standing around crying about "injustice" because their mortgages are under water. Bonds, stocks or real estate – you have no guarantee that it will be profitable, or that you will so much as break even. You gambled with your money and lost – yes, bonds are more secure than stocks, but they are not watertight.
This has been a repeating story. The small investor, usually a retiree, gets robbed to pay for an Obama contributor, in this case, big labor. Hello, best to move your investments to China. With gangsta government, there aren't a lot of safe places over here.
BONDS are SUPPOSED TO BE BACKED BY THE ASSETS OF THE COMPANY!!!
DO YOU PEOPLE UNDERSTAND THAT PRIORITY WAS TAKEN AWAY!! THIS WAS SUPPOSED TO BE SECURED DEBT – NOT SECURED BY EQUITY BUT BY HARD ASSETS THAT COULD BE LIQUIDATED IF NEEDED!
UAW somehow jumped to the front of the line. Dealers get screwed! BOND HOLDERS GOT SCREWED! All because OBAMA wants to appeal to the masses that don't understand.
it would be interesting to see how many people don't distinguish between stocks and bonds
it would give an idea of how many people, in percentage, talk without knowing
Holly, You have truly scared me to think that you might be a voter. Are you really that brain damaged? Lets look at your post
Holly June 1st, 2009 3:37 pm ET
"This is no takeover by the government."
Ummm what do you call a majority "OWNERSHIP" by the government?
"The bottom line is that the government (we, the people) lent GM and Chrysler money, just like banks lent money to people to purchase homes."
WHAT DO YOU THINK BONDHOLDERS DID? They LENT MONEY.
"Home buyers who don’t pay their mortgages get hit with foreclosure;"
Thats right and as a BONDHOLDER that LENT MONEY I want to FORECLOSE on GM and get MY MONEY!
""...the government can call in their debt any time they want to on GM and Chrysler."
Um no they cant. They would have to default on the agreement. Just like your bank cant decide to just foreclose if you have paid per the agreement.
"They didn’t “take over” anything;"
We already covered this
"they are trying to recoup some of the money loaned in the only way possible,"
You mean just like the BONDHOLDERS?????
" just like a lender takes back a car or house for nonpayment."
We yeah, lets liquidate and pay me....I totally agree with that.
"It’s not rocket science! You borrow money, you have two options: pay it back or don’t pay it back. You choose the latter, you suffer the consequences."
So you agree she and the BONDHOLDERS should get their money then???
"GM bonds were junk bonds when June bought them, and are real junk bonds now."
So let me see if I understand your argument.....She knew they were Junk bonds over 6 years ago. So for six years they were "junk" right? Then why did the government lend new funds to a junk bond status company hmmmmmmmm? Why would they be able to step in front of the debt line with a new "loan" when they KNEW they already OWED 27B!!! Do you know what SENIOR means? The bonds she owns are SENIOR debt. Just as you cant take out a new first mortgage on your house to a new lender without PAYING the first in line debt off.
Friggin scary this board....
Question for Dennis:
Okay, I'll buy the Obama banana republic argument for now, but why don't you enlighten us about just "what" a bond is, and just "how" a bond is different from stocks, in the context of this article about the furious bondholder over GM bankruptcy?
You say tomatoe, I say tomato...
One word here – DIVERSIFICATION!
Please people. If you dont know what a bond is and how it is different from stocks, please dont bother posting.
The fact that this woman didnt diversify her investments does not negate the fact that she was ripped off by the Obama administration.
One of the main reasons that America is successful is that we are a country of rules and law and we can usually assume that contracts and rules will be obeyed. If we start having the government nullify contracts and change the rules whenever they feel like it, we wont be any better then a banana republic.
Follow-up to Debra:
> Wow! Never thought people could be so mean and unfeeling as some of you have.
Some admittedly were over the top in their condemnations of you; quite uncalled for.
As for my 'tell it as is' comments, I apologize if you thought I was being mean and unfeeling.
I emailed my sister with a link to this page and my reply, and said to her, quote: "I know this letter may sound harsh, but think about it. This woman is a school teacher and responsible adult role model for the next generation of kids. I hope she reads my post to the article about her, and it knocks some sense into her."
I have a relative who is a school teacher, and I can empathize with you because of her dedication to children at such sacrifice. Her daughter wishes to follow in her mom's footsteps and her college course work is going in the direction of teaching. I tried to convince her that this world and its capitalism on steroids economy, is not going to reward teachers, and to chose a more financially rewarding profession.
To her credit and my shame (at least for initially trying to talk her out of teaching for economic reasons) she is pursuing that goal out of love for children! I'm so proud of her.
That is why I lashed out at you, and possibly why some have become just plain mean-spirited toward you. Teachers are viewed like nuns or priests in our civilization because you are moved to go against self-interest for the sake of this and future generations. You are put on a pedestal by many and, not surprisingly, you are expected to take a road higher than most professions in setting an example for your students.
The truth is that you're only human, and want the same things we all dearly seek, such as a dignified retirement for starters. Is a dignified retirement for a school teacher too much to ask from a world where executives turn corporations into their personal slush funds? Well, to the cannibals in the executives’ suites across America, absolutely! That is why I'm so sorry for your loss and understand you made an honest mistake in spite of my comments about the moral downfall of GM.
By the way, your $70,000 loss is a tax write-off and may be deducted over several years. I know, after losing a tenth of your investment, then writing it off (so the taxpayer ironically picks up the tab) to Carl Icahn's XO Communications bankruptcy scam. Back in the early 2000's, XO "retired" its stock. Most shareholders of public stock do not realize that companies can "retire" stock at will without even declaring bankruptcy... that is true.
I could think of several better places to invest $70K. Mutual funds would have been prudent.
Any stock is a risk. Don't put money in stock you can't afford to lose. Buying stock in a really big company doesn't make you immune to the risk of buying stock. GM positively failed badly enough for its stockholders to lose a good 99% of their money. Stop acting like you're the only one who lost money because of the recession or the only one who didn't deserve to.
Investing in the stockmarket is gambling period. Sometimes you win sometimes you lose, just remember the odds are always in the houses favor
I can't believe the stupidity of some of the comments here...and I'd bet if the government locked you out of something that you had an investment in, and YOU lost $70K, your tune would change. But since it doesn't affect you, it's OK. Typical behavior for liberals. Flame away...I won't be wasting anymore of my valuable time reading the false logic of you fools.
You people crack me up... You have no idea what the difference is between a stock and bond do ya? She did not have stocks she had bonds look it up. she actually was part owner in the assets. She was robbed by this administration.
Anybody who buys a car from GM from this point forward is crazy......the only way to put a stop to this foolishness is if GM "crashes and burns".....
This is no takeover by the government. The bottom line is that the government (we, the people) lent GM and Chrysler money, just like banks lent money to people to purchase homes. Home buyers who don't pay their mortgages get hit with foreclosure; the government can call in their debt any time they want to on GM and Chrysler. They didn't "take over" anything; they are trying to recoup some of the money loaned in the only way possible, just like a lender takes back a car or house for nonpayment.
It's not rocket science! You borrow money, you have two options: pay it back or don't pay it back. You choose the latter, you suffer the consequences.
GM bonds were junk bonds when June bought them, and are real junk bonds now.
does any financial savvy out there? I own GMAC bond invested $50K. Now, it is half. Obama also taking over GMAC, I think. And, my bank guy who lured me into buy this junk says it is better to hold on to this. Anybody knows more about GMAC situation? appreciated
This is the thing. Bonds are suppose to be a safer vehicle than stocks she invested in Bonds. Lib's wake up and learn the difference between stocks and bonds. Obama's got his hands in everything and you dumb-bells who lay down in front of him quite frankly are pretty naive or on X or something. This guy is making a mess and by the way for those who want to insist that his wife didn't say "That for once she is proud of her country" may want to take a few minutes and do a little research before opening there mouths. I do agree that this woman should have diversified but again Bonds are suppose to be safe. Are you ready to say that everyone who has U.S. Savings Bonds are fools?
Maybe they are.
Bondholders lent money to GM. They want their money back! Just like how banks lend money and want it back... no need to explain what happens when you don't pay your auto or home loans....( or should I say " what banks do to you!" if you don't pay)
The bonds are usually guaranteed by company's asset. So, if the company has any asset(s), by law the company must sell and pay back bondholders first.
I understand that the government is stepping in, implimenting new ways to solve bigger issues. However, before acting above the law and shocking people like Debra, The Governement must first issue a statement declaring the end of Capitalism (at least "as we knew it") and present its new laws and regulation. Until then, not so wise to go around and making changes to text book definitions.
I don't understand why almost everyone posting on here is missing the point!!! She did NOT invest in the STOCK market, she had BONDS. There is a major difference..If she had invested all of her money in GM stock that would classify her as stupid..But she invested in GM Bonds..supposedly a sound, safe investment. Quit making her out to be an idiot for gambling in the stocks...That is not what happened!
A lot of you are throwing out the "Greed" word. If she were greedy, she'd been going after big returns which would necessitate buying high risk devices. Blue-chip corporate bonds are not high risk. They have risk, like anything, but it is low risk and it is backed by assets, not a promise. Those assets have been redistributed by the government breaking a legal contract. That's wrong.
Also, for some of you ninny brains out there, you don't know where she got the money. Perhaps her mother passed away and she got the remainder of that money. Get off you stinking high horse and realize that just because somebody has 70k to invest does not mean A) it was all her money
B) she is rich and deserves to get screwed.
THE POINT IS THAT WHAT THE GOVERNMENT IS DOING IS ILLEGAL. The point isn't about this one investor and it isn't about her decisions. Way to go there America, way to miss the point. It's just like people trying to justify an indefensible position. Turn to personal attacks. My faith in my country which I love and served for over 20 years is seriously being shaken here. Wake up people. Use your brains for once and quit being so darned oblivious.
The majority of posts here scare me to death. You people are a bunch of idiots. Yes I am a GM bondholder and I plan to sue the crap out of the UST. All of you are missing some key facts.
1. Most bondholders are not so much upset at the total dolar amount as much as we are the allocation. See is we are all equal debtors then we should all have equal payouts. Why does the US gov get a 60% stake an me a 10%? Why does the UAW get 2x what bondholders do?
2. pari passu.. look it up. It means we are equal. It is in the bond language. This is in there for EXACTLY this scenario!.
3. Do you idiots know how many funds have ties to either GM bonds or stock. You are cutting your own 401K throat! You are cheering on your own demise.
4. There is so much false info on the deal. There is no 225 shares per 1000 owed. It is 2.25 shares after a MANDATORY and IMMEDIATE 100-1 cram down. So yes technically I would get 225 shares for a nanosecond but really its 2.25. ohh did I mention the are not compensating for fractional shares? Yep that .25 just goes away...you get nothing for it.
5. Where does the gov get off loaning money to GM after the fact and then claim a higher priority in line for collection? Do you think you can mortgage your house to Wells and then take another loan AHEAD of that one from BOA without telling or getting authorization from Wells? If this is allowed to stand it will destroy the markets.
Jack, there will be no ramifications to the bond market beyond any imposed by general macroeconomic conditions, because this was a textbook bankruptcy.
Bond yields represent the probability of bankruptcy as well as expected inflation. The only thing that will cause ramifications to the bond market are an increase in expected bankruptcies across the board, or an increase in expected inflation. While both of these are possible, they are not affected by how the GM bankruptcy was handled.
There's nothing special about today, and Deb is simply angry because she did something stupid and lost money. Rather than blaming herself, she is in denial and is blaming someone who is on TV frequently. Either she'll eventually realize it was her fault and make changes, or she won't and be back on CNN the next time she makes a stupid financial decision.
Why would anyone invest in GM 6 years ago?
And I'm sure when she bought the bonds the first thing on her mind was, "well if the company goes down at least I can pick at their corpse for leftovers to make my money back." How much interest did she make on the bonds? For some reason she left that out.
LOL @ the Michelle Obama comment and all the Obama haters here! Haha!
One correct to a previous post: Enron and MCI happened under Bush's watch. Our stock markted declined and never made a profit during ALL of Bush's 8 years. BUSH WAS THE WORST THING TO EVER HAPPEN TO THIS COUNTRY!.
This is going to have important ramifications for the bond market.
If contract law doesn't apply to bonds and the rules can change at any time, there is no reason to value them better than penny stocks.
We build schools, roads, municipal buildings, water treatment plants, etc... by selling bonds. If investors begin to assume that bonds are normally very risky investments, then we'll see a rapid decay in city services.
Bonds of course, do entail risk. But it's only in times of economic depressions that they become high risk investments. This does not bode well for the rest of us. Her losses is likely the canary in coal mine.
Oz June 1st, 2009 2:35 pm ET
All the people talking about the safety of bonds are forgetting that in bankruptcy, bond holders do not get paid first! The Bank Creditors with secured loans get paid first, and employee liabilities are second. In the case of GM – they owe so much money to the banks, the US Government, and thier employees, that individual bondholders would’ve been wiped out anyway.
Also, GM bonds were relegated to junk status over two years ago! GM debt was selling at 20 cents on the dollar back in 2007!! If this unfortunate woman was paying attention to her investment, she could’ve sold then, and walked away with at leats $14K! Instead, she decided to wait and see – and now she’s feeling hurt. At least with stock she has a chance to recoup some of her losses. Ask the individual bondholders of Enron debt how they’ve made out when that went bust. They got NOTHING from Enron – and are only starting to get payments now because they’re still suing all the companies that helped Enron hide it’s money!
THANK GOD FOR THE SMART OPEN-MINDED PEOPLE
You all are missing the point GMs current largest holder is the US Government (where do you think the $50 billion went too) ? As such I would like to see that money paid back before we give June her $70k . Sorry but because we spent that much money we are entitled to get ours back first.
Carol at 1:47pm:
“For all of you who keep saying bondholders should be first in line, you are wrong. That is true in chapter 7 – liquidation. This is a chapter 11 – reorganization – and that means that statuatory debt like paychecks and benefits are first in line by law. This is nothing new – it was true under Reagan and it’s true today.”
It’s a buck of cold water in the haters spumming from their mouth at the opportunity to diss Obama.
All the people talking about the safety of bonds are forgetting that in bankruptcy, bond holders do not get paid first! The Bank Creditors with secured loans get paid first, and employee liabilities are second. In the case of GM – they owe so much money to the banks, the US Government, and thier employees, that individual bondholders would've been wiped out anyway.
Also, GM bonds were relegated to junk status over two years ago! GM debt was selling at 20 cents on the dollar back in 2007!! If this unfortunate woman was paying attention to her investment, she could've sold then, and walked away with at leats $14K! Instead, she decided to wait and see – and now she's feeling hurt. At least with stock she has a chance to recoup some of her losses. Ask the individual bondholders of Enron debt how they've made out when that went bust. They got NOTHING from Enron – and are only starting to get payments now because they're still suing all the companies that helped Enron hide it's money!
Bottom line – she should've diversified!
Would you lend money to Uncle Fred when you (& everybody else) knows Uncle Fred is up to his eyes in debt already?
A bond is an "IOU your money plus some interest for being nice enough to lend me the money, but if I go down the tube you might get a cut of what I have left (if anything)." promissory note ... no more & no less.
A stock certificate is simple the same thing but with a lower ranking in getting part of "what's left"; thus perhaps a higher return if Fred pays the IOU back.
Most of the recently failed major companies have been raped by their board of directors, CEO/CFO’s, unions, and short-term investors for years via golden parachutes, excessive pay/stock options, guaranteed retirements/health plans, day trader/overnight capital gains, corporate perks, etc, etc … Enron, WorldCom, AIG, GM, stock/mortgage brokers, etc, all took advantage of us little guys (small long-term bond/stock investors & grunt employees).
Republican & Democratic politicians have de-regulated stocks/bonds & corporations, provided tax loopholes, refused to enact higher gas mileage standards, etc, … most of this was supposedly done “in the name of shareholders” but in reality all of it allowed the big financial boys (ie: CEO/CFO’s) to play the game their way. In fact, a number of CEO/CFO’s have profited enormously while their companies bellied-up!
In return, these corporate executives paid off these politicians via corporate campaign contributions taken directly/indirectly from corporate profits. Both political parties have reaped millions and millions from these failed/failing companies. Note: Unions officials have also gotten well into this game.
Political contributions by corporations/unions/PAC’s should be banned … period.
Campaign money should be raised one way … directly from individuals, perhaps even with no limits as long as there are open books as to where the money comes from.
At least then we would know who is buying off who!
To slightly change Jason's post:
Notice who isn't complaining: Large bondholders in GM (read: intelligent investors)
Notice who is: Small idiot bondholders who didn't know what they were doing, and who resort to incoherent rants that somehow include the first Lady.
And lets not forget about bonds people!
Most bonds pay out a payment; This is called a coupon payment. So she didnt lose everything; its quite possible that in 6 years she made some money. Say she was getting ( hypothetically here- havent looked at bonds in a long time ) 6% annual coupon payment. That means she would be paid out 4200$ every year. 4200 * 6 = 25200. Say this was accurate she wouldn't have lost everything but suffered a big decrease.
The purpose of a bond is to lend money to a company and be repaid interest + principle in the future. The 25200 she would have received over 6 years would be her interest payments, and her principle seems to be the 200$ worth of stock that GM is trying to give her. She is complaining because the principle should have been the 70,000$. This is a best case senerio and this means that she would have earned a possible return which is greater then inflation. If you dont make more money then you put in + inflation then you have lost money. She may not have lost money on inflation but she lost a lot of money on principle.
This whole story isn't told right there; it makes you think she lost everything when in fact she didn't. Smoke and Mirrors
Oh, to the finance gurus shrieking about union favoritism, the UAW was an unsecured creditor just like the idiot who is the topic of the article.
They, like Deb, had their $20 billion converted into an equity stake. Since they were owed slightly more than ol' Deb was, they get a slightly larger equity stake, which is why their equity stake makes the news. Why ol' Deb is in the news is beyond me.
All of you fail to realized that these companies created this mess. How can you send the jobs out of the country and expect the people here to buy your products if they don't have jobs. This has just come back to bite these companies where the sun don't shine. I am a American and proud of it. Sure there can be better products aboard but if we would've taken care of our own back yard we would not be in this mess. We all have to take some blame. This is not rocket scientist stuff here, it is all about greed. You all may think this is nothing but an Obama stunt, remember he did not create this.
Its a bad thing that has happened – losing $70,000 has got to hurt. I don't have it to lose but what I do have $2,000 I watch carefully and definitely don't want it going down.
But I see something here about the story – She invested $70,000 in a company that she thought was going to turn around. In my opinion thats nuts – I wouldn't invest one thousand in any American car maker – they are always floundering.
The worst thing I see is that she wants everyone to feel sorry for her.. which apparently from all the comments here didn't work. Even if bonds are supposed to be great its a risk.
Why not put the $70,000 into CD's.. let them rollover year after year... and at 2% year she would gain $1400 in the first year... Its still an invest but definitely more secure that gambling on an auto maker.
Finally if you are going to invest ... just because you lose money or as they say – "your shirt" take responsibility for your actions and don't blame it on anyone else. No one held a gun to your head telling you to invest $70,000 ... so now its time you stand up, shake your head and start working on plan B.
It's called "political risk"!
Obama emphasized the "rule of law" regarding Guantanamo and that we are a nation governed by the rule of law.
NOT ANY MORE! The rule of law is either convenient or to be dispensed with, at the Obama administration's whim.
In Russia, Venezuela, etc. government take over of private enterprize, etc. is called "political risk". Like them, the U.S. is now governed by a "political risk" administration that could care less about the rule of law, when it suits them. GM will probably be government-mandated to produce green cars inferior to foreign cars.
It's not difficult to surmise that investors will think twice before buying corporate bonds.
Yes, there would definitely be significant repercussions with a "non-government forced" bankruptcy. Under the law, secured creitors are have first claim on assets.
Bye-bye capitalism, hello socialism.
Tell your reps to "JUST SAY NO TO CARD CHECK!!!!!"
Where was all this outrage when the financial laws that protected us were being thrown away.................The company filed for bankruptcy i mean someone is going to lose money and it's the people with the smallest amounts first......where's the new news?
She said that she have had the bonds for 6 years. What she failed to mention in her little "poor me" sympathy play is that she has been paid interest for those 6 years and the interest is probably very significant.
If she was only getting 5%, that means she has already made at least $21000, but it was probably much higher than only 5%.
STOP COMPLAINING. You took the risk, nobody did this to you.
Msg to Robert Johnson...You are an idiot along with this woman. There is Risk to Corporate Bonds also!!! For a school teacher to invest 70K in one company even if its not stocks but Corporate Bonds is still stupid. I don't feel sorry for this lady because she didn't diversify her investments whether its bond diversification or stock and bond diversification...
Heres what it comes down to; At present time, does demand say we need gm cars? Noooo
So to be preserving jobs is actually stupid; gm should be going under; gm should collapse and not be around anymore.; it will show people how not to run a business. It will be a lesson. But to bail out for the sake of jobs is socialism or communism and it doesnt work. It makes the game not fun; Its not fair. Capitalism while greedy has rules that should be followed; and while there is corruption is fair
Obama does not equal capitalism, this is socialism. And it stinks.
I don't think the media is doing a good job discussing how the balance has shifted regarding who gets paid through bankruptcy.
Frankly, while I feel bad that bond holders are getting screwed...ultimately I feel like saying "welcome to how the rest of us feel".
I don't and can't comprehend why bond holders, above anyone else, ever, should be the first to get their money back. Yes, they are "loaning" money...but at the end of hte day, they arent banks (and that's what banks do best not individuals). To me, bonds are more safe stocks, but at the end of the day if a company has blown up...no one above anyone else should get their hands filled...
I think we'll see a sea shift in the way business is done – no more operating on loans. Just as the republicans have been screaming about the little person "buying more house than they can afford"...well business has been doing the same thing...offering more business than they can sell, and borrowing to do so.
Slower more honest growth isnt exactly a bad thing, unless you are a republican who likes to get rich off the backs of everyone else.
My best posts:
Yoop at 1:47:
"Thanks to so many for their savvy explanations of the difference between stocks and bonds. In the final analysis, Ms. June made an investment in a failing company that has finally reached its breaking point. "
Yes, by the end of the day, the gal made a bad decision with her money.
Carol at 1:47pm:
"For all of you who keep saying bondholders should be first in line, you are wrong. That is true in chapter 7 – liquidation. This is a chapter 11 – reorganization – and that means that statuatory debt like paychecks and benefits are first in line by law. This is nothing new – it was true under Reagan and it’s true today."
It's a buck of cold water in the haters spumming from their mouth at the opportunity to diss Obama.
Yes she bought bonds, not stocks. She should have been among the first in line in a "normal" bankruptcy. I wonder what the bond rating of GM was 6 years ago however? My only point is that what she did was extremely risky. The status of that bond should have been junk or near junk.
In this crisis, our government has caved in to the temptation to rule by fiat (no pun intended!). Normal laws don't apply, and I suppose that was part of the hidden risk she was taking. It's very similar to an emerging market country with an unstable government. It is not fair but it is what it is.
It's a good time to buy GM stock...
I would think the money the govt put into GM makes them the #1 bondholder and owner of GM, which means they are the only people who can and should be making the deals.
Without their money, GM wouldn’t even have a hope of existing at this point…and frankly, GM could have not accepted the handout and could have filed for Bankruptcy in dec of 2008.
They chose not to, they decided to take a handout KNOWING things could not get better…
face it folks, stupidity all around.
CAN SOMEONE PLEASE GIVE HER A ROUNDOF APPLAUSE...LOL.
REPEAT THIS POST BECAUSE IT MAKES SENSE TO ME.
Obviously this twit is not an economics, securities, probability, business or math teacher. You pays your money – you takes your chances, blondie.
I would be irritated if I lost 70K too, but only at myself. And I certainly wouldn't go all over broadcast media proving how uneducated I am. Shame on CNN, also, for letting this girl embarrass herself.
I didnt mean to say AAA rated stock; i ment to say bonds was hurrying
Over 40 yrs ago I worked for GM. I brought home more $ than my college-educated teacher husband. From that time forward, we knew that something was seriously wrong with people who had an 8th grade education making more than university graduates. We have told this to many people over the yrs. & now it is ironic how many remind us of our comments so many yrs ago.
My husband left teaching, went into business & has provided an excellant living for myself & our children, now grown. He studied, learned & invested in the mrkt. & fortunately, through prudent, intelligent, & common-sense management, got our money for retirement out of the mrkt. before the melt down. He even warned others when he was making 22% on real est. trusts that things were going to change. He's not an investment banker or certified fiancial planner. But it took time, work & interest to learn what makes this country run the way it does.
I wish I had words of wisdom for younger people who are worried about how to "keep" their standard of living that their parents had. The next generation after the Boomers will be the 1st in U.S. history to NOT increase the standard of living beyond their parents. But then again, that's how the powers-that-be are "tweeking" society today. There will be a nation of haves & have-nots regardless of whether a Democracy like ours can survive the loss of a strong middle-class. Most Democracies in history have lasted @ 200 yrs.; we are on borrowed time.
Frankly, I'm shocked at all you commentators who seem heartless. The relevance of her being a school teacher indicates she is an average person, not a millionaire who can afford this kind of loss. I for one understand investing but certain feel for her. There should be accountability for such events in which non-corporate investors be more protected/compensated from such devastating losses.
Wow! Never thought people could be so mean and unfeeling as some of you have. Have you ever been interviewed with an earpiece in your ear, looking into a camera, not sure if you're being heard, and also wondering how long an interview will last? For all the people who said I wasn't talking coherently..wow..I'm not a newscaster..just a person like you. I didn't have a written speech or a monitor to read off of. I tried to tell the truth. I never once blamed the President but instead blamed GM and a President appointed Task Force that basically had no feelings. I said it will be a trickle down effect to all the people..dealerships, workers, etc. As the First Lady comment, I wanted her to maybe see the show and say to her husband..oh, my goodness this is not a good thing..sorry if people saw it another way..I think you're reading way too much into it. Also bonds have always been 1 step less safe than a CD...stocks are speculative...I did not own stocks..and I am one person ..there are 200,000 plus individual bond owners..go to the websites and read their stories..it's really sad. For anyone who is saying too bad, don't whine...I'm not whining...I'm just sharing my story and hoping that this doesn't happen to other people..It's too bad that the interview seemed so rushed to me. Also the individual bondholders were never given any information about the "new deal" only the huge corporate bondholders who basically are insured..All I have to truly say is NEVER EVER buy bonds...in any company. If it can happen to me, it can happen to you. If anyone else wants to be mean out there, I feel very sorry for you. Remember, the grass is always greener on the other side.
In case you idiots are forgetting.....CONGRESS not OBAMA votes legislation into law. Obama could not approve something like this without the support of congress. Forget all the B.S. about bond vs stock, and playing the blame game with OBAMA. BOTTOM LINE....the company was a wreck LONG before OBAMA took office.
Someone made a comment about "Dictated Law"...are you kidding me...here's a rundown of the last 8 yrs. the middle class driven to near extinction, the rich worshipped as GODs, TORTURE is legal only when we do it, over 14 banks Nationalized (or as you irrepublicans like to say...SOCIALIZED..lol) before Obama took office, warrantless wire tapping (this is worse than taking my guns away...lol), and more people than ever are without health care (as you irrepublicans like to wine "govt chooses my doctor"...umm..well last time i check BSBS, Cigna, Aetna all tell me who's in network or out-netowrk...same difference).
for you irrepublicans looking for someone to blame for you financial mishaps look elsewhere. Blaming a new administration for your FAILED attempt at GREED is childlike behavior. You have now become the party of NO, FEAR, GREED, SELFISHNESS, and FINANCIAL IRRESPONSIBILITY.
WHAT'S IRONIC IS THAT IF IT WERE A MINORITY PERSON BLAMING BUSH FOR THIS YOU WOULD BE PREACHING PERSONAL RESPONSIBILITY. HOW MUCH OF A HYPOCRIT CAN YOU IRREPUBLICANS BE!
As far as i'm concerned she came out with a better option that what she could have had (which is ZERO) because of Obama. At least now she has a stake in the company.
Without their money, GM wouldn't even have a hope of existing at this point...and frankly, GM could have not accepted the handout and could have filed for Bankruptcy in dec of 2008.
They chose not to, they decided to take a handout KNOWING things could not get better...
I feel sorry for June. However she does return seem to understand that a return on investment is a reward for taking risk. In this case the risk has not worked out in her favor. She needs more financial education.
The most important issue here is not what June is saying. I think the interviewer is phenomenally bad. He does not seem to make any effort to explain this issue to her. I actually think he is stoking the flames.
All of us Americans need to understand the risk/reward principal if we want to invest our money. We are in a free country. We are free to make good/responsible decisions and draw the benefits. We are also free to make mistakes and suffer the consequences of our bad decisions. Right now it seems many people want to get in on the action of making all the taxpayers pay for the mistakes of individuals. We need to start a new movement against this phenomenon.
Newsflash! Bonds are not secure. Bondholders are considered "unsecured creditors." They don't have first dibs on the company's assets during a bankruptcy. The secured creditors have first dibs, then the bondholders, then the stockholders. Bonds are not supposed to be, and never have been a completely risk-free investment. They are risk free with one HUGE exception. The exception is bankruptcy. And I do feel bad for this woman. She got in right before GM started it's big fall. It would have been difficult to foresee this. Still, she shouldn't have put all her eggs in one basket. Diversify! And the only difference that Obama has made was delaying the inevitable. She would have been even more screwed had Obama not gotten involved. At least now she has a chance to recover something.
What Michelle has to do with it again?
This woman speaks like an idiot and behaves like one. [Thus, she probably is an idiot.]
Investing in GM bonds six years ago was a risk ... she undoubtedly liked the yield.
If she thinks she got a bad deal, what about the common holders?
She deserves what she got.
Notice who is complaining: GM bondholders
Notice who isn't complaining: UAW
Yes, negotiations often leave one party feeling like they got the short end of the stick, but this wasn't even a negotiation. That's why a few of us are taking notice at what's going on here.
You ONLY lost $70,000? I took a $150,000 hit in my 401(k) plan over the last 18 months and I diversified. I took the risk when I invested in stocks, and so did you. I didn't like the loss but it was MY choice to invest my money as I saw fit for the long term.
I might add that I was a victim of the LTV bankruptcy filing in 2001 and lost my job as a result. No one bailed out the steel or aircraft industries and the auto industry should not have been bailed out. Now all of us taxpayers will take the hit. It's too bad you lost your money but so did alot of us.
I agree that Debra is going to have to accept a loss, but shame on every commentor who has outright thrown insult on top of her injury. I personally like the Obama's but we'll never have a President who can do the right thing for every single citizen. It's impossible.
And for Obama haters, I challenge you to do his job and not piss anybody off.
I'm disapointed that people seem to think that being a Bond holder is the same thing as an equity holder (i.e. having stocks).
"A bond is a formal contract to repay borrowed money with interest at fixed intervals"
Sorry, but bonds are one of the most secure instruments out there.
It's like a friend borrowing money from you to buy some baseball cards, only to say, "Sorry, can't pay you back but here are some worthless cards"
Its supply and demand people.
When cars need to be made; car demand goes up and car supply goes up
When cars dont need to be made, car demand goes down and car supply goes down.
That + GMs terrible tacticle greedy errors have check mated the auto company.
The administration is stupid for leveraging the company this far up; because cars dont need to be made!.. And atm screw the unions they are not helping that much; people should never have been paid that much money to make a car.
Oh; and this lady should have deversified; all eggs in one basket and basket broke; thats investing 101. And like someone said this company was never if not for a long time been rated AAA stock.
I have no sympath for you Ms. June. What a smart person would have done to cut their lost months ago. When this market went downhill everyday at record numbers and people from 20 to 90 plus was losing money like there was no tommorrow. That is what I did I pulled out of the market. I can't believe you are a teacher...Because a REAL TEACHER would teach their child about risk and how if something doesn't look right maybe they should leave. If your case you should have pulled out.
and LOW RISK =/= NO RISK
Wow! This explains everything that is wrong with education. revoke her teaching license ASAP.
Suck it up, that's life.
Open letter to Debra June:
You do NOT represent me as a main street investor:
(a) You bought GM knowing it was poorly managed by a bunch of greedy, money grubbing crooks masquerading as 'executives'.
(b) You knew GM was churning out planet-destroying machines like the greenhouse gas belching Hummer.
Were you too busy teaching to learn even the basics about responsible investing?
And have a little more dignity than to try dragging Michelle Obama's good name into your bitter temper tantrum. Do some research on XO Communications stock which suffered the same fate as GM stock, and learn a lesson from a tragedy many could see coming for over a decade. You lost 10 times what I lost in XO stock back in the early 2000's, but it's tough to pity you considering the damage GM executives have wrought on the economy.
Gullible people like you made their crimes possible, just as gullible people made Bernie Madoff's crimes possible!
Perhaps if you invest your hard earned teacher's salary in environmentally responsible corporations with good management, you'll sleep a lot better and set a good example for your students.
If Debra June had invested $70,000 in GM bonds out of a portfolio of $700,000, that might have been a reasonable level of diversification. It seems to me that $70K for a school teacher probably represents most, if not all, of the money she had to invest and, even without the benefit of hindsight, not a particularly wise decision. Further, if we look at the state of GM six years ago, the state of the auto industry at that time and the competitive challenges they faced, I wouldn't have invested any money with GM – or any other auto manufacturer.
Let's not forget, that it has been the investors who invest in business that allow most of us to employed
"For the first time in my adult lifetime, I am really proud of my country."
So, apart from this womans "problem". If the US changes the rules between bond holders and all other bankruptcy claims, companies will start having a very hard time getting capital through bonds... sets a dangerous standard!
If you dont understand what a BOND is and the rights of a bond holder than you shouldn't be leaving comments about the risk associated with bonds. Bond holders have rights, and when Obama called these bond holders un-american for wanting to exercise these rights was unconstitutional. I hope the goverment gets sued and I bet they will and the Bond holders will win.
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