03 June 2009

Battle of Bankruptcies???

Battle of Bankruptcies???
General Motors (GM) VS Lehman Brothers (LB)
If we analyze corporate bankruptcies occurred in U.S, we could found a huge differences in-terms of market reaction. Lehman Brothers bankruptcy last year had caused the market slump to all-time lows around the globe.
However, General Motors story didn't have any impact on the market either. Instead, market gone up "crazily". In fact, GM's demise had broken the U.S history -- largest corporate failure.
Why such differences? Let's have a look:
  1. Expectation. LB caught everyone surprise when U.S government didn't lend a hand to rescue it, although LB is much more popular than Fannie & Freddie. In contrast, GM should have closed down long time ago, if not because of U.S government stubbornness to revive the company. Finally, "Paper cannot used to cover Fire". GM's case is expected.
  2. Factor. Before GM announcing the final decision on whether it will survive or demise, market had actually factoring the possible worst outcome ways before GM's due date.
  3. Relief. Market's arrow points to the sky instead of ground, because of the credibility of U.S government measures to revive the economy. Sometimes, facing the truth is the best solution for moving ahead. Peoples are relief that, after so many months of speculating, GM finally closed down.

What should I said further?

Good Luck...

2 comments:

  1. You left out another decisive factor, another test -whether the company is "too big to fail". In Lehman Brothers' case, Treasury Secretary Henry Paulson deemed its failure not to be too significant so as to pull down the entire economy whereas in GM's case, its failure would spell the doom of hundreds manufacturers that manufacture key auto parts that go into GM cars. When they fail, not only unemployment rates would soar but the auto industry in US could potentially come to a halt as well. This is evident in Ford's request for contingency federal aids in case GM fails.

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