OT: Buying GM Stock, a steal at $2?

[jmatta]

Originally Posted by tboyer

Appears that investors are worried that GM may convert a sizeable amount of debt into equity stock, not exactly sure what that means but it doesn't sound good.

Converting debt into equity is a fairly common resolution when a troubled company attempts to restructure. The process removes the debt from a company's balance sheet and converts it to net equity, diluting the existing shareholders. In the long run, the original debt holders get fair value as the company becomes profitable in the future. The problem here is there's so much debt, the holders essentially get stake in a company that's going down anyway (% ownership of nothing still equals nothing) and would likely recoup zero.

Obama will likely write the check to GM and it's suppliers to keep the house of cards from collapsing and appease the unions which showed strong support during his candidacy.