Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: Jim McMannis who wrote (191810)	3/19/2009 12:41:44 PM
From: Perspective	Respond to of 306849

So far, hasn't the government intervention to save companies basically meant protecting the bondholders? I don't think the stockholders are getting a whole lot of rescues. Obviously, keeping them out of BK court keeps the equity intact and prevents the immediate need for a capital raise - for now - but the shareholders are still eating the losses as the companies run deeper into the ground. It's just postponing the day of reckoning. The government may inadvertently make things far worse than would have been, because instead of turning to the capital markets NOW and diluting shareholders while they have SOMETHING left on their balance sheets, they're permitting the companies to get even DEEPER into hock, run themselves FURTHER into the ground, and then have themselves so deeply in a hole that they will be unable to raise private capital six months from now. The banks are a great case of this. TARP has permitted many to postpone capital raises. That's all great if you assume that the trouble is temporary and will clear up in a couple of quarters. However, if their assets just continue to deteriorate, then the shareholders will be completely wiped out, and the institutions will have no way to raise capital in the future, thus ensuring their path into FDIC receivership. Unintended consequences abound... `BC