A recent New York Times article about the size and complexity of GM's bankruptcy brings up an interesting point. The bankruptcy of GM is an event, not unlike the Olympics. Instead of the world's best athletes, there will be a gathering of elite legal professionals for a contest of wills.

The venue looks to be New York, rather than a more exotic locale like Barcelona or Tokyo, but the influx of lawyers, advisors, bankers, and interested parties will result in a financial windfall for many of the local businesses. There will be hotels to book, pizza to deliver, coffee to brew and, no matter what party comes out "best," drinks to serve. (Learn to scavenge for profits in Profit From Corporate Bankruptcy Proceedings.)

Unlike the Olympics, however, all the participants on the legal side will be taking home considerable awards while the host nation, GM, its investors, and its employees, will most likely end up leaving with less. With more bankruptcies to be expected, perhaps the time has come to invite cities to host the next big bankruptcy.

Each city could put together a package highlighting office space, transit routes to court, a full list of takeout and drinking establishments. There is, of course, the danger of bankruptcy becoming too much like the Olympics. Host cities could spend millions more in promotion and infrastructure only to find the actual revenue much lower than expected. This would be an economic double punch, debt taken on to host an event that destroys investment capital. (Unique investment opportunities are waiting to be discovered; read Looking For Profit In Privately Held Companies.)

Although the thought of starting a bankruptcy Olympics is laughable, there is a worrying amount of spectacle growing up around the concept of bankruptcy. We take a perverse pleasure in hearing about the biggest, just as we may sum up the process too nonchalantly.

GM, and Chrysler for that matter, were loaned investment capital on the good faith that they would pay it back as promised. They also made promises to their employees and shareholders. The bankruptcy will allow them to slough off those promises and continue on, no doubt making new promises along the way. Anyone that has borrowed money that was never paid back, or lost money because of someone else's mistake, can sympathize with what the bondholders, investors and employees are going through. If the government keeps its current course, the employees may come out close to whole from a bankruptcy, but political sympathy seems to stop there.

At the end of the Times' article, a professor compares bankruptcy and a stay in the hospital from which the patient leaves rejuvenated. The patient that leaves a bankruptcy is often smaller and healthier for it. What the metaphor fails to take into account is all the lenders and investors that have been amputated and left bleeding on the operating table. (For more, see An Overview of Corporate Bankruptcy.)

Related Articles
  1. Investing News

    Is the White House too Optimistic on the Economy?

    Are the White House's economic growth projections for 2016 and 2017 realistic or too optimistic?
  2. Investing Basics

    Contingent Convertible Bonds: Bumpy Ride Ahead

    European banks' CoCos are in crisis. What investors who hold these high-reward but high-risk bonds should know.
  3. Economics

    Can the Market Predict a Recession?

    Is a bear market an indication that a recession is on the horizon?
  4. Stock Analysis

    Best Stocks to Buy for Around $1 (NXTD, MBII)

    Watch for strong technical indicators and other positive information when considering the purchase of any stock trading in the $1 range.
  5. Investing News

    Today's Sell-off: Are We in a Margin Liquidation?

    If we're in market liquidation, is it good news or bad news? That party depends on your timeframe.
  6. Stock Analysis

    3 Risks Emerging Markets Debt Faces in 2016

    Learn about the major risks for emerging market debt in 2016. Discover how low interest rate policies by central banks fueled the growth of debt globally.
  7. Stock Analysis

    Are U.S. Stocks Still the Place To Be in 2016?

    Understand why U.S. stocks are absolutely the place to be in 2016, even though the year has gotten off to an awful start for the market.
  8. Investing News

    U.S. Recession Without a Yield Curve Warning?

    The inverted yield curve has correctly predicted past recessions in the U.S. economy. However, that prediction model may fail in the current scenario.
  9. Investing Basics

    Inside IPO Roadshows

    Understand more about IPO road shows. Learn the reasons why an IPO road show is important for the success of a company's public offering.
  10. Investing

    Retirees: 7 Lessons from 2008 for the Next Crisis

    When the last big market crisis hit, many retirees ran to the sidelines. Next time, there are better ways to manage your portfolio.
RELATED FAQS
  1. How can you pay your Walmart credit card?

    Holders of Walmart credit cards can make payments on their balances due by mail, online or at Walmart and Sam's Club stores. ... Read Full Answer >>
  2. Is Apple Pay safe and free?

    Apple Pay is a mobile payment system created by Apple to reduce the number of times shoppers and buyers have to pay for goods ... Read Full Answer >>
  3. Can you use your Walmart credit card at Sam's Club?

    Consumers can use their Walmart credit cards to shop at Sam's Club. However, they cannot use their Walmart credit cards when ... Read Full Answer >>
  4. How can you cancel your Walmart credit card?

    Walmart offers two types of credit cards: the Walmart MasterCard and the Walmart credit card. How to Close Your Walmart Credit ... Read Full Answer >>
  5. Does the Walmart credit card have an annual fee?

    The Walmart credit card does not charge annual fees to its cardholders. It does, however, have other fees associated with ... Read Full Answer >>
  6. How do NetSpend cards work?

    NetSpend prepaid MasterCard and Visa cards are popular prepaid debit cards requiring no minimum balance and no credit check. ... Read Full Answer >>
Trading Center