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

    What’s Holding Back the U.S. Consumer

    Even as job growth has surged and gasoline prices have plunged, U.S. consumers are proving slow to respond and repair their overextended balance sheets.
  2. Savings

    How Volatile Exchange Rates Affect Your Vacation

    Those ever-changing fluctuations can make a difference in anything from your hotel room to an ATM transaction.
  3. Credit & Loans

    Can Corporate Credit Cards Affect Your Credit?

    Corporate cards have a hidden downside. If the company fails to pay its bills, you could be liable for the amount and end up with a damaged credit rating.
  4. Economics

    A Look at Greece’s Messy Fiscal Policy

    Investigate the muddy fiscal policy, tax problems, and inability to institute austerity that created the Greek crises in 2010 and 2015.
  5. Home & Auto

    4 Areas to Consider Roofing Material Types

    Roofing your home is very important, that’s why you should choose a roof specifically designed to handle your area’s climate.
  6. Investing News

    What Is The New Credit Card Chip Good For?

    Under current U.S. credit card requirements, credit card issuers are required to issue chip cards as of October 1, 2015. Instead of swiping your card as you do now, you will slide the card into ...
  7. Credit & Loans

    5 Ways to Maximize Your Credit Card Points

    How to get the most bang for your rewards buck.
  8. Economics

    How Do Asset Bubbles Cause Recessions?

    Understand how asset bubbles often lead to deep, protracted recessions. Read about historical examples of recessions preceded by asset bubbles.
  9. Investing

    How to Effectively Compare Credit Card Rewards

    There are so many different reward credit cards that are available. Understanding how each type work will help you pick the best card for your needs.
  10. Professionals

    Holding Out for Capital Gains Could Be a Mistake

    Holding stocks for the sole purpose of avoiding short-term capital gains taxes may be a mistake, especially if all the signs say get out.
RELATED TERMS
  1. Interest Coverage Ratio

    A debt ratio and profitability ratio used to determine how easily ...
  2. Corporate Social Responsibility

    Corporate initiative to assess and take responsibility for the ...
  3. Debt Ratio

    A financial ratio that measures the extent of a company’s or ...
  4. Internal Rate Of Return - IRR

    A metric used in capital budgeting measuring the profitability ...
  5. Organizational Behavior - OB

    Organizational Behavior (OB) is the study of the way people interact ...
  6. Board Of Directors - B Of D

    A group of individuals that are elected as, or elected to act ...
RELATED FAQS
  1. How does a bank determine what my discretionary income is when making a loan decision?

    Discretionary income is the money left over from your gross income each month after taking out taxes and paying for necessities. ... Read Full Answer >>
  2. How does the risk of investing in the industrial sector compare to the broader market?

    There is increased risk when investing in the industrial sector compared to the broader market due to high debt loads and ... Read Full Answer >>
  3. What is the range of deductibles offered with various health insurance plans?

    A wide range of possible deductibles are available with health insurance plans, starting as low as a few hundred dollars ... Read Full Answer >>
  4. How can I hedge my portfolio to protect from a decline in the retail sector?

    The retail sector provides growth investors with a great opportunity for better-than-average gains during periods of market ... Read Full Answer >>
  5. What is the correlation between term structure of interest rates and recessions?

    There is no question that interest rates have enormous macroeconomic importance. Many economists and analysts believe the ... Read Full Answer >>
  6. How do I know how much of my income should be discretionary?

    While there is no hard rule for how much of a person's income should be discretionary, Inc. magazine points out that it would ... Read Full Answer >>

You May Also Like

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!