The Times has an interesting piece about what the government has in store for GM:
The administration appears to be drawing in part from a playbook used with troubled banks, with the goal of creating a new, healthier G.M. but leaving behind its liabilities and less valuable assets, perhaps for liquidation. More often referred as the “good bank-bad bank” model, the approach can infuriate those with claims against the bad bank.
Under a plan being worked out by the administration, G.M. would file for bankruptcy, according to people briefed on the matter. It would then use a sale authorized under Section 363 of the bankruptcy code to quickly sell off the desirable assets to a new company financed by the government. These good pieces might include Cadillac and Chevrolet, as well as assets the company needs to run the business.
Less desirable assets, brands like Hummer and underperforming factories, would be left in the old company.
Proceeds from the sale, including stock in the new company, would be given to the old G.M., helping to settle claims.
I guess my question is: The typical bad bank, at least when it involves an actual bank, has some depressed assets that the government (or whoever) can hang on to, then sell when they appreciate at a later date (as with the Resolution Trust Corporation). But with the auto industry facing such big structural issues, it's not clear to me who's going to buy those underperforming factories, or that they're going to appreciate when the economy recovers. (It's certainly possible, just doesn't seem as likely as it does with the usual bad-bank assets, like land and mortgages.)
Which is to say, it seems like GM's bad bank is going to be a much worse bank than the typical bad bank, in that it'll be less able to re-coup money. So it's either going to cost the government a lot more or end up stiffing a lot of creditors and other stakeholders. Then again, it's not like we could avoid those tradeoffs if we opted for some other approach...
Update: I should add that the bad bank approach has many virtues--like preventing the bad assets from weighing down good ones, which are viable and can continue to create jobs/yield returns/generally be productive.
--Noam Scheiber