There seems to be an interesting misconception floating around that bailout => equity holders don't lose their investments. In the GFC, there were companies that got bailed out (GM, Chrysler) and after that failed, the Gov't (US and CA) wound up owning them. Equity went to 0.
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Never mind, I misread your original post. Yes, bailout doesn’t guarantee it doesn’t still go bankrupt
When you say "bank bailouts in the financial crisis didn't zero out equity holders" are you saying the bailout of the banks or the bailouts from the banks to other industries didn't zero out equity holders? My understanding is that equity holders in Citi etc. didn't get zeroed
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Yeah, I meant Citi and all the other banks got cash in exchange for debt and equity warrants, and the equity holders didn’t get zeroed out. I made a 50-100% return buying C and BAC in the crisis, but I was betting they’d go to zero or be worth double where they were trading
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When you say debt (1) and equity (2) warrants would those be: 1. Right to purchase equity at a certain price combined with debt financing? 2. Right to purchase equity at a certain price? Had Citi gone bankrupt, do you know what would've happened to 1 and 2?
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because they didn't go bankrupt, whereas GM and Chrysler did. Would like to sort out the specifics as this is an important point that I'd rather not be wrong about!
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