Molson Hart

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.

It depends on the structure of the bailout. Bank bailouts in financial crisis did not zero out equity holders.

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

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

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?

If they’d gone bankrupt, the government would have had high level rights given the debt, but I think the government equity would have also gone to zero

Does that all make sense? In both cases government got debt and equity. With car companies, they went bankrupt, common equity holders got wiped out, government lost money. With banks, they didn’t go bankrupt, common equity dropped in value but not 0, and government made money