Congress is Hurting Big Three By Offering Hope of a Bailout

Congress is doing GM no favors by offering the hope of a bailout but not providing one.

Here's why.

In better credit markets, bankrupt companies can often obtain debtor-in-possession ("DIP") financing which allows a company to obtain a new loan to fund its operations in bankruptcy. Because the DIP market has dried up in the credit crisis, GM needs to use its own cash balances to provide liquidity in bankruptcy. Each day GM delays in filing is another day of losses draining its cash reserves - hence the need for an immediate Chapter 11 filing.

So if there were no hope of a bailout, GM would most likely have already declared bankruptcy, to preserve as much of its cash as possible to give it the best chance of emerging from Chapter 11 as a profitable company.

On balance, Congress is hurting GM's chances of survival with its talk of a bailout.