Bad for GM, Bad for America

Leave it to the guys who are driving General Motors(GM Quote) off a cliff to make things worse. Thanks to their most recent "solution" -- selling off a 51% stake in the company's profitable General Motors Acceptance Corp. financial arm -- CEO Rick Wagoner and his team have actually raised the odds that General Motors will have to seek bankruptcy protection. And they have made sure, as an added bonus, that they can do nothing to stop what they've set in motion.

Pretty neat, huh?

But wait, that isn't all that these guys managed to accomplish last week. Before you relax into some comfortable jeering from the sidelines -- unless you own GM stock or, even worse, work there or at some GM-dependent company -- you should know that last week's GMAC sale has put all of us in range if GM should blow up.

Thanks to the way that Wagoner et al. structured the GMAC deal, they've created the possibility of a real blowup in the derivatives market that insures bondholders against default. If that bomb was to go off, every financial market would be in shrapnel range.

Cheap Goods

So how does a CEO manage to put his company and the entire financial market at risk with a single deal?

By making it contingent on the whims of the not-so-rational combatants at Delphi and the United Auto Workers, who have locked horns over wages and benefits in Delphi's bankruptcy proceedings.

General Motors did this by "selling" 51% of GMAC to a private investment group including Citigroup(C Quote) and headed by hedge fund Cerberus Capital Management for $14 billion.

Of course, GM won't get that $14 billion all at once. When the deal closes, Cerberus and its partners will pay General Motors $7.4 billion. GM will collect another $2.7 billion in cash from GMAC as a return of the higher taxes that GM paid on GMAC's income when it owned the financial company. GM will receive another $4 billion over three years from GMAC as income on $20 billion in leases and retail assets that GM will retain after the deal.