Cramer: GM Should File for Bankruptcy

This column from Jim Cramer originally appeared on RealMoney on Friday, June 27. It is being republished here as a bonus for readers of TheStreet.com.

GM's(GM Quote - Cramer on GM - Stock Picks) in a difficult position. It is one where there is a way out, but it does not involve saving the common stock.

The only problem is the value investors. They insist, I'm sure, on finding value and taking their usual beating, which prolongs everything.

First, we have to stipulate two things: GM has tremendous value if it can break all of its contracts, stop paying the coupon debts and eliminate the dividend.

But there is one problem -- you can't do that, you can't make the critical changes, unless the company files for bankruptcy.

I rack my brain trying to figure out how they can raise enough money to not run out of money. The only way they can do it is to sell hundreds of millions of shares of common stock and simultaneously eliminate the dividend. That will buy them time, but buy them time for what? For the next offering?

Or they can simply abrogate everything, put the company in receivership, let it be recapitalized by Cerberus in a Chrysler merger -- remember, Cerberus must print money because it looks like most of their businesses are going down the tubes, but they keep smiling and laughing and telling people things are great in a bit of a Bear Stearns jocular "we are doing fabulous" rap.

In receivership, they can cram down the debt and begin to make small amounts on cars while they reposition the lineup to alternative-energy cars and their own Mini Cooper deals.

Now, these are most feared things to talk about. They make people shudder. But should they? This is a $6 billion company that owes too much and can't pay with big residential losses we can't even fathom.

We don't want it to cease to exist. So I think this course of action is the rational, smart thing to do.

This is different from a WaMu (WM Quote - Cramer on WM - Stock Picks) or a Wachovia (WB Quote - Cramer on WB - Stock Picks) or a Citigroup (C Quote - Cramer on C - Stock Picks). Those companies need to call the government, fess up to their portfolios and ask Sheila Bair for a method to protect the depositors while they all merge and offload their bad loans to the U.S. government. Again, this is obvious, but we have to wait, because of the moronic value guys, to do many more offerings that obliterate the common.

I believe all of this will happen. Every bit of it. I would rather have it happen sooner rather than later.

But from the looks of things, it will be later, with a lot more turmoil before it happens.