GM, Bankruptcy, the Transfer of Wealth, and Wall Street Incompetency

In Karen de Coster's and Eric Englund's article General Motors and the Intellectual and Moral Bankruptcy of Wall Street they discuss the transfer of wealth from main street to wall street and the predictable bankruptcy of General Motors.

From the following quote, we can extract the reasoning behind why the Canadian and American taxpayers would enjoy great benefit from investing in General Motors:

To analyze General Motors’ 12/31/06 FYE financial statement is to understand that this once great company is likely heading towards bankruptcy. Here are the gruesome details:

* GM’s "as stated" net worth is negative $5.4 billion
* By fully discounting intangible assets, which includes deferred tax assets, GM’s net worth is arguably negative $48.5 billion (refer to Note 13 of GM’s 12/31/06 financial statement)
* GM’s as stated working capital is negative $3.7 billion
* By fully discounting current deferred tax assets, GM’s working capital drops to negative $14 billion
* General Motors’ total liabilities amount to a staggering $190.4 billion
* GM’s net loss, in 2006, was nearly $2 billion

Its also interesting to read about the complete fraud or ignorance Wall-Street committed when setting the "buy" recommendations on General Motors' stock:

Let’s step backwards a bit. On June 25, 2007, Wall Street powerhouse Morgan Stanley put out a “buy” recommendation with respect to General Motors’ common stock. Robert Barry, Morgan Stanley’s star analyst, proclaimed a 52-week target price of $42 per share. Less than five months later, on November 7, 2007, Wall Street analysts were stunned by General Motors’ staggering third-quarter (9/30/07) loss of $39 billion – one of the largest bookkeeping losses in history, which was mostly related to the writedown of deferred tax assets.

Fifty-three weeks after Morgan Stanley’s buy recommendation, GM’s stock hit a 54-year low of $9.98 per share – on July 2, 2008, after Merrill Lynch’s recommendation had gone from a “buy” to “underperform” (i.e., sell) on that day. In one sweeping move overnight, Merrill Lynch analyst John Murphy cut his target price on GM by a whopping 75%, reducing the target price from $28 to $7. So how is it that GM suddenly went from respectability to mediocrity – in one analyst’s mind – overnight? In fact, why did it take until July 2008 to concede that GM was on life support? Wall Street, belatedly, is willing to acknowledge the fact that General Motors is teetering on the verge of bankruptcy.

Accordingly, key questions come to the forefront. How did any stock analyst, worth his salt, get blindsided by the aforementioned $38.3 billion writedown of deferred tax assets? Are Wall Street’s Ivy League-educated MBAs able to comprehend advanced accounting and finance? Has rigorous security analysis, on Wall Street, been supplanted by self-serving cheerleading and inane platitudes with the objective of transferring wealth from the masses to the Wall Street elites?