How could they?

How could they?

So why did GM’s bond holders effectively end the iconic company’s chances of reorganising itself outside a bankruptcy court?

It’s now expected GM, which helped make the 1900s the American Century, will file for Chapter 11 later this week or early next.

Such a move will mark the end of the hey day of motor vehicle manufacturing in the United States.

The bond holders, however, are taking a risk.

They’re gambling that a bankruptcy judge will give them a better deal than the one GM was offering - a ten percent equity stake in any new firm in exchange for dropping claims on the $27-billion they’ve invested in unsecured loans or bonds.

The bond holders - who range from pension funds through mutual funds to banks and hedge funds - may or may not be right but their decision means that in a few days - without a massive change of heart  - GM will be run by a court.

When this historic moment finally comes, very little will change at least on the surface immediately.

Chapter 11 is a device used by U.S. businesses to reorder their debts (180 billion in GM’s case - greater than the national debt of Mexico!) the better to emerge as a leaner meaner operation.

Workers will still make cars and get paid for it.  Suppliers will still supply their parts.

But a judge will have the final say on how every penny is allocated. 

The good bits of GM are likely to be sold off while the bad bits are left for another day. 

It’s hard to imagine that there won’t be further redundancies as part of this process eventually.

This is the same as the Obama administration is doing for GM’s smaller rival Chrysler, which is rumoured to be about to emerge from its own Chaper 11 saga quite soon.

Chapter 11 is very embasssing, of course, for the management team, who will finally be forced to admit once and for all that they and those that came before them, basically blew it!

Shares ended in New York lower on Wednesday amid GM worries and mixed economic data.

The Dow Jones Industrial Average was off by 2%, the Nasdaq by 1%.

More from New York on Thursday when my producer says I’m interviewing the head of a Microcredit firm based in Harlem for AJE’s Global Microcredit Day coming up on Saturday.

- John