Book value includes only that goodwill which it booked by acquiring all or part of another company.

The value of a company’s base of client will be considered in market value, but it’s not part of book value.

That said, I’m not sure either of these applies to GMAC. And during this crisis troubled financial institutions are trading at far below their book value (see Citigroup and Bank of America, for example).

Clorox has negative book equity, but that doesn’t mean a buyer of new equity would be irrational. If GMAC had intangible assets that were underrepresented on its balance sheet, one might be able to get comfortable putting in new money.

As a matter of fact, of course, we know that:

(a) several banks on the list actually have negative book equity if they marked their whole loan portfolios to market;

(b) the only reason for creating a government stress test was to put the seal of approval on a version that did not reflect (a), thus relieving the pressure on the Administration to take action based on (a);

(c) the government is not about to let a major bank fail, regardless the cost;

(d) the government encourages reckless behavior at GMAC because it wants desperately to pump up the auto market.

Is there a necessary second step? Where you move from being an essential critic to someone who works with others to effect policy changes?

To quote the “action-orientation” of Woody Allen’s “Manhattan”:

Isaac Davis: “Has anybody read that Nazis are gonna march in New Jersey? Y’know, I read this in the newspaper. We should go down there, get some guys together, y’know, get some bricks and baseball bats and really explain things to them.

Party Guest: “There is this devastating satirical piece on that on the Op Ed page of the Times, it is devastating.”

Isaac Davis: “Well, a satirical piece in the Times is one thing, but bricks and baseball bats really gets right to the point.”

James, maybe you are already working behind the scenes? But we’ve all been posting here for months (or in my case, reading along) with the expectation that criticism is all it takes for reform.

I beg you to consider that more leadership is required, and that you, sir, could provide leadership in coordinating the Bill Blacks, Simon Johnsons and Brooksley Borns to come up with a necessary Plan B that they can more or less agree on.

This unified support from name-recognition experts would give the Plan B the necessary respect it deserves. And then we can help you to rally around it.

If this is such a crisis, we need to act (peacefully, but decisively, the metaphorical equivalent Woody Allen’s baseball bats and bricks).

No investor would pay $11.5 billion to own 100% of the common shares in a company that is worth $8 billion.

There is a difference between having a book value (or tangible common equity) of $8 billion and being “worth” $8 billion. Indeed, companies trade at multiples of their book value all the time.

If the business has sufficient earning power but a book value of negative $3.5 billion, an investor might well be willing to inject $11.5 billion in order to own the whole operation (at a price/book of 1.3).

This may or may not be the case here… But in general, I do not think it is true that “you can’t recapitalize a company with a negative net worth”.