Demand Note Dud

Dear Dave,

My parents asked me if I know anything about GMAC demand notes. Apparently, they're thinking about getting into these to diversify their portfolio. What do you know about these, and is this a good idea?

Eric

Dear Eric,

Your parents need to run as fast as they can from whoever is pitching this idea to them. A note is a debt. So, the next question goes something like this: Would you want to be in the position of having General Motors owe you money right now? I don't think so!

Basically, people who invest in this kind of thing end up being creditors. Then if the company goes belly up, guess who usually doesn't get paid? That's right, the creditors! Plus, the company is teetering on the brink of disaster.

There's no way I'd do this, Eric, and I'd never again take advice from the one who suggested it. This is one of the worst ideas I've ever heard!

- Dave

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