I hear this repeated often among conservatives.
But United Airlines filed chapter 11 in 1994 and employees would up with 55% ownership of that company. There is nothing much unprecedented about the GM settlement.
I suspect that once again conservatives don’t understand capital restructuring. What is the truth here?
They’re complaining that the UAW (which had substantial equity in the form of pension funds and post-retirement health care) got preferred treatment in the bankrupcy deal over other unsecured bondholders (there was no “travesty” regarding secured bondholders–whom I believe were paid in full, though I’d appreciate more data on this).
They’re correct in the technical sense, but IMO they go way too far when they state that Obama orchestrated this as a pay-off to his union supporters. A better read is that the UAW had the administration over a barrel; the bankruptcy was not going to go smoothly if the UAW didn’t sign on, and the UAW thought they had made enough concessions in the earlier part of 2009 to preclude any further sacrifice.
I’m sympathetic to the argument that having a debtor “cut in line” sets a bad precedent, but this and the Chrysler bailout were something of a unique situation involving an industry that employs (directly and via contractors) hundreds of thousands of American workers. The Obama administration tried to balance competing interests and felt the impact to the workforce outweighed the loss to unsecured capital. Whichever one of those you most value will naturally color your perception of the imperfect deal that was eventually struck, a deal which–in the aggregate–is more of a plus than a minus.
This is one of the most laughable comments I have seen written on this board. The obvious corollary to this is that you believe liberals do understand capital restructuring, correct? You know who does understand capital restructurings? About 0.5% of people in this country. Take a look at any thread on this board (which probably has pretty decent educational demographic) and you might have 5% of people having a clue about the capital structure of a company.
What’s next on your thread criticism list? I suspect that once again liberals don’t understand Black-Scholes option pricing.
Hitler?
I understand the Critical Vendor Clause, which dates back to the 19th century and says that unsecured vendors take priority over a creditor when a REORG is in order.
And I am a liberal who worked for Columbia Capital and dealt with reorgs several times.
Yes, this is an arcane corner of law that few understand and I won’t pretend to be a corporate bankruptcy expert. But I have never heard an expert defend the conservative position - just some AM radio lackeys.
Here is a conservative (sort of) critique of the technicalities of the auto bankruptcies. It’s been a while since I looked at this so I offer no further comment.
This. The UAW needed to have their backs broken over contracts that were way above what workers in other industries received and what workers in other industries received after a bankruptcy restructuring.
The Dems have framed this as a victory for workers, but it was really a victory of a handful of workers who have been suckling front teat for too long, at the expense of all Americans who buy American cars.
That doesn’t really go to whether or not there was anything wrong with it in principle.
For those who are curious about the background of the thread, here’s a Wiki article on GM’s chapter 11 case.
It wasn’t just unsecured bondholders versus other unsecured bondholders.
The Indiana Police and Teacher Pension Funds were some of the most vocal arguing against the deal as it went down. They held secured debt and were essentially screwed over. It’s hard to frame this in terms of conservative vs. liberal, IMO.
The Indiana State Police Pension Trust vs. Chrysler wiki has some more information.
IANAL, but it’s hard for me to see this as any other than the deal being forced through, legal or not, because the government viewed the possible damage of the deal not going through to be too great.
After some wiki-surfing I came across this seemingly interesting tidbit:
All bondholders (in fact everyone) got at least as much as they would have gotten in a liquidation of GM. The secured bondholders got the full benefit of the value of their collateral (they were not always fully secured).
The main complaint I heard was that the unsecured bondholders thought they should have gotten a bigger slice of the pie compared to the union pension and benefits fund.
In any bankruptcy, the new money gets to set the terms for providing that new money. The federal government didn’t outbid some private sector financier for the right to bail out GM. The federal government was the only ready willing and able financier at the time.
I was a huge skeptic of the GM bailout but the union workers took pretty large pay and benefits cuts (maybe not enough to make union-busters happy but they were significant.
Like I said, every secured bondholder got what the law required. They just didn’t get as good a deal as they thought they should have gotten. Under the law, once a secured creditor gets the value of their collateral, they are entitled to no more consideration than that of any other unsecured creditor. In practice, they tend to get more. In this case they did not.
Apparently the Indiana pensions purchased their Chrysler position at 43c on the dollar. They eventually received 29c on the dollar. How much was the difference between the 29c and what they were entitled to by law as secured bond holders? Is that kind of info public?
I am not a bankruptcy lawyer but as a tax lawyer, you end up seeing a bit of everything and in any large bankruptcy, there are several creditor committees representing various creditor constituencies. I have no idea how much their collateral was worth but by law, the secured creditors must receive the value of the collateral before anyone else can get anything.
This is the key point ignored by right-wing blowhards.
In defense of the blowhards, it is obvious that if Bain Capital and Donald Trump didn’t want to save GM, then it was God’s Will that GM fail.
We don’t know if private sector financing would have been available since the government offered generous terms and there is no point in trying to outbid the government since private sector financing would be trying to make money on the deal while government is just trying to buy votes.
Chrysler had much more secured debt than GM. Chrysler’s bondholders were screwed over more than GM’s because many of Chrysler’s bondholders were big banks who were dependent on Government for the bailouts.
In defense of the bailouts, obviously 30 billion dollars of taxpayer money is a bargain to re-elect someone who will heal the earth and stop the oceans from rising.
Summary: Since creditors naturally prefer the larger offer, you agree that it was government intervention that prevented GM bankruptcy from being a larger financial “travesty for secured bondholders.” I’ll leave it to other pundits whether a larger financial loss can be less of an “unjustice.” (True, a savior like Bain Capital might have screwed the unions more, thereby pleasing some, if that’s your point.)
You’re very bitter about the election result, hunh?
Yes we do know that no private sector financing was available. Are you under the impression that Chrysler and GM figured out they needed money on a friday and the government provided money on a Sunday? They had been looking for financing for a long long time and the money wasn’t there for a pre-packaged bankruptcy. Debtor in possession financing (DIP financing) was not available, not at that time.
And there cetrtainly wasn’t any financing available that would have saved the company as we know it.
The litigation was largely political. 92% of the secured creditor committee signed on to the deal, not because they werwe forced to but because they couldn’t get more under the law. The dissident 8% filed suit. A guy by the name of Richard Mourdock (the guy who thinks rape preganancies are God’s will) was in chaharge of filing and litigating those suits.
The companies went to the government because they knew that is where they would get the most generous terms. For example the “new” GM got to carry forward losses for tax purposes. The other secured creditors dropped out under pressure from the federal government.
The supreme court ended up vacating the lower courts approval of the sale because the secured creditors got screwed at the expense of the union. Rules were in place and those rules were abrogated because of politics. There should not be one rule for those with power and a seperate, harsher rule for those who do not. That is one of the building blocks of a democratic society.
Can you prove that rules were abrogated by politicians with a link?
This is the claim in dispute.
Your link will need to quote the court decision. It must not be some claim from a blog or the Washington Times.