Bailout of GM was a Boon for the Union, Old Bondholders Still Suffer


You’ll never guess which party came out on top after the government takeover and subsequent IPO of General Motors.

Did you guess the UAW? Bingo! You win a prize! Okay, not really a prize, since if you pay taxes you’re still on the hook for your share of the billions the federal government still has “invested” in GM. It’s anybody’s guess when or if the taxpayers will recoup what we’ve dumped into the failed company that wasn’t allowed to fail. But the union got special treatment, so they’re happy.

The boon for the union fits the pattern established when the White House pushed GM into bankruptcy and steered it through the courts in a way that consistently put the interests of the union ahead of many suppliers, dealers and investors — stakeholders that ordinarily would have fared as well or better under the bankruptcy laws.

“Priority one was serving the interests of the UAW” when the White House’s auto task force engineered the bankruptcy, said Glenn Reynolds, an analyst at CreditSights. The stock offering served to show once again how the White House has handsomely rewarded its political allies, he said.

The union’s health care and pension trust fund earned $3.4 billion through the sale of one-third of its shares in GM last week. Analysts estimate that it would break even if it sells the remaining two-thirds of its shares at an average price of $36 — close to where the stock traded shortly after the offering hit the market. GM shares closed at $33.45 on Wednesday.

How nice for the union. For the old investors who got screwed in the bankruptcy deal, well, things could be better.

Union claims ordinarily do not receive such special treatment in bankruptcies.

The generous share of GM stock given to the union trust fund under the White House deal puts it not only ahead of the Treasury but on a par with secured creditors such as banks, which normally receive the most favorable treatment from bankruptcy courts.

Perhaps the biggest losers are the investors in the old GM. None of the bankrupt company’s previous stockholders got any money, while the claims of thousands of investors who purchased the company’s bonds are still being kicked around in a Manhattan bankruptcy court.

“It gives outraged flashbacks to the old GM bondholders,” who remain mired in the bankruptcy proceedings and are unlikely to recover more than 30 percent of their investments, Mr. Reynolds said.

He compared the deal to the corrupt crony capitalism in Russia under President Vladimir Putin.

One retiree had $55,000 invested in the old GM. He said he sat and watched the stock offering while he and other investors got nothing. It’s really no surprise, retirees with investment capital are not among the Obama administrations’ favored special interest groups.

Ah, well, at least GM is saying “Thanks!

I suppose any failing entity could “lift itself back up” if given enough of someone else’s money. But I’m not so sure doing a sort of “victory lap” would be the wisest course of action after a bailout, especially when the bailout came from potential customers.

A reader emailed with another interesting take on this.

When the company is the Union and the Union owns the company, only bad things happen. You not only are at the bargaining table with yourselves, you are putting all your eggs in one basket as it relates to the pension and trusts. If I’m reading this right, this is investing no-no 101. You hedge, you diversify out of your company mostly so you don’t get hurt and are protected in bad times in your sector. Sheesh, this is what happened to the Enron employees and GM is following suit. This would be considered instant malfeasance by the fiduciaries anywhere else.

We’re seeing a lot of fiscal malfeasance lately. If private companies tried even half of what the government’s been doing over the past couple of years they’d be hauled into court faster than you can say “Obama’s a socialist.” But when the government does it we’re just supposed to look the other way. (Just look at Fannie Mae and Freddie Mac for one example.)

To hear the Democrats and the media talk about it, you’d think what they did was compassionate – they saved all those jobs! But how is it compassionate to leave retired investors out in the cold and the taxpayers on the hook? When the government starts being all compassionate to one group, they have to take away from another group. I don’t quite get how a person or entity can be considered charitable when giving away someone else’s money. It sounds more like theft to me. We’ve been fleeced again!