Wednesday, May 27, 2009
The GM capital structure: The union comes before the taxpayers
Glenn Reynolds notes that the federal government will own 70% of "Government Motors" when all is said and done, which is not surprising when you consider that it will probably need more than $50 billion in taxpayer money -- including the $20 billion already poured down the rat hole "invested" -- just to turn it around. The UAW is also taking almost 20%, including preferred stock (which appears to pay a dividend) and a note, putting them ahead of the common stockholders, 70% of whom are, well, the half of the U.S. population that pay federal income tax. For some reason we will all struggle to imagine, the United Autoworkers preferred a more senior position in the reorganized company's capital structure to the unlimited "opportunity" of common stock. [Typo fixed.]
4 Comments:
By 
, at
Wed May 27, 10:04:00 AM:
'-- including the 20 million already..' That should be 'billion', should it not, TH?
By , at
Wed May 27, 11:32:00 AM:
This post is the internet equivalent of pissing in the wind. Creditor rights do not matter to the President. Taxpayer dollars do not matter to him, or to the Democrat party writ large.
By , at
Wed May 27, 12:10:00 PM:
We may have bigger problems than socialism to worry about soon enough, anyway, what with the North Koreans threatening WW3 and all.
By , at
Wed May 27, 02:08:00 PM:
Arrgh. GM doesn't need a dime in government money and never did. Witness the wonders that the initial infusion of $20 Billion did--absolutely nothing.
GM needs to declare bankruptcy, restructure, dump 50% of its dealers, cancel or renegotiate its executory contracts with the UAW, close plants, and emerge with a competitive cost structure. All of this could have, and should have, been accomplished in a routine bankruptcy filing without government aid or involvement.
Instead, the Obama administration plans to shred the capital structure of GM to transfer wealth from the secured bondholders to the UAW, just as they did with Chrysler.
There will be a severe price to pay for banana republic politics. As the rule of law breaks down in the face of blatant political corruption, capital will make for the exits. It's already happening--the US experienced a net capital outflow for Q1 2009.
There will be no recovery without capital, and there will be no capital without the rule of law. Get ready for the era of never-ending recession, which will eventually be dubbed the Obama Depression.
We learned nothing from the Great Depression.
