Larry Kudlow wrote at National Review's blog The Corner last week (link):
What is going on in this country? The government is about to take over GM in a plan that completely screws private bondholders and favors the unions. Get this: The GM bondholders own $27 billion and they’re getting 10 percent of the common stock in an expected exchange. And the UAW owns $10 billion of the bonds and they’re getting 40 percent of the stock. Huh?It should be shocking, though unfortunately by now it isn’t, that Obama is trying to strong arm creditors – those to whom the car companies owe money – into accepting less than what they are owed under the law. Consistent with his socialist world view, Obama exalts the unionized “worker” and denigrates those who lend their savings – “capital” -- to companies. These lenders of money, including millions of common people like me who have some savings invested in bond mutual funds, are to Obama nefarious “speculators.”
The Wall Street Journal’s editorial board commented on the Obama GM proposal (link):
The biggest losers here are GM's bondholders…. mutual funds, pension funds, hedge funds and retail investors who bought them [bonds] directly through their brokers. Under [Obama’s] offer, they would exchange their … bonds for … less than five cents on the dollar. The Treasury … would receive … as much as 87 cents on the dollar. The union's retiree health-care benefit trust would receive half of the $20 billion it is owed in stock, giving it 40% ownership of GM, plus another $10 billion in cash over time. That's worth about 76 cents on the dollar, according to some estimates.
In a genuine Chapter 11 bankruptcy, these three groups of creditors [bondholders, the federal government, and the unions] would all be similarly situated -- because all three are, for the most part, unsecured creditors of GM. And yet according to the formula presented Monday, those with the largest claim -- the bondholders -- get the smallest piece of the restructured company by a huge margin.
…. President Obama has decided in essence to have the feds run GM and Chrysler. This inevitably means running them for the benefit of the UAW that is so closely tied to the Democratic Party.Obama’s proposal for Chrysler is similar – an unfair gift for the unions at the expense of creditors like me. In an article in Barron’s dated today, Andrew Bary states (link):
In the bizarre pecking order offered by the administration, the unions, which are at the bottom of Chrysler's capital structure, would get nearly full recovery value for their $10.6 billion retiree health-care claims, while the secured creditors at the top of the hierarchy would receive about 30 cents on the dollar. Credit that to politics and a likely desire by Obama to reward the powerful UAW.Don Luskin said on the CNBC Kudlow show Friday, May 1, that “When it comes to trying to resolve the interests of different stakeholders, there are well established rules under bankruptcy law for figuring out who goes first. We cannot have the president substitute the rule of law for the rule of whim, where he decides that one class of stakeholders is honorable – the unions – and another is dishonorable -- the word he chose was ‘speculators.’ How about ‘money changers?’”
Here’s the really frightening part for me -- to witness how quickly seemingly sober and intelligent people will surrender principle to the charismatic leader Obama. On the Kudlow show, in defense of the Obama proposals, Noam Sheiber of the liberal New Republic magazine said that “You’ve got to throw out traditional notions of seniority” in addressing solutions for the two car companies. “Traditional notions of seniority” are what are embodied in our law. Schreiber obviously thinks that the rule of law should be suspended by fiat when President Obama thinks it should be. Economics writer Irwin Stelzer, writing (link) in today’s NY Post, detects this liberal surrender to the will of Obama and so leads off his commentary with an apt parallel: “I'm saying that when the president does it that means it's not illegal,” shouts Frank Langella's Richard Nixon at Michael Sheen's David Frost in "Frost/ Nixon." We see that for some liberals, the morality of an action is determined not so much by the action itself but by who the actor is.
John M Greco
