Bailout

9 08 2012

Pueblo, Colorado

The story.

The reality:  GM and Chrysler actually did go “bankrupt,” technically speaking.  What was termed the “auto bailout” was really a special Congressionally-created bankruptcy path for GM and Chrysler only.  If GM and Chrysler declared bankruptcy under the standard reorganization path, which they were about to do, the pensions and health benefits of retired UAW workers would have been completely wiped out, because theoretical promises to ex-employees are at the bottom of the totem pole in bankruptcy court.  The UAW knew this, and they leaned on Obama to lean on Pelosi and Reid to create a special bankruptcy path for GM and Chrysler, with pre-dictated terms that protected blue collar retirees’ pensions and health benefits.  The downside was that bondholders were almost wiped out, and a lot of white collar auto industry jobs were outsourced to India, and the countenance of the President who says he’s against outsourcing.  A lot of the “blue collar” auto industry work post-bailout has been shifted to Mexico and China.

There was never any risk of GM or Chrysler going totally out of business even if they went the standard bankruptcy path.  For one, their finances weren’t that bad, and two, the auto industry, or what’s left of it, is too important, and no Federal court would have stood for GM or Chrysler disappearing.

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One response

9 08 2012
rjp

This theft from investors to fund the unfunded pension obligations of the unionized workers of GM or Chrysler will be a subject of study for years, probably on par with the break up of Standard Oil.

And you are correct, they would have never gone completely out of business. The infrastructure was too value to be idled and would have most certainly have been purchased by some of the same private equity firms that were holders of the bonds.




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