Grand Theft Automaker
General Motors bondholders are issuing a counteroffer in response to the debt-for-equity proposal issued on Monday of this week by the Obama administration's auto task force (under the supervision of Steven Rattner). The Monday proposal seeks to furnish the United Auto Workers union (UAW) with $10 billion and a 40 percent ownership stake for the $20 billion debt it is owed. Likewise, the Treasury Department would receive $8.1 billion and a 50 percent ownership stake for its $16.2 billion slice of the pie. The remaining 10 percent of the company, under the administration's proposal, would go to GM's bondholders in exchange for their $27 billion -- the largest debt share of all three players. It will require an unlikely 90 percent of bondholders to be on board in order to go forward. We'll call this anti-math proposal the "Jimi Hendrix plan" ("If 6 was 9").
By contrast, the bondholder counteroffer naturally seeks to give bondholders an ownership stake more reflective of the debt they actually hold, and happens to keep the government out of the automaker-ownership business. This proposal would divide ownership stakes with 58 percent to bondholders, 41 percent to the UAW and the remaining 1 percent to common equity investors, according to the New York Times. However, according to the Wall Street Journal, the counterproposal is likely to "meet stiff resistance from the Obama administration's auto task force, as administration officials have said the GM deal as proposed is more than fair, and have told bondholders they would likely see less under bankruptcy."
The administration's proposal -- which arbitrarily singles out bondholders as the sole losers and divvies up the winnings between itself and the UAW -- is yet another righteous, ceremonial statement to appeal to taxpayers' and laborers' populist sentiments, at the expense of balanced treatment. The Jimi Hendrix plan triple-dog-dares bondholders to call the administration's bluff -- the threat that they will lose even more in bankruptcy -- and take the whole mess to court. However, at this point, bankruptcy court seems advisable; at least there are rules and precedents to lend some structure rather than farcically wanton ex cathedra dictates. If the administration was serious about avoiding Chapter 11 for GM, it would approach these negotiations far more diplomatically and with at least the semblance of objectivity.
The Jimi Hendrix plan reveals a troubling tone deafness in the current economic era. It demonstrates abject under-appreciation for the delicacy needed in dealing with the private sector and bodes ill for GM's future, as well as Treasury's salvage efforts elsewhere in the economy, such as Geithner's PPIP plan for toxic assets. Who would possibly want to invest in GM or any other government-overseen plans with such capriciousness running rampant? Investors can appreciate a risky bet, but nothing will send them scurrying away faster than uncertainty. The administration's auto task force is basically telling a slew of hedge funds, pension funds and individual investors -- crucial participants in any financial revival -- to go screw themselves.
Predictably, the Wall Street Journal has reacted to the plan by renaming the Detroit automaker "Gettlefinger Motors", after UAW President Ron Gettlefinger. Unfortunately, this actually seems rather appropriate at this point. The UAW enjoys disproportionately special treatment in basically every proposal that's hit the table, creating an unwelcome sense of political favoritism that could undermine the administration's credibility. By all means, give the autoworkers their fair share of the pie, but not at the expense of thousands of other investors who play an equally integral role in the economy.
Of course, the administration has also been rightly criticized for exhibiting favoritism with regards to Wall Street, on the other side of the spectrum, in its efforts to fix finance. While pro-labor in Detroit and pro-bank on Wall Street, the common thread among the administration's critics is that there constantly seems to be the perception of unequal, disproportionate handling. When Rick Wagoner was ousted, many called for bank CEOs to suffer like treatment. This time around, it is the bondholders who are getting screwed, and the Wagoner affair is all but forgotten. This perceived imbalance is the quickest way to provoke backlash, and it risks hamstringing larger efforts.
Nobody expects the administration to right the world economy in a day, week, month or even year; but what it can do is approach these mucky issues more delicately to make sure each who is owed gets his fair share of the pie. The perception of disproportionate treatment -- which the Jimi Hendrix plan shamelessly exudes -- will amount to a perception of unfashionable political pandering and only sully further what is already a huge mess.
Follow Stuart Whatley on Twitter: www.twitter.com/stuwhat84
With my younger daughter away, I was looking forward to a quiet night in, curled up in bed with a few dozen pieces on the financial crisis I'd cut out from newspapers and magazines. But instead of reading a few and nodding off, I ended up staying up most of the night, getting more and more outraged with each article I read. These days, the business section is not for the faint of heart. READ MORE The Torture Moment The way we respond to the revelations about the Bush administration's use of torture will define the kind of country we are. It is a test of our courage and our convictions. So far, the media are not getting high marks. They can't seem to shake their addiction to looking at every issue through the archaic prism of right vs. left. READ MORE
GM Bondholder Group Says Offer Isn't ‘Reasonable' (Update1 ...
Auto bailout task force faces GM bondholder challenge - USATODAY.com
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Big G.M. Bondholder Heads for the Exit - DealBook Blog - NYTimes.com
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6 Upsides To a GM Bankruptcy - Rick Newman (usnews.com)
GM considering Chapter 11 filing, new company: report | U.S. | Reuters
How to Make Money From GM's Chapter 11 | The Truth About Cars
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Hopefully, the terminated dealers and their empolyees will be treated better than the Chrysler dealers were in that bankruptcy. How come the political left only seems to care about union workers and not the thousands of non union workers and small business people who are getting screwed in these auto bankruptcies? The unions should be given a smaller prorata share of the remaining company to reflect the huge negative impact these unions have had on the auto industry. Handing ownership of GM and Chrysler over to the UAW is the biggest political payoff in American history. This whole process has been so blatantly one sided that the American public has not yet comprehended all of the implications. The only consolation is that it will be a joy to watch a bunch of union hacks and government bureaucrats try to run a car company.
Go look up "straw Man". The "left is saying no such thing.
The unions demanded and got fair wages and benefits. Comparing them to slavery in the China is rather unfair. If the Chrysler managers had invested the pension and health care money, it would never have been a problem, instead, they pocketed it. Duh.
Obviously a hot-button issue, the passion(?) in these comments illustrates the no-win nature of the beast.The unions have for years held the kind of "line-item veto" that would make a President blush.
The companies involved kept wading deeper and deeper into the cesspool and allowed themselves to
be taken hostage at contract time. Being from Michigan, I feel some empathy for both the workers and the companies, but no sympathy. Given the blame that must be shared by both sides, NO SYMPATHY
well if these left wing pukes hadnt brought this Asian Garbage to America in the first place
we wouldnt of had to go through any of this crap.
Liberals brough the little 3 honda toyota nissan here, and The real and true American auto companies
couldnt compete, what did everyone think would happen...d
Luckily I nor anyone from my family has owned an ultra liberal POS
Buy American sent these Asian USA ruining companies Back from which they came!!!
http://www
conservatives brought the German BWM's and Mercedes. So?
Conservative pushed deregulation and open trade making imports cheaper.
sorry man I wont play your liberal blame game
The Whole system is a FRAUD!
It's intent is to take money from the People by Trickery.
The hedge funds/bond holders can make more money
by bankruptcy
because the insured their bets with
Credit Default Swaps from AIG,
paid off by Taxpayers.
http://www
There is a big difference between the bond holders at GM and Chrysler. Chrysler's are secured with hard assets like plants. In bankruptcy bond holders have claim on those assets. What are those assets worth compared to the bonds they were securing? It is possible they're only worth 20-40% of bond face value. We don't know, but whatever it is... is what the bondholders are entitled to.
In the case of GM it's totally different. The bonds are not secured. They've been trading about 10% of face value. Face value is apparently $27 billion, so value is about $2.7 billion. On that basis, the amount of stock being offered may not be unreasonable. Bear in mind that these bonds have been traded for years and many of them may well have been purchased from previous holders for 10, 20, 30% of face value, with the previous holders taking the loss already. All along the way, with public information available about the managment and fortunes of GM, a holder had the option of selling the bond at whatever price existed at the time. Just as the stock holders did.
If there are no consequences (ie: risk involved) in investing then why would we celebrate the performers??? Let me guess... The author either holds GM bonds or is being compensated by those who do. The traders have deliberately manipulated markets in every way shape & form, openly (just ask Cramer). Now they all want guarantees but if those guarantees are granted they'll immediately cry "socialism" so that they can further damage the current administration in order to preserve their gains in taxes. The insanity just keeps growing. ENOUGH!!!
if GM doesnt deal with bondholders in good faith, WATCH OUT.
1) Any company with unions or similar labor structure would have tremendous difficulty to raise money from debt markets.
2) Debt markets will be prohibitively expensive for GM/Chrysler in the future.
Unlike the Chrysler bondholders who are presently crying, GM's bondholders hold unsecured debt. They knew what they were buying, and no doubt did so because the return was more attractive than that of safer, secured debt. Their chances of getting more in bankruptcy are not good.
Nobody, not even the government, is trying to steal anything. They were simply asked to make a concession for a cause greater than their own self interest. They are within their rights to refuse but this reveals them as avaricious and cold toward anything other than their profit motive. This position is not what made this country great, wealthy and prosperous as it is (or once was).
We are witnessing the end of hedge funds. They've carelessly tied pensions to betting markets that have no capacity to pay out unless they're actively going bankrupt. All legal...
It's funny how despite all the talk, no-one seems interested in ending up with a genuinely profitable enterprise making products for which there is consumer demand.
If these investors felt that GM or Chrysler were such poor investments why did they invest in them? People should be smart enough to keep track of their investments. If they don't they suffer failure. Workers on the other hand should have some reasonable assurance that their money is safe for their pensions. It is hedge funds like these people who got us in this mess in the first place.
Through DELIBERATE manipulation, speculation & greed.
Oh, boo hoo for those bondholders. What is their annual income? How much would they have paid in taxes if rates were as high now as they were back in the 1950's when America was prosperous? Did these creditors not know that GM has had problems for years? Tell me this, when the guy on the assembly line gets laid off through no fault of his own, how many politicians or business leaders weep any tears over the unfairness of his plight?
Didn't the employees know the company was in trouble?
Didn't the government know the company was in trouble?
Everyone knew the company had problems. Bondholders were the ones letting out the lifeline over the last several years, not the government. Now Obama is saying they're selfish for throwing out that lifeline. The fact that he does it while saying the taxpayers need every cent back of their own lifeline is puzzling.
Obama says that the government MUST step in and assist the economy because the private sector is UNABLE to do so. With this treatment, why would they bother?
If GM reemerges after bankruptcy and then has to go to debt markets for debt again, then we will see......
"why would they bother?"
Maybe because loaning money and investing is easier than working for a living.
How much money a bondholder makes has no bearing on their claim to debt which needs to be repaid.
Legally, you are correct. The problem is that our politics over the past 30 years has been mean spirited and unjust. Our nation has failed to protect workers and regulate corporations.
Deregulation has allowed people to make tons of money dishonestly. It is time to stop that.
Legal does not mean ethical.
If some 'Rich Guy' hadn't started the company, the 'guy on the assembly line' wouldn't have had a job to begin with.
wrong. most companies get financed by debt and stocks extended by not so rich people. it is very rare that a huge company gets finance solely by some "rich guy's" bank account. So the non-sense you are trying to spout with this comment- that poor workers owe their livelihood to rich people- is elitist and represents an attitude best described as disgusting.
If not for the guy on the line doing the real work, the rich guy turns into a poor guy.
It works both ways.
The world is unfair and there are winners and loser. When did they stop teaching these basic insight to our children? Must have been quite some time ago based on the general whining that can be found in these blogs on how this or that has to be "made right".
no body is doubting winner and losers here. Problem is Govt. is choosing winners and losers instead of the market or "fairness".
Bondholders get first priority. thats the rule of law. and thats fair. Shareholders are always last in line. thats another rule.
Govt. asking bondholders to give up 90% of their claims and settle for 10% of the company whereas UAW getting 3-4 times that goes contrary to EVERY THING in rule or fairness or whatever you call that.
thats what i have problem with.
You wanna stick it to bondholders. FINE. Just next time these same companies have to go to debt markets and have to pay outrageous interest fees because of unwillingness for their debt. these companies should not be complaining and asking for govt. help then
If the market of 'fairness chose the winners and losers, GM would already be bankrupt.
Should have let it play out without any interferen
They made their bed.
If all that 'cramming' really worked, people would still be buying ANY car or truck, and the auto makers wouldn't be having problems.
I wholeheartedly agree with your assessments of the GM bailout proposal. These bondholders include thousands of small investors who have no incentive to approve such an inequitable deal. They would be much better off in bankruptcy where they could get 65-70 cents on the dollar. The favoratism shown the UAW will come back to haunt Obama. The UAW is the main culprit in the downfall of the American auto industry and they are being rewarded for crass political purposes. The list of Obama enemies and disenchanted voters is starting to grow and will mushroom when the full impact of his policies become apparent.
They won't come close to 65 cents on the dollar.
These bond markets are strictly controlled by HUGE hedge funds. You don't enter the market without proving you have minimum $250,000 cash liquid w/ a net worth of $2,000,000 & a capacity to lose $500,000. That's truth. Beyond that the markets have been deliberately manipulated through shorting, pumping & dumping. This is called a set up that's exploded in their faces. Deal...
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