Wednesday, June 03, 2009

GM: Lawless Administration?

With General Motors' long-awaited "pre-packaged bankruptcy" finally here, America is on the verge of a new era — one where government, not investors and consumers, is the final arbiter of success....GM's bankruptcy pushes bondholders aside in favor of the U.S. government and the UAW. Though bondholders hold $27 billion in debt, they'll get just 10% of stock...How's that compare with the other "stakeholders?" For spending $50 billion to bail out GM, the government will get 60% of the equity in the new GM; the UAW, which along with other unions gave millions to Democrats, will be repaid for its loyalty with 17.5% of the stock for $10 billion of unsecured debts....So the government, with roughly two times what private bondholders have on the table, gets a stake five times bigger. And the union, with about a third as much "invested," gets a 70% bigger stake. Even the Canadian government, with its $9.5 billion "invested," ends up with 12%....They call it "restructuring." We call it theft. Never in our memory has there been a more thorough, systematic effort to disenfranchise the shareholders and bondholders of a major American firm....A Matter of Law, Editorial, Investors Business Daily, 6/01/2009

For all that has been said here, and elsewhere, about the carelessness, and even the stupidity of, management and the UAW at General Motors, Investors Business Daily hits on what will be the Achilles heel of this devil's bargain with the Federal Government and GM's secured bondholders. Cite whatever subsection of a law that you like, robbery of property in the name of public policy is a criminal, and an unconstitutional act. All of this could have been avoided by an administration willing to set aside grand-standing for secure policy execution. When you act like a dictator, in the short term people will bow and scrape. In the long term, however, dictators cause more destruction than good, and they all lose power.

Read the whole piece. IBD's thoughts on the impact on America and foreign investors are haunting. If the present administration feels that an investment climate is good in which only government's printed money is available for capital investment, they've gone a long way toward testing their thesis. Unless the Feds force us to buy GM's cars, GM will vanish in a year or two.


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