Government Motors

The subject of government intervention in private markets - solely to the benefit of Democrat constituencies - has been much on OffHisMeds' mind since Obama's re-election, particularly with the fresh round of reports about the failure of GM and Chrysler in the wake of the first bailout of the auto industry. In the annals of government run amok, the bailout of GM and Chrysler in 2010 stands out, mostly because of the appallingly unfair way in which he went about it. Rather than let the normal bankruptcy process run its course, Obama mandated that the assets of the corporations be given substantially to the United Auto Worker pension funds. This was unprecedented in the history of bankruptcy proceedings, largely because Obama - by executive fiat - ignored the clear intent of bankruptcy law that mandated that creditors were to be compensated in a particular order.
 

Obama didn't just step on fairness, he trampled it. And what he did was not just innovative, it was illegal. Had he not stuck his nose into the process, creditors would have been remunerated in this order: debtors, bondholders, preferred stock holders and lastly, common stock holders. Unions would have received nothing, just as the thousands of other bankrupt private sector unions that preceded them would have received nothing. The reason this was "fair" was because everybody understood before they invested in GM or Chrysler that this was the pecking order. The risk was known.
 

Obama's actions resulted in every one of these investor groups getting screwed, with common stock holders getting completely screwed. This last point did not resonate with the Media, who failed to report that millions of common folks - most of them former GM employees - had invested heavily in GM Common through their IRAs and 401Ks. For all intents and purposes, Obama took the billions that stockholders had invested, and outright gave it to the UAW. What's ironic about that is that the UAW - along with the federal government - was the primary reason that those corporations failed in the first place, with an hourly labor rate (pay and benefits) equalling $70 per hour, or $145,000 per year. Layer that with the byzantine work rules that allowed thousands of UAW employees to collect full pay while not working, and you've got a prescription for failure.
 

And fail they did.
 

Even after the bankruptcy, UAW pay and bennies is still $56 per hour. By comparison, the average hourly rate for pay and bennies in the rest of the private sector is just $29 per hour. This not only explains why taxpayers losses will eventually exceed $25 billion on the original bailout, but guarantees endless additional bailouts in the future. The endless taxpayer bailout is of course the price "Government Motors" will have to pay in order to get investors to purchase their common stock. See, the new class of investors are not moms and pops pointing some percentage of their modest IRA at auto stocks, the new class of investors are the Chinese, who are notoriously fickle when it comes to somebody screwing with their money.
 

The transfer of wealth from equity holders to a bunch of greedy union members was substantial, and Byzantine. For example, the UAW pension fund ended up with 46% ownership of Chrysler; the balance was a giveaway to Fiat. At GM, the government retains 30% ownership and the UAW pension fund only 18%, but the potential is there for that percentage to be ramped up, assuming this new arrangement fails to cover the UAW's sumptuous benefits plans.
 

Finally and damningly, the stocks are in the toilet and to all appearances will remain there. GM's per share price is 40% below the IPO, as clear an indication as to what the market thinks of Government Motors' prospects, despite the explicit government guarantee of their investment. GM's imminent bankruptcy is widely predicted in the coming year.
 

My Democrat friends upon reading this will not be affected. Their mouths will be agape in some combination of annoyance and incomprehension, but they will steadfastly avoid the truth of the matter. At least until NBC, CBS or ABC tells them to think otherwise.
 

Here's something for them to contemplate: if over the course of the last 50 years the UAW had pursued reasonable labor agreements - unabetted by an interventionist government - and if they had provided good labor value for a reasonable rate of pay, there would now be at least 5 million auto related jobs in America instead of 2 million. And they ought to consider just for second the ten million retirees who had invested in auto company stock that lost some $500 Billion due to the knavery of the Democrats and the UAW.
 

Chances are they actually know some of those folks.