Unions and Government Join Forces Against the American People

Posted by PITHOCRATES - November 29th, 2010

The GM IPO Rewards the UAW and Screws the Stakeholders

What do unions and liberal Democrats have in common?  Elitism.  They think they are better than everyone else.  That they are above the law.  And that they should prosper at other’s expense.

The Obama bailout of GM illustrates this. For it wasn’t a bailout of GM as much as it was a bailout of the UAW (see GM’s union recovering after stock sale by Patrice Hill posted 11/25/2010 on The Washington Times.)

The boon for the union fits the pattern established when the White House pushed GM into bankruptcy and steered it through the courts in a way that consistently put the interests of the union ahead of many suppliers, dealers and investors — stakeholders that ordinarily would have fared as well or better under the bankruptcy laws.

“Priority one was serving the interests of the UAW” when the White House’s auto task force engineered the bankruptcy, said Glenn Reynolds, an analyst at CreditSights. The stock offering served to show once again how the White House has handsomely rewarded its political allies, he said.

The UAW didn’t invest in GM.  They did not buy any stock.  They didn’t buy any bonds.  When any other company goes bankrupt, the courts don’t place their employees ahead of the stakeholders.  But not at GM.

Banks loan people money to buy a house.  They take that chance because those borrowing offer the house as collateral.  If they can’t make their payments, the bank can sell the house to recover some of its investment.  That’s a binding legal agreement.  When people cannot pay their mortgage, no bankruptcy judge will award them the house free and clear and screw the bank.  If that happened, no bank would loan money.  And why are banks protected by binding legal contracts?  Because home owners are not protected by unions.

The union’s health care and pension trust fund earned $3.4 billion through the sale of one-third of its shares in GM last week. Analysts estimate that it would break even if it sells the remaining two-thirds of its shares at an average price of $36 — close to where the stock traded shortly after the offering hit the market. GM shares closed at $33.45 on Wednesday.

For taxpayers to break even, by contrast, the stock would have to rise to at least $52 and by some estimates as high as $103 — levels that would take years to achieve.

Not only are the UAW and the Obama administration screwing stakeholders, but they are also screwing the American taxpayers.

The generous share of GM stock given to the union trust fund under the White House deal puts it not only ahead of the Treasury but on a par with secured creditors such as banks, which normally receive the most favorable treatment from bankruptcy courts.

Borrowing from banks is cheapest because they are typically first in line during bankruptcy.  That’s why their borrowing costs are so low.  They have a better chance of getting their money back.  Bondholders take a greater risk.  So they get a higher interest rate.  They’re close to the front of the line during a bankruptcy.  As long the government does not nullify legal binding contracts, that is.

“It gives outraged flashbacks to the old GM bondholders,” who remain mired in the bankruptcy proceedings and are unlikely to recover more than 30 percent of their investments, Mr. Reynolds said.

He compared the deal to the corrupt crony capitalism in Russia under President Vladimir Putin.

And who are these bondholders?  They can be anyone.  Even a retiree who has invested his retirement nest egg in ‘safe’ bond.  Like GM debt used to be.

Craig Coffey, a retiree in Nevada who invested $55,000 in bonds in the old GM that are now worthless, was outraged that the union is on its way to recovering all its money before investors get even a cent of compensation

The Rule of Law and Contracts are Merely Suggestions

Unions and the Obama administration take care of each other.  And screw everyone else.  Banks.  Stockholders.  Bondholders.  And the American people. 

To them the Rule of Law and contracts are merely suggestions.  Mild inconveniences in their pursuit of power and privilege.  The elite take care of their own.  And if you can’t help them win elections, or give them fat benefits, they will walk all over your rights.

You know, Ford didn’t take any bailout money from the government.  Remember that the next time you shop for a car.



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