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In a GM bankruptcy, UAW gets the best deal

In a GM bankruptcy, UAW gets the best deal
Friday, May 15, 2009

By David Reilly

By keeping the union happy, Obama penalizes investors.

General Motors’ likely bankruptcy filing is being cast in some quarters as a fight between "money people" intent on making a killing and honest efforts by the government to save a company and jobs.

In reality, GM’s demise comes down to a fight between retirees. On one side are GM’s unionized retired workers. On the other are the rest of us – either in retirement or saving for it. Guess who will lose as things now stand.

Under the restructuring plan on the table, GM’s retirees would get 39 percent of the company, along with the promise of a $10 billion payment into their health-care trust fund. That’s in exchange for $20 billion GM owes the fund.

Not making out so well are current or future retirees who depend on the performance of mutual funds, 401(k) plans, and insurance companies that invested in GM bonds. These debt investors, who are owed about $27 billion, will get just 10 percent of the company.

And that probably won’t change. GM CEO Fritz Henderson said during a conference call Monday that there are no plans to modify the terms on offer to bondholders, even as he said a bankruptcy filing now looks "more probable."

That’s outrageous. The deal is nothing short of a political rip-off, with the Obama administration currying favor with an organized voting bloc, in the form of the United Auto Workers union, at the expense of unorganized retirees.

The current deal "can be seen as one that serves up bondholders on the altar of political self-interest," CreditSights analyst Glenn Reynolds wrote in a report last week titled, in part, "Waterboarding Bondholders." He added, "The powers that be will not face any major constituency risks by screwing some mutual funds, insurance companies, pension managers, and hedge funds … out of their fair and equitable treatment."


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