Thursday, November 18, 2010

Why Bankruptcy For GM Would Have Been The Better Solution

John Lott's November 18, 2010 column at Fox News points out the absurdity of the U.S. government's bailout of General Motors--a maneuver more about protecting preferred stock and unions than about the best interests of the economy. 
First, the alternative to the government bailout wasn't to "give up" as Obama claimed on Thursday at his press conference. Bankruptcy didn't mean that all jobs were going to be lost. It didn't mean that all the factories producing cars would be closed. 

Yet, the president made that claim in his announcement again today and he continually misstates what would have happened in a normal bankruptcy. Courts don't just close down bankrupt companies. In fact, that rarely occurs. Any part of a company that can continue operating profitably continues to do so. 

Read more: http://www.foxnews.com/opinion/2010/11/18/gms-bailout-financial-disaster/#ixzz15hZSp0AA

What is probably the most outrageous part of the whole deal, from a social justice standpoint, is that the UAW got GM stock in exchange for concessions--while GM bondholders lost about 2/3 of the values of their bonds, in exchange for stock that they do not yet have.  Generally, the rule is that the order of priority in settling up at bankruptcy is taxes, outstanding wages, secured debts, bondholders, preferred stockholders, common stockholders, unsecured debts.  Why did UAW get a better deal than bondholders?  Who elected Obama?  (And don't let Bush off the hook on this--this stupidity started as Bush's project.)

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