The Plundering Continues
Union workers are once again getting preferential treatment, this time over bondholders in the restructuring of General Motors Corp. The bondholders in this instance are equal members of the creditor class but hold $7 billion more in GM debt than the UAW’s health trust.
As I’ve discussed already, the ramifications of these lawless policies are enormous, but one short term consequence is that investors will refuse to invest in companies owned (in whole or in part) by the federal government. Indiana itself has this policy already, and private investors are beginning to do the same. It’s only a matter of time before investors refuse to support companies who might get federal ownership as well. Unfortunately it seems as though no company is immune to that possibility, and thus credit across the board will continue to get more expensive.
4 Responses to “The Plundering Continues”
I wish that investors would get to that point of refusing to invest in companies where the government is playing real soon. It’s not a a good situation by my free way of thinking.
I’ve been looking at the precious metals prices with the widget http://www.learcapital.com/exactprice and and it I think by the way things are moving that people are starting to feel some real fear over how the government is playing in the “free” market. Hedging in gold against the collapse that is in the process of building on the horizon. In my opinion anyway.
So, as far as I can tell…a big problem that has developed over the last few years is that any number of companies have grown too big to fail, and thus have required government bailouts. In virtually none of these cases have the people who were making the decisions at the companies the government bailed out been jailed or suffered.
Our current treasury secretary has repeatedly found himself in a bind already…he can not afford to let any of these giants fail, but he also can’t convince people in the marketplace to do the things he needs them to do without having some sort of leverage. That’s why, for example, Chrysler went in to bankruptcy in the first place. Had the government not stepped in, it would already have been in Chapter 7 and its doors would be closed. The only reason the bondholders got anything was that the government stepped in…and since the government stepped in, the bondholders got screwed, but not as much as if the company had hit Chapter 7.
It would really help the Treasury Secretary to have some ability to enforce his decisions on companies that have been bailed out. Having private investors flee those companies…to me, doesn’t seem like a bad thing on that level…it could give the government more of an ability to enforce its decisions on companies that have come crawling to it for bailouts.
I’ll give Bloomberg some credit…even if they tried to run the same “Screwing the bondholders” article that was cited in this post…they actually also talked to other people and included their statements.
“The U.S. bankruptcy code allows for workers to get preference over bondholders, said Richard Hahn, co-chairman of the bankruptcy practice at Debevoise & Plimpton LLP, a New York law firm, who isn’t involved in the GM negotiations. Section 1114 of the bankruptcy code requires that a debtor “timely pay” all “retiree benefits” unless the bankruptcy court orders otherwise or the authorized representative of the recipients of those benefits agrees to other treatment, he said.
Chrysler lenders might have recovered nothing if the government hadn’t poured billions of dollars into the carmaker, said Gary Hindes, managing director of distressed investments at Deltec Asset Management LLC in New York. The hedge fund firm didn’t buy the company’s debt or GM’s, in part because of the risk the government’s involvement would damp returns, Hindes said.
“If you’re being paid more than what you would be paid in a liquidation, then the contractual obligation has been met,” said Hindes, whose firm oversees about $526 million, according to a regulatory filing. “It’s still very disturbing to see the government basically strong-arm people into this.”
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