bondholders

Retirees, Taxpayers Ripped Off to Subsidize UAW

by Hans Bader on May 21, 2009 · 17 comments

in Bailout Watch, Economy, Employment, Labor, Legal, Politics as Usual, Sanctimony, Stimulus to Nowhere, Trade

Obama accused critics of his decision to give control of Chrysler to the United Auto Workers Union of being “speculators.” But it turns out that many of them are pension funds representing the interests of retirees, who are being fleeced to enrich the politically better-connected UAW.

“Indiana Treasurer Richard Mourdock revealed this week that his state’s police and teacher pension funds have lost millions of dollars in the Chrysler ‘restructuring.’ Indiana’s State Police Fund and Major Moves Construction Fund, which finances roads and bridges, together lost more than $1 million. And the Teacher’s Retirement Fund ‘suffered, at a minimum, a loss of $4.6 million due to the action of the Federal government,’ reports Mr. Mourdock. Far from being speculators, these funds represent retired public employees, including cops and teachers. The funds paid a premium to buy ‘secured’ status, only to discover that they were politically outranked by the United Auto Workers in the White House hierarchy. ‘In the past, to be secured meant an investor was first in line in the event of a bankruptcy and ‘non-secured’ creditors would receive value after secured-creditors were paid,’ Mr. Mourdock says. ‘In the Chrysler bankruptcy, however, secured creditors received $.29 on the dollar even as non-secured creditors [the UAW] received higher values and ended up with a 55% ownership of the new company, which is fundamentally wrong and a dangerous precedent to the capital markets.’”

The government is now doing the same thing at General Motors, giving much of the company’s stock (plus $10 billion in taxpayer dollars) to the UAW while refusing to make good on GM bonds, which were purchased by some people to put their kids through college (and by some non-union employees to help fund their own retirement).

When public-employee pension funds suffer, as they did at Chrysler, taxpayers do, too. Public employee pensions are already underfunded by perhaps a trillion dollars, and taxpayers will likely end up being forced to pay for any additional shortfalls through increased taxes.

Jobs will disappear, too, as companies find it more difficult to raise money through bonds and loans. In response to Obama’s ripping off bondholders and lenders to enrich the UAW, hedge funds now say they may not lend to unionized companies, and Indiana’s treasurer says that he will not invest in manufacturing companies or insurers that are participating in the TARP program. Chrysler still faces a difficult future, burdened by excessive wages that even union members were surprised to see stay high.

Obama’s $800 billion stimulus package, which guts welfare reform and contains provisions that keep states from cutting the wages of overpaid public employees, is also harming the economy. The stimulus ignited trade wars with Mexico and Canada that destroyed over 40,000 jobs.

Government Bullies Retirees, Banks, Rips Off Taxpayers

by Hans Bader on May 15, 2009 · 2 comments

in Bailout Watch, Economy, Legal, Nanny State, Personal Liberty, Politics as Usual

The Obama Administration is now seeking to give the United Auto Workers Union a big chunk of General Motors, at the expense of taxpayers and bondholders (including non-union retirees). If Obama gets his way, the UAW will receive at least ten times as much value ($10 billion plus 39 percent of the company) as the bondholders (who get no money and 10 percent of the company) even though the bondholders are owed more ($27 billion vs. $20 billion). This is neither legal nor fair: under the bankruptcy laws, the UAW is not supposed to get preference over the bondholders; and it is the UAW, not the bondholders, which helped bring GM to its knees through its rigid work rules and excessive wages and benefits. The Administration will seek to get around the bankruptcy laws through a sham sale of GM’s assets to a shell company owned by the Administration and the UAW.

There are retirees — including white-collar, non-union, former GM employees — who depend on their holdings of GM bonds to pay for life’s necessities. Others bought GM bonds to put their kids through college.

The Obama Administration earlier engaged in similar tactics in the Chrysler bankruptcy, fleecing taxpayers, and the secured lenders who loaned the cash-strapped company money, in order to give the UAW union control of Chrysler. Veteran political commentator Michael Barone called it “gangster government.” Law professor and bankruptcy expert Todd Zywicki called it an attack on “the rule of law.”

Earlier, the Treasury Department bullied perfectly-healthy banks into accepting bailout (TARP) money, and then sought to conceal the evidence that it did so, fighting Freedom of Information Act requests.

Among the officials who helped bully the banks was the FDIC’s Sheila Bair. Bair has used banks taken over by the FDIC to engage in politically-correct social engineering, modifying the mortgages of irresponsible borrowers to reduce their payments to just 31 percent of their income — less than many thifty, responsible homeowners currently pay, without difficulty, on their mortgages in high living-cost areas. Deadbeats have had their principal balances reduced, and had their interest rates cut to as low as 3 percent. For that gratuitous waste of taxpayers’ money, she recently received an award from the Leadership Conference on Civil Rights (an ironically-named organization that recently pushed federal legislation to circumvent constitutional protections against double-jeopardy, by allowing innocent people to be tried all over again in federal court).