Bankruptcy is normally capitalism's most effective engine of creative destruction, a necessary cleansing mechanism to free up capital and labor for more productive application. But with Obama administration intervention to package a Chapter 11 filing for Chrysler (and maybe GM soon enough), money from taxpayers who enjoy nothing comparable to the lifetime health care benefits, layoff protection, and retirement pay of the UAW, will be funneled to the UAW's labor aristocrats.
It is precisely these lavish benefits which drove the American Big Three into the corner they find themselves in. Simple justice requires that they reap the whirlwind their never-ending demands generated. Asking people who pay for their own health care and must fund their own retirements to bailout people who enjoyed superior income and benefits is morally wrong, and will continue to hamstring the companies.
Robert Schoenberger of the Cleveland Plain Dealer writes: If General Motors' latest restructuring plan goes through by the end of next month, the federal government would own more than half of the company and United Auto Workers retirees would own about 40 percent.
Shareholders would be almost entirely wiped out and debtors would own about 10 percent of the company that was until recently the world's largest automaker.
And all that is if creditors agree to such huge cuts to their holdings. If they say no, GM will have to file for Chapter 11 Bankruptcy protection to get some sort of restructuring done.
Why would creditors agree to such terms? Chapter 11 would put the creditors' interest first. Union contracts are abrogated. The reconstituted company is free to offer wages and benefits more in line with the pay at Honda's and Toyota's American factories.
Nick Bunkley and Bill Vlasic explain the way the union benefits would be protected in the New York Times: Last week, the union reached an agreement in principle with the administration and Chrysler that would protect workers' pensions in the event of a bankruptcy filing and provide for a change in the financing of a health care trust set up in 2007.
Under that pension deal, workers would lose some benefits after the bankruptcy filing but would receive more protection than they would with a Chapter 11 filing that lacked government direction, people with knowledge of the agreement said.
Chrysler, which has received $4 billion in federal loans, is in the final stages of a reorganization process ordered by the government, which includes a mandate to provide financing for half of all union retiree health care using company stock...
Hat tip: Steve Gilbert, Tom Suhadolnik
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