Detroit High Life

Despite what we've been reading in the press, life is good in Detroit.

According to the Detroit News today, "General Motors Co.'s hourly workers can expect some of the largest profit-sharing checks ever, when the automaker pays bonuses for the money earned in 2010, a top union official said Monday."

 It's appropriate that the announcement was made by an official of the United Automobile Workers Union. After all, they run the company. The Obama administration made that possible when GM was bailed out by American taxpayers rather than being allowed to go through normal bankruptcy proceedings.

Under traditional bankruptcy restructuring, General Motors would have gone through an orderly process resulting in its eventual ownership by new, willing investors. Labor contracts would have been invalidated. Instead, Obama and the Democrats in Congress awarded ownership of GM to the unions which helped get the company into receivership and to the government which cannot run a railroad or the post office profitably, much less a car company.

Under the government-enforced settlement, GM bondholders, senior creditors, received 10% of the new company's stock in exchange for $27 billion in outstanding bonds, plus warrants to buy an additional 15% stake after seven to ten years.

The union did far better. The UAW's retiree benefit trust received $10 billion in cash, $6.5 billion in preferred stock paying a 9% dividend, $2.5 billion in debt, 17.5% of the new company and future warrants allowing purchase of another 2.5%. For this the union accepted more "flexibility" in work rules (whatever that means), and retirees had to give up prescription-drug coverage for Viagra and Cialis. After the hosing taxpayers and bondholders received, UAW members have no further use for the drugs anyway.

60% of equity went to the federal government along with the remaining debt.

 The government has also been selecting senior management at GM, managers whose employers include the UAW. That's right, GM management reports to its employees. The union is making decisions for its members rather than for investors or the market.

The Wall Street Journal pegged it in April, 2009: "[T]he UAW is too important to Democratic electoral politics for Mr. Obama to risk losing control of the reorganization process to a bankruptcy judge."

The GM bailout merely kicked the can down the road. Little has changed. UAW members would be wise to bank their record bonuses. They'll need the money when the company finally goes belly-up.

The devils bargain made between the Obama administration and the UAW invites description of our federal government as a criminal enterprise.

Despite what we've been reading in the press, life is good in Detroit.

According to the Detroit News today, "General Motors Co.'s hourly workers can expect some of the largest profit-sharing checks ever, when the automaker pays bonuses for the money earned in 2010, a top union official said Monday."

 It's appropriate that the announcement was made by an official of the United Automobile Workers Union. After all, they run the company. The Obama administration made that possible when GM was bailed out by American taxpayers rather than being allowed to go through normal bankruptcy proceedings.

Under traditional bankruptcy restructuring, General Motors would have gone through an orderly process resulting in its eventual ownership by new, willing investors. Labor contracts would have been invalidated. Instead, Obama and the Democrats in Congress awarded ownership of GM to the unions which helped get the company into receivership and to the government which cannot run a railroad or the post office profitably, much less a car company.

Under the government-enforced settlement, GM bondholders, senior creditors, received 10% of the new company's stock in exchange for $27 billion in outstanding bonds, plus warrants to buy an additional 15% stake after seven to ten years.

The union did far better. The UAW's retiree benefit trust received $10 billion in cash, $6.5 billion in preferred stock paying a 9% dividend, $2.5 billion in debt, 17.5% of the new company and future warrants allowing purchase of another 2.5%. For this the union accepted more "flexibility" in work rules (whatever that means), and retirees had to give up prescription-drug coverage for Viagra and Cialis. After the hosing taxpayers and bondholders received, UAW members have no further use for the drugs anyway.

60% of equity went to the federal government along with the remaining debt.

 The government has also been selecting senior management at GM, managers whose employers include the UAW. That's right, GM management reports to its employees. The union is making decisions for its members rather than for investors or the market.

The Wall Street Journal pegged it in April, 2009: "[T]he UAW is too important to Democratic electoral politics for Mr. Obama to risk losing control of the reorganization process to a bankruptcy judge."

The GM bailout merely kicked the can down the road. Little has changed. UAW members would be wise to bank their record bonuses. They'll need the money when the company finally goes belly-up.

The devils bargain made between the Obama administration and the UAW invites description of our federal government as a criminal enterprise.

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