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An IPO offering that can only be regarded as a business-killing national disgrace.
In his 1953 confirmation hearing for Secretary of Defense in the incoming Eisenhower administration, former General Motors CEO Charles “Engine Charlie” Wilson was asked how he would handle conflicts of interests in the Defense Department’s dealings with his old firm. Wilson replied that “for years I thought that what was good for our country was good for General Motors, and vice versa.”
For decades, Wilson’s comment — misquoted as “What’s good for General Motors is good for the country” — has been paraded by liberals as an example of conservatives putting the concerns of a giant corporation ahead of those of the rest of America.
But since GM’s multi-billion dollar bailout and government takeover, the misquote from Wilson has become the philosophy of the Obama administration. They are treating the success of the initial public offering of the new GM, which will likely happen this Thursday, as proof positive that that the auto industry rescue and much of the rest of Obama’s economic policies must be good for the country.
But what exactly is so remarkable about a company coming back to life after a $65 billion taxpayer bailout, additional billions in tax breaks not available to other companies, and even an amazing “sovereign immunity” exemption for this IPO from anti-fraud securities laws and lawsuits? With this massive infusion of government aid and favors, even a company selling ketchup Popsicles to women wearing white gloves would likely show a profitable quarter! (Hat tip for the Popsicle analogy to David Spade in Tommy Boy — one of my favorite movies about business.)
But how successful and profitable the new GM will be — and there are still many doubts that linger on the company’s financial condition and unfunded liabilities (see this amazing piece from that right-wing bastion NPR entitled “Reasons to Sit Out GM’s Initial Stock Offering) — is not the right question to ask if its bailout and takeover were good for the economy. The primary question should not even be how fast or whether taxpayers get their money back (and many experts believe they likely never will recover fully).
As I wrote a year and a half ago on the Competitive Enterprise Institute’s blog OpenMarket.org, “The measure of success should not be how fast Chrysler and GM emerge from this bankruptcy, but the degree to which contracts are honored in an impartial process.” By this measure, due to the precedent set by the government running roughshod over the contractual rights of Chrysler’s secured lenders, GM’s bondholders, and dealers franchised to sell both brands of vehicles, the bailout/takeover is a complete failure.
The bankruptcy courts rubber-stamped a reorganization plan designed by Obama’s “Team Auto” officials such as Democrat moneyman Steven Rattner that disregarded two centuries of bankruptcy precedent to massively favor the United Auto Workers over bondholders. As a result, according to several prominent business academics, the cost of capital will likely experience a significant rise for all U.S. businesses and entrepreneurs who wish to form new firms.
As Todd Zywicki, professor of law at George Mason University, so eloquently put it in a Wall Street Journal op-ed: “By stepping over the bright line between the rule of law and the arbitrary behavior of men, President Obama may have created a thousand new failing businesses. That is, businesses that might have received financing before but that now will not, since lenders face the potential of future government confiscation.”
A look at the disproportionate equity stakes received by the UAW shows the depth of the bondholder robbery that took place. As described by Ross Kaminsky of the Heartland Institute and Rossputin blog:
In a stunning transfer of wealth from private investors to the government and unions, the UAW will own 75% more of the new GM than the investors holding $27 billion of debt to the existing company, even though GM’s own bankruptcy filing shows that the “employee obligations” to the UAW are billions of dollars less than the debt owed to bondholders. And bondholders will get 1/6th the ownership stake of the government despite having lent more than half as much money to GM.
In what probably was one of the most shameful moments of his administration, President Obama demagogued GM bondholders and Chrysler secured lenders as “a group of investment firms and hedge funds… who held out while everybody else made sacrifices.” First off, even hedge fund managers — such as Obama supporter and progressive benefactor George Soros — have the right to have valid contracts enforced. This is America, after all, and we still have the rule of law here.
Second, many of the bondholders and lenders were actually pension funds serving the very middle-class families and retirees the president always claims to be “protecting.” The Chrysler bankruptcy was actually halted by an ultimately unsuccessful lawsuit by Indiana state Treasurer Richard Mourdock on behalf of state pensions serving police officers and teachers that had lent to Chrysler.
From a pure analysis from the perspective of what progressives like to call “social justice” — who gets what — there is a striking inconsistency among the disparate treatment of UAW workers and retirees and similarly situated (if not poorer) teachers and police officers. As Barry Adler, professor of law at New Your University, testified to the Congressional Oversight Panel that scrutinizes TARP funds, “one might well wonder why the UAW funds should be favored over other retirement funds.”
Like George Mason’s Zywicki, Adler writes that the precedent set by these arbitrary and capricious bankruptcies are significantly raising the costs of capital for other firms. “The automaker bankruptcies may usher in a period where the specter of insolvency will increase the cost of capital in an economy where affordable credit is sorely needed,” Adler states. He adds that “the cases establish a precedent that could undermine the bankruptcy process in the future, even if the government receded from the scene.”
What about the jobs? It certainly saved some at a very high cost, but probably not for the country as a whole. Unemployment, after all, is still around 10 percent.
A man of faith in a godless age is hitting Americans where it hurts.
Mr. and Mrs. American Spectator Reader, let P.J. O’Rourke talk sense to your kids.
In Britain, defending your property can get you life.
The debacle of this president’s administration is both a cause and a symptom of the decline of American values. Unless Congress impeaches him, that decline will go on unchecked. An eminent jurist surveys the damage and assesses the chances for the recovery of our culture.
It won’t take long for conservatives to scratch this presidential wannabe off their 2008 scorecard.
The American Christmas, like the songs that celebrate it, makes room for everybody under the rainbow. Is that why so many people seem to be hostile to it?
Was the President done in by the economy, or by the politics of the economy?