30.4.09

Spin the Wheel: Save a Billion...or $25


Spin, spin, spin. We have become about spin. Take, for example, this news that GM wants to restructure to give bondholders and the union-run health care trust 99% control of the company—to save taxpayers $10 billion dollars.

This new plan isn’t going to save the $15.4 billion that taxpayers—or rather, the government on our behalf—has given this company. That money is gone, forever. This “$10 billion savings” is the next handout that GM will ask for to continue past June 1.

And what is this about “equity holders” getting 1%? That’s more spin—and means that if you own stock common stock in the existing company, it would be…well worthless. For every $100 in GM stock someone currently owns—equity—it would be worth about $1. Then again, when bankruptcies and bailouts are concerned, “equity holders” often walk away with nothing but the capital losses they get to report on their 1099.

The message of this restructuring is this: “Let us restructure, and you lose only $15 billion. Don’t let us restructure, and you’ll lose $25 billion now…and uncounted billions in the years to come.” In Michigan, that’s call a steal. In DC, they call that a deal. But Mississippi, we call that "damned": damned if you do, damned if you don’t.

What is the other option? True bankruptcy. In true bankruptcies, courts oversee the distribution of equity to existing debt holders. Granted, GM’s debt to value ratio is non-existent. That’s what happens when you stop making money and become a business buoyed by socialistic governance.

And then there is the problem of the unions—those collective entities that served a purpose a century ago, when corporations abused employees. Unions were relevant when Ford would fire a woman who lost a finger on a die-cutting machine because of the injury (read, “The American Jitters” by Edmund Wilson).

Today—Unions have become, for the most part, the self-promoting monsters they unseated in corporate abuse. And yet, the union will still retain 41% stake in the “restructured” GM. Far from actually having to negotiate prices, pay scales, and benefits the way that most people do—their strike lines and power of sway would continue to derail this rail-less, and direction-less, company. Look at Delta Airlines—they aren’t much better off since their restructuring. As late as last June, Delta was still pursuing arbitration to come to agreement with their pilots union.

Given the option between the Michigan and DC, I chose Mississippi. There is a reason Russia got rid of its Czars. GM will restructure one way or the other—with taxpayer money, or union control—but in the end the bill will land in the same place. The citizens of the USA.

A century before unions, that had a different name: taxation without representation.

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