RSS Feed for This PostCurrent Article

Chrysler Bondholders Get the Shaft and GM bondholders Get the Pole

By LisaB on May 14, 2009 at 1:00 PM in Current Affairs

I wrote May 11 about the Chrysler bankruptcy. Now, as many people know, GM is also staring bankruptcy in the face.

Guess what, bondholders? Wanna get chryslered? I think David Reilly at Bloomberg lays it all out pretty well.

General Motors Corp.’s likely bankruptcy filing is being cast in some quarters as a fight between “money people” intent on making a killing and honest efforts by the government to save a company and jobs.

In reality, GM’s demise comes down to a fight between retirees.

On one side are GM’s unionized retired workers. On the other, are the rest of us — either in retirement or saving for it. Guess who will lose as things now stand?

Didn’t think you were/are one of the “money people” Obama dislikes? Well, do you have a pension? Mutual fund? 401K?

Congratulations. You’re a “money person.” Welcome to the greedy capitalist club, you stinker.

As GM loses time in its efforts to stave off bankruptcy, details of its restructure are becoming clear.

Under the restructuring plan on the table, GM’s retirees would get 39 percent of the company, along with the promise of a $10 billion payment into their health-care trust fund. That is in exchange for $20 billion GM owes the fund.

Not making out so well are current or future retirees who depend on the performance of mutual funds, 401(k) plans and insurance companies that invested in GM bonds. These debt investors, who are owed about $27 billion, will get just 10 percent of the company.

And that probably won’t change. GM Chief Executive Fritz Henderson said on a conference call Monday that there are no plans to modify the terms on offer to bondholders, even as he said a bankruptcy filing now looks “more probable.”

Reilly notes that this plan benefits the UAW “at the expense of unorganized retirees” and references a report by Glenn Reynolds at CreditSights Inc, who says:

“The powers that be will not face any major constituency risks by screwing some mutual funds, insurance companies, pension managers, and hedge funds (who often manage pension and endowment money etc.) out of their fair and equitable treatment,”

Not that you’ll hear much about the rights of these investors if and when the fur starts flying over a GM bankruptcy filing. Instead, we’ll again hear talk about the “money people” — the label President Barack Obama pinned on debt investors at Chrysler LLC who refused to swallow the terms foisted on them by the company and government officials.

Expect the fight at GM to be cast in similarly expedient terms of “working man vs. evil money people,” Reynolds’s report noted. And those who raise objections to the government’s plans “will be dubbed Wall Street holdouts and obstructionists.”

But those “obstructionists” with respect to GM include three companies that manage retirement savings, the Polish Beneficial Association, the Knights of Columbus and the Grand Lodge Sons of Hermann, TX. Or as Reilly says:

Not your typical Masters of the Universe.

Even while these bondholders get manhandled much as bondholders for Chrysler did, Obama will also hit them with the “greedy” label. Reilly goes on to say that this short-term gain to the UAW and political gain to Obama is likely to be short lived if it ends up curtailing future investment in other struggling companies. Another possibility will be that people will continue to invest but at substantially bigger charges for accepting both the risk of the company and the possibility the government will just take their money. (And isn’t THAT the mark of a banana republic?)

I guess the thinking goes something like this: BO doesn’t worry about retired people holding GM stock in their pension plans/401K plans or mutual funds since they’ve been socked already and are likely to attribute a further drop to the already stinky economy. Tomorrow’s retirees don’t matter either because they won’t remember and/or won’t fight over a small percentage of their retirement nest egg when they’re already taking post-retirement jobs.

Besides, how many people will be motivated to check all their pension fund literature, 401K booklets and/or mutual fund reports to find out how much GM stock they own? Certainly not enough to balance out the more organized UAW.

In that sense, unorganized retirees have to hope that those fund managers go to bat for them and keep their investment whole. But right now, I’d say that’s a sucker bet.

It’s just another way to cheat the unorganized out of their rightful share of a supposedly “sound contractual requirement.” And the knowledge gained? Knowing your retirement will take a hit because the rules weren’t followed? Useful. Knowing your government bypassed its own rules to do this? Priceless.

  • Patience

    This scares the hell out of me — we’re witnessing the corruption that goes along with absolute power.

  • John Smith

    It is not a surprise that they are doing all this. The reality is that these people have no idea what they are doing. You have a bunch of people with big egos running around and doing what ever they think is right. The same game was played by the Bush administration and they got away with it. Unfortunately the public is so out of touch with reality that they keep voting these fools into office.

    If we keep this up there won’t be an America left to fight for.

  • http://rabblerouserruminations.blogspot.com Rabble Rouser Reverend Amy

    Great post, and the title was PERFECT!!

  • Tom Cat “wodie j” Jefferson Esq

    Excuse me for not being too sympathetic to retirees or anyone at GM and Chrysler. While people like my Mom and Dad worked in a hot, stinky, dirty factory, my Mom typically worked 12 hr days + Saturday, for about $15 an hour, these people at GM and Chrysler were walking around the plant w their thumb up their ass so they could get overtime at their already inflated wages. And who in the hell gets to retire w full benefits at 55? Who has a pension plan anymore? Who gets all of their medical paid w no out of pocket cost? Not too damn many.

    Someone from Chrysler in Vermont or somewhere around there, said he was worried about the workers at dealerships. WELL BOO FUCKING HOO. For YEARS the factory workers and the dealerships have been grossly overpaid at the benefit of those of us who value hard work, responsibility, honesty. These people have been nothing but greedy, ripping us off when buying a new car and trading in.

    Come down to reality with the rest of us.

    Obama had to pay back union leaders and did so at the expense of union workers. How do they like their big O now??

  • Doc99

    They should have let both GM and Chrysler go Chapter 11 in the first place. No Bailout, No BS. Let’s all remember this when the NY Times, Chicago Tribune, et al come hat in hand looking for a bailout.

  • jwrjr

    Even with the bailout, did anyone actually believe that GM et al were not going to declare bankruptcy? The bailout was (supposed to be) a loan. And what is the easiest way to not have to pay your creditors?

    • Tom Cat “wodie j” Jefferson Esq

      they’re GREEDY. We got ripped off again. They can stick those cars where the sun dont’ shine.

  • J.J. (The P.U.M.A.)

    My wife once asked me if I would consider doing business in Sicily. I said “no. The Mafia has its fingers in everything and eventually you get screwed”. Welcome to the America of 2009.

  • Concerned Citizen

    The lessons of Chrysler and GM will not be forgotten by those investors who also own bonds like U.S. Treasuries.

    If Obama is willing to throw the rule of law under the bus to benefit his UAW constituents, what would he do to investors in U.S. Treasuries?

    The world is watching. You’ve been warned.

    • http://noquarter foxyladi14

      yes.the world is watching,especially China.

      • bart

        I wonder if China might infer a threat in this. That would be bad.

  • http://deleted Aaron Kramer

    The next thing they plan on doing is taking EVERYONES IRA and 401K and giving you an government annuity yielding 3% per year. The reason being thrown around is that the stock market and bonds are unreliable. Just imagine a bank robber taking money from the bank and then opening his own and telling those he robbed to deposit their new funds at his institution. The slogan will be “Your money is safe with me because I know how to rob other banks.” Our country is collapsing and this will end violently because it always does.

  • Caffeine

    3 Points:

    1. For the UAW retirees, their pension is probably the major part of their retirement plan. Whereas, for the other people, their interest in GM or Chrysler is just a small part of a mutual fund which is just a small part of their retirement plan.

    2. When people invest in stocks or bonds they know their value could go up or down. Whereas, a pension, is supposed to be there no matter what happens to the stock market or the bond market.

    2. If the car companies don’t keep their commitment to the pension fund, doesn’t the government assume that liability?

    • Eastan

      Answer to your second number 2: No.
      Answer to your first number 2: Typical retirees have no idea where their pension funds are being invested or stored. And part of the auto workers’ funds are / were in various investments.
      Answer to number 1 (with part of 2) You / we do not know what portion of non union folks’ funds were in GM. Some could have been heavy in GM. After all, people like Buffett told us years ago GM was a blue chip.

      Reply to Concerned Citizen above: Agreed. Even savings bonds have lost my trust. We always used to purchase bonds for all our nieces and nephews for birthdays. Not any more. Lottery tickets might be safer.

  • Diana L. C.

    To me, it’s the mixed messages American workers get as a whole that is the problem. You have people counting on SS who should probably not be counting on it much. So some have gone ahead and purchased IRA’s and 401k plans in addition. You have others working union plans, and you have many working under government employee plans–many of which are invested in Wall Street.

    Bush wanted to do away with SS and encourage EVERYONE to get IRAs and build 401k accounts. O seems to want to do away with those who have IRAs and 401k plans and get us to all join unions (which he can then subsume under THE PARTY). What’s a person to do if he or she is old enough and tired enough and just wants to spend a few last years getting some rest? If you worried about Bush, you took a step in one direction, only to find you are now being punished by the new POTUS for that move. Is retirement going to be a thing of the past?

    In my grandparents’ day there were no retirement funds really. When you got old enough and tired enough not to have to work anymore, you found you were the head of large extended farm families, and you could count on living out your last days with family, helping to raise the grandchildren, etc., while your younger family members took care of you when you got sick. That is just not possible now.

    I am afraid we will soon have old people dying at their desks or work stations because they can’t ever afford to quit working.

  • Eastan

    BTW. LisaB. Very well done. I hope this is the last story you have to write like this. I mean I hope these two companies (and I like your coin ‘chryslered’) are the last to break apart in this un-fair and hurtful fashion and that the admin may realize that re-election is doomed if too many regular non-union Americans start to suffer. Or am I dreaming?

  • Pingback: You’re Ahead In A Ford All The Way : NO QUARTER

  • http://noquarter foxyladi14

    it.s real scary to be old these days.

  • Lisabona

    Diana, we are already there. My husband is 75 years old and he is still working. The retirement money is just not enough. Food is expensive,gasoline, car payment, mortgage. And, don’t forget this is just the benining. When you will retire, with God and 0 willing, you will reach 100, and still work.This are the perspectives of the next generation, if everything will go ” well”. The future is gloomy and insecure for all of us.

  • TeakwoodKite

    LisaB, Great article. Great title.

    As a union member who was on a “negotiating team” , the most difficult part was responding to a management desire to reduce retiree benefits. These members who paid all the dues and retired under a binding contract were not being represented at the bargaining table. There was no way I could touch it.

    Yet all parties have a vested interest in the outcome. At the end of this road is swap of epic proportions.

  • Pingback: Ms Placed Democrat » Why Do I Own A Ford?

  • Jordi

    I have GM Bonds and there is no way that I will exchange them for the shares of a worthless GM run by the UAW where every three months this guys are going to request more and more benefits. Company will never come back and will be broken forever…
    The laws for Chapter 11th is that normally Bondholders get most of the new stock ahead of Stockholders and in Court never UAW should get more that them…
    Will see them there…
    Mr. Henderson is following the wrong advise and is making the wrong offer and I hope that he will regret and not going to be there to run the new GM…
    Mr. Obama, the newest friend of Hugo Chavez, Venezuela’s President, a confess Communist/Socialist, but a guy that normally pays 60-80% of the companies that he sizes), is choosing to bend the Laws giving almost nothing to the Bondholders an I hope that he will find a fiery and strong opposition to his senseless plan and that the Judge in charge this time will not follow Mr. Obama and Mr. Henderson and is going to rule by USA Chapter 11th existing Laws!!!.

  • http://www.irishtimes.com/money/pension-funds irish pension funds

    Great post…thanks for sharing it ..  i appreciate it . A irish pension fund is an entity set up to collect monies from employer and workers, invest the proceeds in securities and other assets, and pay benefits to retirees from the fund’s accumulated resources. A pension fund ordinarily has an investment policy statement that describes the nature of the assets in which the pension fund can invest. Traditionally, the investment plan of a pension fund has been quite conservative, sometimes limiting its investment vehicles to government bounds  or life insurance  annuities.