Tuesday, May 26, 2009

Picking Winners and Losers

Once again the Obama Administration is playing God with investors' money. This time it is the GM bankruptcy. Instead of the bankruptcy court deciding who gets what by following contract law, Obama has decided that the affluent members of the UAW are more deserving than employees elsewhere (many of whom are the beneficial owners of General Motors bonds). Bondholders were asked to take a 9 percent stake in the new GM, which is a ridiculously low percentage and they are saying no!...thank goodness. Now, we will see if the courts are permitted to orchestrate this bankruptcy or if the White House will trample over existing bankruptcy law in an effort to save the UAW, whose members make a multiple of the average income of other workers in the US. This is another case of "reverse Robin Hood" by the Obama Administration. They are robbing the average worker to provide funds for relatively wealthy (UAW) workers. Nice redistribution policy! Take from the poor, give to the rich!

The main thing wrong with the Bush-Paulson-Bernanke-Obama-Geithner strategy in this economic crisis is that bondholders have generally paid no price for foolishly loaning money to the AIGs of the world. The taxpayer was conveniently inserted into the equation to take the hit and let the bondholders go unscathed. But, not this time. This time the affluent and politically powerful UAW is one of the potential players, so Obama is rolling out the (taxpayer) red carpet for the UAW and asking the bondholders to take a hike. Well, they won't do it. A significant percentage of the bondholders are workers, who are not UAW members (and make half the income of UAW members). They are saying no!! More power to them.

Lets see if the Obama folks let the courts decide this one or will Obama throw the Constitution under the bus. The jury is out.