Does this make sense?
- The Government gave $19.4 billion, would get 72.5% (up from 50%) of the new Government Motors plus $8 billion will still be owed by the new company. Pretty sweet, they get 72.5% for a net of $11.4 billion.
- United Auto Workers trust will get 17.5% (down from 34%), in lieu of something like $20 billion in payments not yet due.
- Bondholders would get 10 percent plus warrants to buy another 15% (previously bondholders were not offered the opportunity to "invest" more money) for the $27 billion they already loaned GM .
- Apparently the people who are owed the other $27 billion GM owes either don't get anything or those debts taken over by the new company, it isn't clear.
In the normal world the Union, like every other contractor, would get it's contracts dissolved and then then have to make a new deal with the new company. GM would not have to pay the money not yet due. If the Union was owed money they can get in line with everybody else.
The Government would have gotten either debt or equity. They would lose their equity or become a creditor in the bankruptcy if they got debt. They'd be in the same boat as the other creditors.
The creditors would form a committee and the company would either reorganize (usually swapping debt for equity) or be liquidated with the proceeds going to the creditors or some combination of the two, under the supervision of a Federal Judge.
In this upside down bankruptcy apparently the government gets a company on the cheap and the people the company owes money to get screwed. Many of those people are depending on the income those bonds generate for retirement.
6/1/09 Update: The press is now reporting that the government will get 60% and put in an additional $30 billion.
2 comments:
So here's the deal. People affected by Hurricane Katrina who were dumb enough not to have flood insurance were bailed out by the government and in some cases, it was like hitting the lottery.
Don't say it was not a natural disaster but the failure of man made levees. That's not what I saw on the Mississippi Gulf Coast, the shores of Lake Pontchartrain in St. Tammany Parish and of course, in Jefferson Parish where some idiot turned off the pumps.
So now the government is bailing out companies including GM, the topic of this here post. This makes Ford look as stupid as those residents in Mississippi and Louisiana who were prudent enough to buy flood insurance.
As for the UAW, they are partially responsible for the medicine they will soon swallow. It’s gonna taste nasty if Obama has his way and it should since many of those workers will get paid by us even if we don’t buy a GM car. They are now our “bitches”.
(Jesus, after reading what I just wrote, I sound like a halfway legit blogger. I think that last line may have saved me.)
All these folks must have some pretty good representation in D.C.
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