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This Doesn't Seem Fair....

The WaPo in its lead editorial today correctly (albeit gently) scolds the Obama Administration for a little uneven-handedness in dealing with the various Chrysler creditors during the Chapter 11 process. "President Obama may call them 'speculators,'" goes their sub-head, "but the economy needs private investors." Not likely, given the track record thus far, to wit:

"The government's intervention in GM's financial affairs tilts the scales so dramatically in the company's (read: government's) favor that it risks shutting out the legitimate interests of some creditors in favor of politically connected players who are owed much less and have less of a claim to the company's money. GM bondholders, for example, are being pushed to accept a 10 percent equity stake in repayment of their $27 billion in loans to the company. The United Auto Workers, on the other hand, is being offered a 35 percent equity stake in exchange for its claim of roughly $10 billion -- a claim that would typically be wiped out in bankruptcy.

While the hedge funds are likely to receive less than 30 cents on the dollar, a health-care fund controlled by the UAW is being handed a 55 percent ownership stake in Chrysler. If bankruptcy rules had been strictly followed, the union would have been entitled to little, if any, return.

Extraordinary times call for extraordinary measures, and it was with this thought in mind that we endorsed the federal government's decision to pump billions of dollars into the automakers. But the spectacle of creditors being stripped of their legal rights in favor of a labor union with which the president is politically aligned does little to attract private capital at a time when the government and many companies need these investors the most."

Holding the UAW harmless while dinging the investors is a lousy way to run a railroad - or a car company. Over time, this will come back to bite the Administration - and Chrysler's' proud new majority owners, the UAW. The UAW shares the blame for the sorry state of the auto industry.They can only kick the can down the road so far before they will have to come to grips with what they have wrought.


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This page contains a single entry from the blog posted on May 14, 2009 10:06 AM.

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