The worst of all possible bailouts:
What is going on in this country? The government is about to take over GM in a plan that completely screws private bondholders and favors the unions. Get this: The GM bondholders own $27 billion and they’re getting 10 percent of the common stock in an expected exchange. And the UAW owns $10 billion of the bonds and they’re getting 40 percent of the stock. Huh? Did I miss something here? And Uncle Sam will have a controlling share of the stock with something close to 50 percent ownership. And no bankruptcy judge. So this is a political restructuring run by the White House, not a rule-of-law bankruptcy-court reorganization.
I’ve said it before and I’ll say it again — Washington is bailing out the UAW, not General Motors. But it gets worse than even Kudlow recognizes above.
It’s true that the UAW ranks only fourth or fifth of GM’s five worst, structural problems — but that doesn’t mean that if GM can fix the top three or four, then the UAW can continue with business as usual. General Motors will continue to be a high-cost producer trying to compete on price. Now, you can succeed as a high-cost producer — look at any of the German firms — but only if you’re at the higher end of the market. GM gave away quality, cachet, or any other competitive advantages years ago; price is all they have left. But they’ll never get their costs under control while Washington is pulling the strings.
In other words, there’s no “bridge loan” to get GM “over the hump” or “through the temporary crisis” or any other lame excuse. GM is a bottomless pit. But instead of taking down foolish investors, now GM gets to suck taxpayers dry.
Maybe this pseudo-bankruptcy is the first step in turning GM into an employee-owned company. Surely, the UAW guys couldn’t do a worse job of running the company than the current management has. But in a rule-of-law country, these matters are supposed to be decided by the workers and investors under the aegis of Chapter 11. Instead, GM is going there (if that’s where they’re going) by political fiat.
Welcome to the Banana States of America.
(Hat tip, Glenn.)