Government Motors Follies: Surgical Taxpayer-Soaking Edition
[Posted by Karl]
In our last episode, I commented that The Atlantic’s Megan McArdle may have been mistaken in thinking a General Motors bankruptcy was “inevitable”:
McArdle may be underestimating the lengths to which the Obama Administration and a Democratic Congress will go to bail out the UAW and its electorally-important, white, blue-collar, workers in the swing states of the upper Midwest.
Ed Morrissey highlights today’s New York Times report that GM has prepared a “surgical” bankruptcy, in which taxpayers would shell out tens of billions of dollars to cover the legacy costs of the company’s health care obligations. Cap’n Ed is shocked:
I suspected that any real resolution to this would require restructuring of GM’s pension obligations. I didn’t expect that we would have to completely underwrite them.
I don’t know how Ed could have expected anything else.
–Karl
This entire Kabuki routine has been all about off-loading he legacy costs on the taxpayers and maintaining the relevance of the UAW.
Ed from SFV (f274d1) — 4/14/2009 @ 2:36 pmIsn’t there some law about no preferences to creditors?
nk (9eb1c1) — 4/14/2009 @ 3:05 pmAnd of course we’ll have to do it again and again, since the UAW and GM will know they can stick Uncle Sugar with their mistakes.
Kevin Murphy (805c5b) — 4/14/2009 @ 3:51 pmWe’re going to get stuck with a LOT of underfunded/overpromised pensions, not just UAW.
gp (930280) — 4/14/2009 @ 4:06 pmThe entire Kabuki is about Libs buying the UAW vote (which they always do) with our money.
Jimminy'cricket (637168) — 4/14/2009 @ 4:18 pmInnnnnnflation!
I hate the idea of subsidized and government controlled health care, but at least it would be an equalizer. They are wearing me down like a trillion drips of water on a chunk of granite.
Is there any reason why I should save my money?
Juan (4cdfb7) — 4/14/2009 @ 4:29 pmbut at least it would be an equalizer.
You jest, right? If you think political and economic power will ever settle for your healthcare level in a state run system, think again.
Remember, Castro was flown for treatment in Spain when things got dicey.
Apogee (f4320c) — 4/14/2009 @ 4:41 pmIs there any reason why I should
savehide my money?Short answer…because it is yours.
allan (8463f5) — 4/14/2009 @ 4:46 pmThe Pension Benefit Guarantee Corporation would be part of any bankruptcy.
This should not be news.
I guess it is news for the people who advocated bankruptcy without understanding that wasn’t a cost free option for taxpayers.
I guess its easy to get yourself off the hook if you pretend this is somehow unique to this plan.
PBGC
jpm100 (e99ef5) — 4/14/2009 @ 5:01 pmjpm100
The original McArdle post notes that GM’s pension was likely overfunded. We’re talking about the health benefits and other UAW legacy costs.
You might try being a bit less condescending, lest you end up looking foolish.
Karl (3bf5f8) — 4/14/2009 @ 5:09 pmstill not sure that they’ll push GM into bankruptcy. getting the taxpayer to pick up the health care and pension tab is one thing, but the UAW is very concerned about the wages, numbers and work rules for the current members and they’d be afraid that they would take a hit in bankruptcy.
and while obama might run roughshod over the legalities, neither he nor a bankruptcy court can by himself make the taxpayer pick up the tab for GM any more than they could do so in any other bankruptcy, obama would in theory need Congress to appropriate the money to cover the bills, whether for pensions, medical costs or paying off suppliers and creditors. as for the PBGC, if I’m not mistaken, pensioners would still take a hit as the PBGC doesn’t guarantee the pension they would receive in a perfect world, only the amount they would get as of today (a whole lot less).
steve sturm (3811cf) — 4/14/2009 @ 5:10 pmCan’t we just boycott GM and administer the coup de grace?
TakeFive (7c6fd5) — 4/14/2009 @ 5:11 pmGM is already being boycotted – by the car – buying public.
Dmac (1ddf7e) — 4/14/2009 @ 5:34 pmPBGC level of insurance is based on time served. Because of the typical time served as employees for the autoworkers which is likely in the 30+ years range, they would get a portion of their pension at 100% and 80% on the rest. You can do the calculations for a 30+ timer and I believe the first $1000 is covered at 100% and the rest is covered at 80% but that’s a quick and dirty I did just now.
The original McArdle post notes that GM’s pension was likely overfunded. We’re talking about the health benefits and other UAW legacy costs.
Sorry, I lasered in on the Captain Ed quote.
The health benefits being contested shouldn’t be a surprise either. The article doesn’t say the government will fund those obligations for sure. But the companies have contracts with the unions. And like anyone with a contractual commitment from GM, they will line up for their share from the Judge. There’s also the argument that (whether it has merit or not) the pension and healthcare funding is linked in which case the healthcare could be funded first or atleast equally, and the PBGC would be required to cover the deficit in the pensions. And in Michigan, if its executed there, is rife with Union supported judges, btw.
And part of this is the government taking the roll of DIP which is the only person that could take that role for a chapter 11.
Sorry for being terse, but I was not for immediately hitting GM with bankruptcy when they first got in trouble. And I argued that it would result in costs for taxpayers which just got me funny looks. Some of this is not unique to Obama. Its what would have happened if bankruptcy hit last November.
jpm100 (e99ef5) — 4/14/2009 @ 5:37 pmApogee, you have a great point. Of course, the rich and powerful (in socialism, that’s the government types) can have better than the rest.
I do expect, though, that the awful care I would receive from the government would be the same that the UAW rank and file got. I could be wrong. I assume also that some kind of market for private care would persist.
Juan (4cdfb7) — 4/14/2009 @ 6:15 pmallan, I believe Obama is spending even the money that is hidden in jars and mattresses. That’s basically what inflation is. I am buying real estate and assuming that will protect the value of my investments somewhat, since they can’t really inflate the essential value of land too much.
I almost feel like borrowing a bunch of money and buying land, and then watching the payments I owe inflate into much less costly payments for a more valuable parcel. That’s a bit too extreme for me, but it makes sense.
Juan (4cdfb7) — 4/14/2009 @ 6:18 pmjpm100
Some of this is not unique to Obama.
But some of it is, particularly the lengths to which the administration is going to go to protect the UAW from what would occur in a normal bankruptcy, which is the point here. A normal bankruptcy would void those UAW contracts, which the UAW cannot stand. As you say, “The article doesn’t say the government will fund those obligations for sure.” Except that this is the entire reason for Obama’s extraordinary involvement in GM’s affairs. The legacy health costs are precisely why GM is unprofitable in the US and not elsewhere around the world, or compared to Toyota here. The wages are minor factor by comparison. (Indeed, it’s why GM could always be found backing Democratic healthcare reform; to unload these costs on the taxpayer).
And I’m sure there are UAW-supported judges in Michigan — but it’s less of an issue in a federal bankruptcy court, unless you have specifics about appointments there. Not that Sen. Levin is above getting involved in federal judicial appointments in his Circuit (he has), but bankruptcy judges may not have been as keenly on his radar.
Karl (3bf5f8) — 4/14/2009 @ 6:33 pmI just hope and pray that after the debacle, both parties and Americans will have learned their lessons.
Patricia (2183bb) — 4/14/2009 @ 9:34 pmWe have to go through this every 20-30 years due to our idiotic inability to learn from history – or is it the belief that history doesn’t matter, that we are the center and focus of everything?
AD - RtR/OS (283df4) — 4/14/2009 @ 9:49 pmHistory is about dead people. Why worry? They’re dead.
John Hitchcock (fb941d) — 4/14/2009 @ 10:30 pmPartially true, the work rules are even more of a burden, but there is no way for GM to unload those costs. And management doesn’t want to go through a bankruptcy either, even though that’s the only realistic way to clean out the work rules.
LarryD (243b3d) — 4/15/2009 @ 7:09 amWe have to go through this every 20-30 years due to our idiotic inability to learn from history – or is it the belief that history doesn’t matter, that we are the center and focus of everything?
I think your first point dovetails nicely into the second – remember, this is the same country where the majority of college – educated adults cannot even identify the correct century of the Civil War, let alone the correct decades for either World Wars or Vietnam. Don’t even ask them about the Korean War, they’ve never heard of that one, and watch what happens when the average American is asked the same questions. We’re a nation of dunces, sad to say – and we’re only getting dumber by each successive generation.
Dmac (1ddf7e) — 4/15/2009 @ 7:59 amWhat about other industry pensions? Businesses have folded before.
Thanks, Obama, for creating the expectation that the Government (no, the taxpayer) not only honors your warranty, but also your pension.
Amphipolis (fdbc48) — 4/15/2009 @ 12:39 pmAmphipolis, see the Pension Benefit Guarantee Corporation.
SPQR (72771e) — 4/15/2009 @ 1:11 pm