GM Bankruptcy: Lawless Government

By: Billy Alpert

Although the media has been covering the GM bankruptcy from May extensively, I feel it has failed to address the real hidden issue surrounding it: government lawlessness.

When a company declares bankruptcy, the company does so because it acknowledges it cannot fully meet the obligations of debt to its creditors. So immediately following bankruptcy, there must be recovery for creditors to see how much of the money they lent they can get back or “recover”. However to make it orderly, there is a long standing rule of law from the centuries old bankruptcy codes. In bankruptcy, the secured creditors have priority in recovering the money, and these are creditors who have collateral from the bankrupt company. So with GM, secured creditors would be creditors who lent GM money to perhaps buy auto-producing equipment, and the equipment is the collateral- in the event of bankruptcy, the creditor can take back the equipment. Then, next in line are the unsecured creditors, the people who are owed money by GM but have no collateral, and these people would be primarily the labor union, the UAW, who are owed compensation and packages that are uncollateralized. However, unsecured creditors-unions are second in line to secured creditors. This seems all fair and logical, which is the law dictates this process and is acknowledged when investors agree to contracts.

The problem arose when the Obama Administration decided by basically dictatorial decree that their whims are superior to private contracts and the law. In the event of bankruptcy, according to bankruptcy codes that have existed for over one hundred years the GM senior bondholders, which are secured creditors, should have been the first to recover money in a GM bankruptcy as the assets are liquidated. However, by Obama’s mandate, the senior bondholders’ recovery stood at roughly 10 cents on the dollar, while the UAW got roughly 80 cents on the dollar. In a United States that would follow the LAW, the UAW would not get a penny until the GM senior bondholders get every cent they’re owed. Keep in mind many of the GM senior bonds were owned for college savings or retirement funds, because people always thought of GM debt investments as safer because GM was thought to be stable, and these persons would get priority in the event of bankruptcy. So these persons who have made the retirement or college fund investments years ago through contract by lending GM money and owning the bonds, have been illegally robbed by the government by the likes of Obama and Geithner. They chose to invest in GM debt based on an assumed risk and interest rate, and the private contract was undermined by government decree. The bondholder’s wealth has been pillaged by the government in a way that is no different than theft by a bunch of criminal burglars.

Not even to mention that the UAW was given a 17.5% stake in the new company while the bondholders were given a meager 10%. Also, the government lent GM an additional $30 billion on top of the original $20 billion so the government assumed a 60% stake in GM. So of course the government forces GM to accept money so that it can usurp a majority stake in the new company, again undermining capitalism and private ownership. And, by propping up the failed company since Fall 2008, the government has allowed GM to squander more wealth, over $10 billion, which was another cause of the poor recovery for bondholders.

Everyone, this is why we are supposed to be a nation of laws, if we choose respect our constitutional republic that protects our rights to property through contract. We are to be a nation of laws, not a nation of Men, because as we just saw, when we let Obama or whoever has supremacy to the law to make decisions in dictatorial fashion, the American foundation of private property, contracts, freedom and the LAW are undermined and robbery rules. And in times of an economic crisis, the precedent of lawlessness and theft will not serve our interests of attracting foreign capital to fuel our economic growth, thus further hurting American prosperity.