RE: Re: [Pen-l] labor and the auto companies

["David B. Shemano" <dshemano@xxxxxxxxxx>]

Raghu writes:

>> Without a bailout, GM is deeply insolvent. Worker-managed or not,
>> there is no way they can meet their liabilities. Would you rather
>> bailout a privately-owned company or a worker-owned company? Two bad
>> choices I know, but that's all we have.

Why bail out anybody?  In a bankruptcy, the assets of GM can be sold to buyer who takes free of the debts and can operate a car company with a profitable cost structure.  The creditors can fight over the proceeds.

Understand, the bailout is a bailout of creditors and not shareholders.  The equity shares are worthless and the bailout isn't going to change that.  A bailout is a bailout of the distressed investors who are buying GM bonds for 50 cents on the dollar.  If there is a bailout, GM can presumably continue to pay its creditors (including its union and retirement obligations) until the bailout money runs out.  This is the same with AIG -- the bailout money is going to AIG's creditors, not its shareholders.

GM's hands rest in the UAW, which can make GM profitable essentially overnight by renegotiating the labor and retirement contracts.  Like the mortgage brokers, financiers and investors who made a lot of money the past ten years before losing it all, the UAW was focused on the moment and not on sustainability.  Just as there was a real estate bubble, there was a UAW contract bubble.  The people who negotiated the contracts for management and UAW were happy because they could pat each other on the back on how great the contract was, but those same negotiators would be long gone when the obligations and reality actually kicked in.  Like inflated real estate values, the benefits negotiated were ephemeral.  Just as GM bonds are trading at 50 cents on the dollar, the UAW's labor and retirement claims are probably worth about 50 cents of their nominal amount.  The UAW, with the help of management, is hoping that the taxpayers, most of whom make less than the average auto worker, sh!
 ould pony up the other 50 cents.  Personally, I would rather invest my money elsewhere than bail out fhe UAW under these circumstances.

David Shemano
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