Wednesday, June 03, 2009

Obama Motors
Is Private Company

In the latest bizarre pronouncement on the nationalization of our auto industry, the CFO of Obama Motors, or rather I guess that should be officially, 'General Motors' (the new one, not the old one), has announced that since it is owned by a few limited stockholders it is now a private company and will no longer share its financial status with the public. On Tuesday, Ray Young, GM chief financial officer in the new 'General Motors' said, "As a privately held company... we're not going to disclose information except to the shareholders."

Yes. That is right. Just because America owns 60% and Canada owns 12.5% of this new corporation, these governments do not consider that their citizens have any right to know how the new company, in whose stock billions of public dollars have been invested, is performing. This new company is private and the citizens of both countries need to shut up and butt out.

The real winner in this bailout is the UAW. Want to know how good a deal they get? For their $10 billion in obligations for bonds, health care and pensions against the old corporation (something that bankruptcy normally wipes out as "unsecured" obligations) the UAW gets a golden deal that preserves them nearly whole. First they get $2.5 billion in new bonds, with interest and senior bond status. Next they get two classes of stock. One is preferred stock in the amount of $6.5 billion, which like their bonds provides the UAW with interest payments that no other debt holders from the old corporation will get. Finally they get 17.5% of the common stock in the new company. Since they are getting $9 billion in new debt, they are obviously getting that 17.5% of new common stock for wiping out $1 billion in old debt. That is the difference between the debt the new corporation owes them and the debt the old corporation owed them.

What a deal. Compare that with the secured and unsecured creditors in the old corporation, many of whom by law are supposed to be in line in front of the UAW. These old bond holders are getting 10% of the corporation for $27 billion in old debt. They get NO bonds or preferred stock in the new corporation.

The UAW is thus paying $57 million for each 1% of new common stock and the old bond holders are paying $2.7 billion for each 1% of new common stock. Plus the old bond holders are being pushed to the back of the line behind the UAW even though our laws say they should be in front.

How can this happen in a nation that pretends to believe in the rule of law? The UAW was a huge contributor to Obama and there is actually precedent for this new standard. In Obama's Chicago it is called "pay for play" and has long been practiced there. It used to be called corruption before 'hope' and 'change' came to the Presidency. The 'hope' is that more campaign contributions will flow to the Democrats in power since the 'change' is legalizing "pay for play".


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