WSJ: Some Paid More For The Auto Bailout Than Others

Edward Niedermeyer
by Edward Niedermeyer

When private, for-profit firms ask for public money, taxpayers tend to take a more personal interest in their goings-on. After all, they are, in a very real sense, still the partial owners of these companies, and they put up the cash to provide a second chance to companies that offer no similar reciprocation when consumers default on their own car loans. And though US taxpayers have earned the right to feel a sense of ownership towards GM and Chrysler, there are several groups of Americans who have shouldered a disproportionate amount of the burden of the bailout. First, the GM and Chrysler employees who were laid off despite the bailout must doubtless wonder why they had to both fund the bailout and lose their jobs (remember, cutting jobs was the most “positive” aspect of the bailout, according to the industry). Similarly, GM and Chrysler’s bondholders paid twice to “save” their failed investments, once with their tax money and again by taking a hefty cramdown. And finally, a third group paid far more than anyone else, not only funding the bailout with with their taxes, but also sacrificing compensation for injuries caused by GM and Chrysler vehicles. The WSJ [sub] reports

Among the creditors who suffered most, car-accident victims represent a distinct mold. Unlike banks and bondholders, this group didn’t choose to extend credit to the auto makers. As consumers, they became creditors only after suffering injuries in vehicles they purchased.

“This was not a normal case. The government was deciding who was going to be taken care of and who was not,” said David Skeel, a University of Pennsylvania law school professor and bankruptcy expert who has testified before Congress on the auto bailouts. Even if the auto makers had legal rights to leave behind product-liability claims, “there is a deep unfairness,” he said. “It would have been easy enough to set something aside for them.”

Given the celebratory, even triumphalist, rhetoric that’s being applied to the auto bailout after the fact, it’s important to remember that many suffered in order to give GM and Chrysler a second chance. Even those who are proud of the bailout’s accomplishment should acknowledge that the jobs saved carried a price that goes beyond any final accounting of anonymous billions lost from the federal budget. The pro-bailout crowd should take more care to recognize and heal the deep wounds that fester beneath their “Mission Accomplished” rhetoric… if only to prevent a repeat of these tragic decisions in the event of future industry rescues.

Edward Niedermeyer
Edward Niedermeyer

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  • Fincar1 Fincar1 on May 28, 2011

    Ronnie Schreiber, you're right. Nobody knows what this administration is going to do; not bankers, not businessmen; the only actual trend anyone can see is that the cost of employing people, the cost of making things or doing any kind of business is going up. Is it any freaking wonder that no one wants to lend money to businesses or to hire people?

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    • MikeAR MikeAR on May 30, 2011

      @John Horner Are you serious? Do you really believe that bs? The jobs added you brag about isn't even sufficient to keep pace with the people entering the workforce. Let's try creating jobs at a monthly rate of 400,000+ to get the unemployment rate back to what it was before the crash. I won't spend time on U6, the real unemployment rate, it's north of 17% now with no improvement in sight. You do know that the BLS cooks the non-farm payroll numbers by adding a made up number of jobs they just think may have been created. You do know that the labor force participation rate is below what it has been for years, don't you? You might know that each month a hundred thousand or so people go off unemployment roles and are no longer counted, I hope you realize thatr. And we get to those wonderful IPOs that you brag about, have you made any money off them? Has anyone you know gotten an allocation in any IPO this year? Has the LinkedIn IPO made you richer? And the GM bond offering you cite, how successful was it when it comes at some spread over treasuries. Why not buy GM bonds when they yield more than Treasuries and are implicitly guaranteed by the government. You can do better than that or at least you need to do a lot better if you expect to have any creditability whatdsoever.

  • Mr Carpenter Mr Carpenter on May 28, 2011

    MikeAR said "The exceptional thing about the bailout was the never before done penalizing of one class (bondholders) and the naked political rewarding of another class (the UAW)." tced2 said " look up “senior debt”. “Senior” has a meaning. Over 100 years of settled bankruptcy law was ignored." Someone also said (more or less) "why argue, it can't be undone." Well, let's look at the big picture. Yes, it is true that settled bankruptcy law was ignored. (I'll use the words "unprecidented" and "illegal" because they are both relevant here). Please illuminate to me that if there is law and precidence (backing law), and someone "in power" simply chooses to over-ride it, why that would NOT be considered illegal? It clearly is not legal. What about penalizing one class of people and rewarding another (who are the friends of the powers that be)? If that were done in some banana republic, it would be considered unjust, immoral and typical of half-baked dictatorships, would it not? So exactly why is it just glossed over when it is done in this country? Immoral, illegal and unjust are immoral illegal and unjust in any country, and there are natural laws which take precidence over "man made law" - just ask the East German politicians and border guards and Germans and Poles and others after WWII who were successfully prosecuted for breaking laws against humanity - all the while quite "legally" following laws as written by men in their countries. No, it is crystal clear that the bail outs and the GM/Chrysler bankruptcies (whiche were bail outs) were as illegal and immoral as hell. And that's not even bringing into the discussion the fact that ONCE it is finally determined that B.O. was never legally Prez of the US because of his father's birthplace (i.e. a British protectorate land) and his mother's too young age to confer citizenship onto him under the law of 1963, that EVERY single "law" and action done by B.O. and "his" administration - are not only null and voided, but would be seen to open the biggest legal can of worms the world has ever seen. So you see, it IS possible that this whole thing could explode in the faces of the powers that be. And you can just about count on it, because "follow the money." Put another way, when the real powers that be decide that their useful idiot B.O. has outlived his usefullness, it will be "allowed to be put out" that his tenure has been illegal all along - and the powers that be will reap the rewards of litigation for years to come. See how that could happen? In the meanwhile, it is absolutely crystal clear to the REST of the world, that what was a nation where corruption was fairly kept in check - is now a land of Diktat, not a land where the rule of law take precidence. Which partially explains the reluctance of other nations' wealthy in buying our enormous and growing national debts, which has resulted in the "fed" simply "buying" the debt... on top of the debt that the government simply allots onto their records by the fact that a non-governmental agency - the "fed" - conjures up "dollars" out of noplace, lends them to the government and takes interest on the "loan"! Obviously, our whole system is nothing more than a ponzi scheme - the rest of the world can see it and they are trying to save their own bacon by getting out of dollars. So the GM and Chrysler thing is only but a symptom of a far larger problem, folks.

  • Wjtinfwb Funny. When EV's were bursting onto the scene; Tesla's, Volt's, Leaf's pure EV was all the rage and Hybrids were derided because they still used a gas engine to make them, ahem; usable. Even Volt's were later derided when it was revealed that the Volt's gas engine was actually connected to the wheels, not just a generator. Now, Hybrids are warmly welcomed into the Electric fraternity by virtue of being "electrified". If a change in definition is what it takes, I'm all for it. Hybrid's make so much sense in most American's usage patterns and if needed you can drive one cross-country essentially non-stop. Glad to see Hybrid's getting the love.
  • 3-On-The-Tree We also had a 1973 IH Scout that we rebuilt the engine in and it had dual glass packs, real loud. I miss those days.
  • 3-On-The-Tree Jeff thanks. Back in 1990 we had a 1964 Dodge D100 with a slant six with a 3 on the tree. I taught myself how to drive a standard in that truck. It was my one of many journeys into Mopar land. Had a 1973 Plymouth duster with a slant six and a 1974 Dodge Dart Custom with 318 V8. Great cars and easy to work on.
  • Akear What is GM good at?You led Mary............................................What a disgrace!
  • Randy in rocklin I have a 87 bot new with 200k miles and 3 head gasket jobs and bot another 87 turbo 5 speed with 70k miles and new head gaskets. They cost around 4k to do these days.