By on October 31, 2014

Seal_on_United_States_Department_of_the_Treasury_on_the_Building

Should companies in the future need to be bailed-out by the federal government, they may not be so forthcoming with the necessary information if General Motors’ confidential documents linked to its own bailout see the light of day.

Bloomberg reports the U.S. Treasury is doing all it can to protect the information submitted by GM prior to investing $49.5 billion into the automaker during the early days of the Great Recession:

Disclosure of the disputed information would also impair Treasury’s ability to obtain necessary information from companies in the future. [The] Treasury’s ability to act as a lender would be hampered.

The information is at the heart of a lawsuit filed by the Center for Auto Safety in 2011. Over 50,000 records were obtained thus far, but the advocacy group wants information on how much of a role the Treasury played in preventing pre-bankruptcy claims made against GM over vehicles linked to the February 2014 ignition switch recall from moving forward.

Clarence Ditlow, head of the Center for Auto Safety, disputed the idea that future companies in need of help would be dissuaded from “begging for billion in taxpayer dollars” were the desired documents revealed.

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37 Comments on “Treasury: GM Bailout Suit Would Hinder Future Actions...”


  • avatar
    thelaine

    Dirty, dirty.

  • avatar
    HerrKaLeun

    Hope they win so that this bailing out gets made harder. It is public money they get, why should they keep that information from us?

  • avatar
    zerofoo

    “Treasury’s ability to act as a lender would be hampered.”

    I say good. Should our Government be in the savings and loan business? Banks exist for this very purpose. If a traditional bank would not lend money to these firms, why should the Government funded by the taxpayer?

    Government exists to protect property rights and personal liberty – not to be the lender of last resort for business that can’t manage their affairs properly.

    • 0 avatar
      psarhjinian

      “Should our Government be in the savings and loan business? Banks exist for this very purpose”

      Banks wouldn’t lend in 2008, so we were looking down the barrel of two major employers, and hubs of even larger economic ecosystems, going TU in the middle of the worst recession since 1929+

      Lender-of-last-resort is absolutely a government’s job, otherwise economies would crash, and crash hard, with disturbing frequency and a very high social cost—which was the case in many of the decades prior. One of the reasons for the social stability we’ve had in the post-war era is government investment and lending, but if you want to go back to the glory days of the 1800s, please, be my guest.

      • 0 avatar
        Lie2me

        This subject is a “no win” topic. I like your even-handed response

      • 0 avatar
        ClutchCarGo

        Hear, hear. I fear that because we’ve had decades of relative economic stability, people have completely forgotten how we used to have major disruptions about every 20 years. Govt interventions since the Great Depression have helped prevent those disruptions.

      • 0 avatar
        Pch101

        I don’t think that you understand. It is apparently preferable to destroy the country for the sake of the ideological purity of its vocal internet minority. Great Depression 2.0 would have been much better (particularly because there would have been a Democratic president who could have been blamed for it had there been no bailouts.)

        The ruins may be smoldering, but at least they are our ruins!

      • 0 avatar
        jjster6

        Government bail outs suck for a multitude of reasons. But sometimes they beat the alternative of not having a bail out.

        • 0 avatar
          S2k Chris

          Exactly right. I’m a small-government kinda guy, but sometimes a bailout is, like democracy “the worst, except for everything else.” People who disagree tend to be those who place ideology over practicality and/or an understanding of economics.

      • 0 avatar
        krhodes1

        +100000000

        If GM and Chrysler had been allowed to go down, it would have been the second Great Depression, not a recession.

        I just can’t buy the “government can do no right” meme that is so common today.

  • avatar
    thelaine

    Delco employees (non-UAW) took a pension haircut. GM UAW workers had their pensions bailed out and made whole for 10 billion taxpayer dollars, never to be paid back. None of this had anything to do with saving GM. It was just graft in exchange for political support using taxpayer money.

    How much did we lose on the bailout? About 10 billion dollars.

    Dirty.

    • 0 avatar
      Lorenzo

      The federal government spends that much every single day, including Saturdays, Sundays, and holidays. The 2014 budget request was for $3,711 billion and Congress approved $3,506 billion, but some overspending resulted in an estimated $3,681 billion being spent.

  • avatar
    mikey

    @thelaine…”.political support using taxpayer money” Sam is not my uncle, so its not my place to comment on American politics.

    I will say this “political support using taxpayer money” is alive and well in Canada, and practised by all politicions regardless of where they sit on the political spectrum.

    So am I to understand, that in America,only those from the left, could be accused of bribing voters with their own money?

    • 0 avatar
      Lie2me

      Are you suggesting politics in Canada is similar to politics in the US? Scary isn’t it?

    • 0 avatar
      psarhjinian

      “So am I to understand, that in America,only those from the left, could be accused of bribing voters with their own money?”

      Pork tastes good regardless of your political stripe. If it didn’t, the US political right wouldn’t be at parity or leading in corporate campaign donations.

      That said, voters on the right, in the US, have a disturbing tendency to vote against their own best socioeconomic interests. Other than the misplaced hope of 2008, American leftists vote Democrat out of fear.

      • 0 avatar
        S2k Chris

        ” voters on the right, in the US, have a disturbing tendency to vote against their own best socioeconomic interests.”

        Or perhaps they have an aversion to being given something they do not deserve. We used to call that pride, or integrity.

        • 0 avatar
          Erikstrawn

          I think voters on the right have an aversion to others being given something that they do not believe that person deserves. At the same time they believe they’ve earned everything they get.

      • 0 avatar
        wstarvingteacher

        I call myself a conservative.

        That said I would certainly hate to lose my social security check. IIRC (from reading, too young to remember first hand), it was felt to be unconstitutional at the time. I’m just thinking that it’s pretty easy to stake out an ideological claim until it winds up having impact on you. There is plenty of blame to go around. Especially in Washington. I don’t pretend to know what the ramifications are from the bailouts, the cash for clunkers, the invasions across our borders, and many more topics. My worry is that Washington seems particularly clueless also and that is a situation I feel I have seen for more than the six years that is now the focus.

        • 0 avatar
          highdesertcat

          I am an Independent and I agree with your comment. That is but one reason why so many people who can, have left the work force and choose to take out rather than pay in to the US Treasury.

          I hope to live long enough to watch social security go broke.

    • 0 avatar
      thelaine

      @mikey

      Hello again Mikey. No, I am against the payoffs to whomever.
      Agribusiness subsidies like ethanol immediately come to mind as bipartisan political payoffs. We have sugar tariffs that cost consumers billions and destroy jobs. The list goes on forever, because the government goes on forever. The union payoff was not necessary to “save” GM and was just graft, but the list goes on forever. I have nothing whatsoever against private sector unions, which are 1st Amendment activities. It’s the payoff that was corrupt.

  • avatar
    87 Morgan

    I do think bailouts create a moral hazard within corporate boardrooms. The board members know that deep down, regardless of their incompetence or how much they steal, the guvment will bail them out.

    2008 was a train wreck of sorts where poor decisions across mutiiple industries came to a head all at once. Had the big banks not had the FDIC behind them and some sort of market place insurer watching their books who would have assigned a far higher premium to the risk they were taking they would perhaps have been in a situation to lend, but they were dumb and we had to bail them out too.

    At some point the bail outs have to stop, otherwise they will just get larger and more costly in scope. The bigger question is who will bail out the US guvment when the devaluation of the dollar by the Fed printing press comes home to roost?

  • avatar
    CJinSD

    I’m really getting sick of this regime’s shamelessness when the truth is at cross-purposes with its agenda, which is every single day.

  • avatar
    DC Bruce

    The argument is absurd on its face. If a company is so desparate that it goes to Uncle Sam for a bailout, it’s unlikely to be too concerned about disclosure of its “confidential documents.”

    What’s really going on here — and but for the government intervention would be perfectly normal — is that the folks who were injured by GM’s ignition switch fiasco are trying to discover if GM’s use of bankruptcy was fraudulent. As a general matter, bankruptcy erases all pre-existing debt and bars all post-discharge claims relating to pre-discharge activity. In other words, someone who was injured as a result of a GM ignition switch failure in a vehicle they bought in 2007 or earlier can’t bring a claim. The bankruptcy discharge prohibits it.

    However, if it can be shown that GM knew of such defects prior to the discharge then those claims may be allowed.

    So, the net effect of the government’s involvement here (assuming that GM knew of this defect and its consequences prior to the bankruptcy) is to bar injured people from receiving compensation that they otherwise would be entitled to get.

    This just illustrates, again, the major problem with the GM “banrkuptcy”: it was a lawless act on the part of the government. The government decided ad hoc, who was going to pay and who wasn’t . . . in disregard of existing law.

    I can see the argument that, given the size of GM and the state of the credit markets in 2008, that the government should have been a lender of last resort to supply DIP financing for GM while it went through Chapter 7. But I fail to see the argument that use of the government’s money justifies disregard of legal requirements of bankruptcy in terms of who gets priority and so on. In other words, secured creditors (who, by law, are entitled to get paid first) should not be stiffed so that the UAW pension fund can be kept full, etc.

    In my opinion, that’s the real problem with the GM bankruptcy and this latest fiasco is just one more illustration, assuming Treasury’s argument prevails.

    And, as time passes, we’ll see who’s willing to lend money to GM and on what terms, knowing that they are now assuming the political risk that, if GM fails again, politically-favored creditors might get moved up the queue, while disfavored creditors get shoved to the back of the line.

    • 0 avatar
      psarhjinian

      “This just illustrates, again, the major problem with the GM “banrkuptcy”: it was a lawless act on the part of the government. The government decided ad hoc, who was going to pay and who wasn’t . . . in disregard of existing law.”

      We’ve had this argument before; if that were the case, then someone would have successfully sued the government by now.

      The bankruptcy was legal. When the government bought into GM, it became -the- creditor.

    • 0 avatar
      Pch101

      ” secured creditors (who, by law, are entitled to get paid first) should not be stiffed so that the UAW pension fund can be kept full, etc.”

      GM’s secured creditors were paid in full.

      Seriously, guys, you’ve had five years to get your facts straight. How many more years is it going to take?

      • 0 avatar
        jjster6

        Why let facts get in the way of a good story?

      • 0 avatar
        50merc

        PCH, I’m sure you remember the piece written by Ronnie about the hapless husband and wife who had invested most of their retirement savings in GM bonds. Are you saying that eventually they were able to redeem their bonds at par?

        • 0 avatar
          Pch101

          You’ve had five years to figure out that those bondholders held unsecured debt. (And I’m pretty sure that I explained that in the comments section of that very same factually flawed article to which you are referring.)

          You’ve also had five years to figure out that the VEBA was also an unsecured creditor.

          Again, how many more years is it going to take?

  • avatar
    Pch101

    It’s quite comical to see that the resident conservatives are taking the side of a trial lawyer who is clearly on a fishing expedition.

    So much for “tort reform.”

  • avatar
    Duaney

    The great recession was largely caused by poor government policies, such as the Clinton administration promoting home loans to unqualified buyers, so it’s just and fair that the government bailed out GM. Not that GM was blameless, but the crash was like a tornado that blew through. The Center for Auto Safety is not concerned at all about “Auto Safety”, but their own political agenda, they are pretty much at war with the auto industry.

  • avatar
    Pch101

    “the advocacy group wants information on how much of a role the Treasury played in preventing pre-bankruptcy claims”

    This is what is called a “fishing expedition.”

    I’m sure that the plaintiff’s counsel is well aware that the liability for pre-BK claims goes to the old company, which is now called Motors Liquidation. Which is a serious bummer, since Motors Liquidation is in liquidation and doesn’t have any money to speak of.

    Because of the government, the new GM contractually agreed to accept liability for claims on cars made prior to the bankruptcy for incidents that occurred since the bankruptcy. That’s actually more generous that what would normally be required under the law.

    I don’t blame Ditlow for trying, but those documents are irrelevant to his case. Funny how the “tort reform” crowd doesn’t see that.

  • avatar
    stevelovescars

    I understand some of the ire over the GM bailout… but if they had gone bankrupt there wouldn’t be anyone to sue over the ignition switch issues either, right? Frankly, I believe they were too panicked and desparate to not sink the entire economy to worry about a few filed reports about ignition switch issues at the time.

    Personally, I am a lot more upset about the Bush bailouts of the big banks than about the car companies, who at least produce something. The big bankers paid themselves outrageously because they were supposed to be both smarter than the rest of us and were taking risks. Turns out both were false. They were taking risks with everyone else’s money but went ahead and gave themselves huge bonuses post-bailout. They were smart, about siphoning money out of the market for themselves, but not about much else.

    Why are the right wingers so mad about saving hundreds of thousands of manufacturing jobs vs. giving nearly a trillion dollars in handouts to overpaid, oversexed, and overconfident bankers?

    • 0 avatar
      S2k Chris

      Generally speaking, bankers who got big bonuses after the bailouts were on a defined bonus plan and oversaw parts of the business that had succeeded even in the face of the overall market decline.

      If you’re Joe Banker in charge of, say, the junk bond portfolio, and your bonus plan says “if you grow your business 10% this year your bonus payout is 100%” and you do just that, even as the rest of the company is imploding around you, wouldn’t you be ticked if you got screwed?

      In very few (if any, I caveat it only because someone will come up with a gotcha) cases did anyone involved in a failing business unit get a bonus. The much-publicized AIG bonuses were on parts of the business unrelated to the failed CDO-backing division. If they DIDN’T pay out, they would’ve gotten the pants sued off of them. Bad “optics”, sure, but generally the right thing to do.

  • avatar
    50merc

    Thank you, PCH, for pointing out I erred in thinking those little GM bondholders were “secured”. They just had “priority” that was disregarded. It was Chrysler’s secured bondholders that lost that advantage. I found on the internet a critique that goes into the different treatment of creditors: http://www.nationalaffairs.com/publications/detail/the-auto-bailout-and-the-rule-of-law

    I remain amazed that investment managers and expert advisers failed up to the collapse to admit GM’s and Chrysler’s awful problems.

    • 0 avatar
      Pch101

      We’re making progress. It took you only five years to understand that the GM bondholders were unsecured creditors.

      At this rate, I suppose that it will take you another five years to realize that the union VEBA was also an unsecured creditor.

      And it will take an additional five years after that to figure out that the cramdown statute in the bankruptcy code allows the court to not follow the absolute priority rule (which is obviously not absolute.)

      Check back in 2024. You’ll get to the truth eventually, I hope.

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