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Posted by Richard on April 29, 2009

GM = Government Motors.

I thought the Obama administration was going to recreate the bad old days of the Carter administration in the 70s. But now I'm beginning to suspect they have grander ambitions — maybe emulating the British Labour Party governments of the 50s, nationalizing major industries. They've certainly started down that road.

Like his pal, Hugo Chavez, President Obama doesn't mind screwing the existing owners and creditors of the firms he nationalizes. Especially if he can redistribute their wealth in the process.

Of course, without a government takeover, GM faces bankruptcy, so the stockholders would almost certainly get nothing in any case. But bondholders are supposed to be near the front of the line in a bankruptcy and are supposed to be treated equally, aren't they? 

Not in the Obama Plan. The numbers differ a bit from one source to another, but broadly speaking, the Obama Plan apparently divides up GM as follows: 

  • The United Auto Workers union, in exchange for its $10 billion in GM bonds, gets almost 40% of the company.
  • The U.S. government, in exchange for about $15 billion it loaned to GM, gets 50% of the company.
  • The remaining bondholders, in exchange for the $24-27 billion they loaned to GM, get just 10% of the company.

Outrageous. So will there be a public outcry from the victims? I suspect not much. Most of the people getting screwed may never realize it. They don't own GM bonds directly, they own mutual funds (probably via their 401k) that hold GM debt. The value of those mutual funds will go down without the investors really being aware of the reason, unless they pore over the annual report. 

And don't expect the media to do their usual heart-wrenching human interest stories profiling the poor pensioners, widows, and orphans who are being robbed of their savings. Most members of the media are completely infatuated with Obama, and their sympathies lie with the perpetrators of this crime, not the victims.

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