Finding contradictions in the Obama Administration is about as shocking as finding gambling at Rick’s Café, but here is a point that I haven’t seen elsewhere.
The Administration is working hard to put 40 percent of General Motors and 55 percent of Chrysler into the hands of trust funds to provide medical benefits to retirees. As has been widely noted, these trusts will be effectively controlled by the United Auto Workers union, which will appoint half the trustees. The other half will ostensibly be “independent”. It will be an immense surprise if most or all of them don’t see eye-to-eye with the UAW, and just one will be enough to give the union appointees a majority, by the exercise of which they will be able, as a practical matter, to direct the management of both companies.
These trusts were set up some time ago in an effort to cap the auto companies’ open-ended obligation to pay for gold-plated health insurance for retired union members. The deal was that GM, Chrysler and Ford would each contribute several billion dollars but after that would have to put in nothing more. The trustees would then attempt to match benefits to the available assets.
President Obama wants to keep as much of this arrangement intact as possible, to the detriment of creditors who would ordinarily rank higher. Well, he feels empathy for elderly auto workers, I suppose, but is this cavalier attitude toward creditors’ rights necessary? The President, as he frequently tells us, intends to enact fundamental reforms that will make health care cheaper, better and more abundant. His party has the votes to muscle his program through Congress. Why, then, can’t the funding of the GM and Chrysler trusts be cut back or eliminated altogether? Is the problem that they’re designed to address so pressing that it justifies stiffing individuals and institutions that lent to the companies in good faith reliance on the legal position previously accorded to secured creditors?
There are some obvious possibilities: The President is blindly loyal to organized labor, regardless of the merits of its demands. Or he has little confidence in his own health care ideas. Or he viscerally dislikes the “creditor class”. Or perhaps a bit of all three. If anyone has a more plausible explanation, I’d be happy to hear it.
Mr. Veal:
You're entirely right in saying that the President is blindly loyal to organized labor. It is, however, important to note that UAW (notably VEBA) shares are non-voting and thus the UAW will not be running the company. Thank God- can you imagine the confusion that would cause? The UAW only knows how to torpedo a company; running one is not in their standard repertoire.
To "pbh" above:
To properly honor the contract, the bankruptcy judge would respect the capital structure wherein creditors get first pick. That is not happening; instead, the UAW is getting what rightfully ought to be the creditors in exchange for petty concessions.
-Sam Shaw
ageofpericles.blogspot.com
Posted by: Sam Shaw | Monday, June 01, 2009 at 07:01 PM
How about honoring a contract?
The creditors' lending contemplated the union's benefit package and had to assume that investment return included this expense. Or are you suggesting that the creditors were predatory lenders intending to exploit AUW members by forcing them to accept revisions in their agreements in order to disgorge potential profits against lost benefits?
Meanwhile, haven't the banks been sufficiently secured against their self destructive lending practices? Is it too much to ask that a billion or two of the trillions being spent (to rescue the banks) be set aside to secure the retirement of workers who effectively paid into the system for generations?
Are you so unreasonably anti-union that you cannot see what is appropriate in this?
Posted by: pbh | Wednesday, May 20, 2009 at 10:52 AM