Wednesday, May 06, 2009

When Government "Rescues" The Auto Industry


There is an excellent column today in the Arizona Republic by Robert Robb. It's called The Chrysler Power Grab. Don't get confused, this is not about Chrysler grabbing power but the government using its "bailout" to benefit the union.

Mr. Robb points out that the terms that the government is forcing Chrysler to ask for are as follows:

The Obama administration is attempting to muscle past this law. Under its proposal, the health care trust of the auto workers' union, an unsecured creditor, would forgive 57 percent of what Chrysler owes it, and receive 55 percent of the company's equity in exchange. The federal government would forgive about a third of what it would loan Chrysler and receive 8 percent of the company's equity. Fiat would pay nothing for its 20 percent initial ownership.

The secured creditors, with the first claim on Chrysler's assets, were asked to forgive 70 percent of what they are owed and receive nothing in equity. When they refused and forced the company into bankruptcy, they were excoriated by Obama – a shameful act by a president who pledged to uphold the law, not make it up as he went along.

This is the equivalent of you going bankrupt and the bankruptcy court deciding to give your house to the credit card companies and telling the mortgage company to forgive 70% of your mortgage and to give up any ownership of the house. Does that make any sense? Well, it turns out the credit card companies appointed the judge...

This is why government should stay out of business.

Read the column. It's very good and kind of scary at the same time.

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