General Motors Bond Holders Prepare For War
On the day that Chrysler LLC filed for bankruptcy in New York courts President Obama blamed ’speculators, hedge funds, and others’ for what he called ‘holding out for an undue profit’.
Why this was ridiculous is that bankruptcy contract law states that bond holders are first in the food chain to receive compensation for the notes they own. That is why companies sell bonds in the first place, to build capital and the investor, under contract law, has first claims on reimbursement should the company end up in bankruptcy.
When Chrysler filed for bankruptcy President Obama attempted to capitalize on the ignorance of the American people who don’t understand what bond holders are, or even what the law says. Instead the President attempted to paint an image of these bond holders as greedy hedge funds who were out to make a killing and only thinking of themselves. An insult to the bond holders and an insult to anyone who really knows what should happen in bankruptcy filings.
Under the threat of retaliation by the Government, bond holders caved in and took substantial losses on what they were owed had the contract law been followed. President Obama and the auto task force went around the law and then blamed those who were ‘following the law’ with being speculators and greedy.
Now comes General Motors, only one week remains for General Motors to restructure or face bankruptcy. And the same issue that faced Chrysler will now face GM, but this time the amount of dollars tied up in bonds is much higher than was at issue with Chrysler.
Bill Zastrow fears he’s about to lose $240,000 he put into General Motors bonds to finance his kids’ educations, and he puts lots of blame on one man: Barack Obama.
“GM bondholders are not speculators as President Obama calls us,†said Zastrow, the 58-year-old president of Millbury’s FileMark Corp. “We’re talking about people’s retirement funds and education funds. These aren’t derivatives or anything like that.â€
As GM approaches a government-mandated June 1 deadline to either reorganize or file for bankruptcy, Zastrow and other small investors have formed “GM Main Street Bondholders†to call attention to their plight.
The group believes a GM bankruptcy or last-ditch reorganization plan will give them no more than 4 cents on the dollar – and possibly nothing – for their bonds.
A White House proposal to keep the automaker out of bankruptcy calls for investors to share a 10 percent stake in a reorganized GM to cover their $27 billion of bonds.
However, the government would get 51 percent to repay $10 billion of bailout funds, while the United Auto Workers union would receive 39 percent for sacrificing $10 billion in retiree benefits.
“It’s a rip-off,†Zastrow said. “The government and the UAW will get the lion’s share of the company, but give up only a small amount of debt.â€
The investor sees the government’s plan as “political payoff†to the UAW for supporting Obama’s 2008 election campaign.
Zastrow also believe the administration wants to retain government stakes in GM and struggling automaker Chrysler to force Detroit to make ecofriendly cars.
Four Republican lawmakers have taken up the bondholders’ cause after Zastrow and other investors traveled to Washington last week to press their case.
“In the name of restructuring General Motors, the (administration has) begun waging what some believe amounts to a war on capital,†the lawmakers wrote in a letter to Obama officials. “Contractual rights of investors are being trampled.â€[...] Source
So will the Obama administration break contract law once again and then blame the bankruptcy of General Motors on those individuals and corporations who are legally in their right to claim full due process?
I think it was very clear why the deadlines for Chrysler and General Motors were spread apart the way they were. Chrysler was a ‘test’ for the big one which is GM. So if the administration follows in the same steps as their Chrysler proceedings then it is probably safe to say that GM bond holders will end up with little or nothing, even though they have legal contracts that entitles them to be first in line for reimbursement.
IF GM does fall the same way as Chrysler, and bond holders end up getting shafted yet again one has to ponder what this will mean for any company in the future who needs to sell bonds. Who will want to buy them if the Government can overstep the law and make their certificates worthless? The president may be playing on ‘public’ anger against anything Wall Street just to place blame for the bankruptcies solely on them. What a shame that most Americans don’t understand what the law is in this matter, and that the President makes those who “play by the rules” look bad… and give money to those who have constantly “played with fire” and got burned.
Chuck, we fall back into the Chrysler discussion…
At a certain point, a government is bound to follow the Common Good beyond what might or might not please individual investors. Too bad for the guy who put all of his savings into bonds and into bonds of only one company. “Too stupid to complain” would be the formula for him.
Beyond this, I would rather redistribute money towards the laid-off workers than towards the investors. The first are going to have much more difficulty in bouncing than guys losing their savings. And investors always take a risk, no matter how small it may be.
Is this not a way of pointing out the shortcomings of the US system as far as pensions and healthcare goes?
It would maybe be the time to question your policies in depth and move towards a State-ruled insurance scheme.
I sure don’t approve of the bailouts distributed to all the banks and various firms… But when restructuring wasn’t done at a time where it would have been much less painful, it is the Government’s responsibility to ensure that its consequences be the less painful possible on the economy at large. And on particular individuals.
And Chuck, it may also be the case of looking at the “Macro” image instead of the “Micro” image…
Now, this being said, I never understood why unionized guys are being privilegied over the “free” workers. In that, the US is probably a worst “socialist” than continental Europe, with its own social protection for every worker.
Hello free mind,
The government is sending a very strong message to the American people. If you lend your hard earned money to any U.S.company, we (the government) will change any and all the rules so that you cannot receive your money back. In spite of the contracts that were signed.
This is not good. U.S. companies are going to find it much more expensive to get money. Prices of their products will increase, and you will eventually pay for breaking of contract law by our elected “leaders”.
I trust the free markets vs. any government on the planet.
Free Mind, what redistributors would you recommend for US –mabe some of the recently famous from UK -or maybe you know even better ones…
Mr. Zastrow invested $240,000 in General Motors. The same General Motors that was losing billions of dollars before President Obama was elected. Violation of contract law is one thing, but maybe Mr. Zastrow wouldn’t be so upset if he had instead invested in Microsoft, or anything with a sound business model.
“the common good”…a term used frequently in Communist countries to justify stealing, fraud, murder, and other useful actions taken by a corrupt state machine.
Washington is out of control. Charles was right to uphold the law as it is guaranteed US citizens in the Constitution. This was a courageous posting.
Regarding this:
“The group believes a GM bankruptcy or last-ditch reorganization plan will give them no more than 4 cents on the dollar – and possibly nothing – for their bonds.”
Wasn’t the conservative/free market plan to have no government bailout last fall. Had that happened, GM would already be in bankruptcy. And without the Government to provide DIP financing, it likely would have been a liquidation, rather than a reorganization. Would these unhappy bond holders have been better off under that scenario?
What I’m really asking is this: Are they unhappy because they didn’t get a free market/legal outcome, or are they unhappy because they didn’t get a bigger share of a government handout (that probably shouldn’t have happened at all)?
The message is simple. Do not lend money to companies that have a Union. Large bond fund managers have publicly said something similar to this. Bankrupcy laws will not apply if a large Union is envolved. Also banks have taken notice that secured loans will not matter. The end result will be a higher cost of capital for these companies. Ford bonds …..anyone ?
So let’s see… the federal government invested about 3/4 of what bondholders invested, and they’re getting seven times as much of the new stock. The UAW is getting 1.5 times as much stock as the bondholders, in lieu of payments that again amount to about 3/4 of what bondholders invested. It’s robbery, straight up.
What people like “Free Mind” fail to understand is that the “Common Good” (if that has any meaning, besides the amorphous definition politicians use to justify their crimes) is not served by theft. Believe it or not, most people actually EARN their money, so when he supports a politician’s efforts to “redistribute” wealth, he’s giving leave for the state to give the produce of one person’s labor to another. That’s not outright slavery, but it’s a difference in degree, not in kind. Bill Zastrow didn’t work for years to pay for health care for the UAW, he did it for his family’s future. In a real bankruptcy, yes, he’d lose money, which is justice if he made a bad investment; but now he’s losing much MORE money because people like “Free Mind” vote for criminals.
The large bond fund managers are right that they should not buy any bond that involves union. Any hard working American will soon realize that investing in any U.S. government bond is very risky too. Wait a minute, I thought I invested in AAA securities but now you are telling me that the triple A securities has turn into double A securities. This is what the fed is trying to do, buying all those toxic asset and mortgage backed securities. One can never know when the government is going to change the rules. Once rules/laws of game change, trust/confidence is gone. This trust/confidence is backbone of our financial market. It takes 150 years for our country to build the trust and it only take about three months for this administration to destroy all that. I am just dumbstruck that a Harvard educated President would be so short-sighted. Talk about change, is this the change we need.
I completely agree with this post. I am a former gm engineer and a current lawyer. Not to mention my father put 20 years of his life and his entire engineering career plus signing a covenant not to compete when he retired into GM in order to retire with a pension and healthcare that is/was (depending on when you read this) funded in major part BY GM CORPORATE BONDS. so, exactly what did my DEEPLY MIDDLE CLASS father do to deserve having his pension and his healthcare fund destroyed (along with 30,000 other niddle-class retirees)? if the bonds are relegated to worthlss and my father and the 30,000 other retirees get their fund raided, then 30,000 new people just signed up for an overttaxed social security and medicare system that can’t handle them already and if there is ANY justice in the world all 30,000 will file suit against the auto task force that same day and I swear to god if I have to do it, I will. Because truthfully, what really pisses me off is that each and every contract signed by each and every retiree stating that they would get a pension and healthcare if they stayed with GM for 20+ yrs. is now meaningless. These people put their LIFE into this corporation, and they are being slaughtered in the press and by the government. My father was a technical advisor at GM is now being called greedy because he wants his 60,000/yr that was promised him. This isn’t right. It sure isn’t legal nor is it constitutional. Where is the big law firm jumping on this super win-able case? mandi
Transfer of wealth without due process is robbery. Obama my be popular but popularity does not entitle the government to steal from people like Zastrow. Zastrow’s education savings has been transferred to people who did not earn it, what law permits this?
I’m a disabled 82 years old, I worked my whole life to put together money for my retirement; my two sons died in an stupid war sponsored by the american government, now I’m alone, I worked very hard and paid taxes for every one of those dollars.
Now I live in a mobile home, that’s all I can afford, and thanks God found a wonderful (illegal alien) lady that comes for a few hours every day, and for very little money takes care of me, she cooks, cleans and helps me to take a bath and dress every day; thanks God again for her, but I think that I’m no longer able to afford even her, who nows if I’ll be even able to buy food though.
I made a mistake and belived in the american enterprise, our contry, our economy, and a several years ago bought GM bonds, not Toyota or Honda or any other foreign company, and now this bunch of ruthless vultures just want to rob me that money, my only mean to survive.. and you are calling me GREEDY…
There are several words to describe the kind of person that you and all those guys are… and I only hope that one day, when all you are old, feeble and helpless, you face the same. Now my only hope is to beg for the government help, what a shame, I worked a whole life to be self sufficient, achieved it, and now thanks them I’m a begger. And the worst of it is that I’m not alone in this.
I hope that every dollar that those high executives, and government officials spend in their life of luxury, becomes ten time the acumulated sorrow of all those that are suffering, and for all the grief they have caused and still causing. so Help us God.
Albert,
I am with you. I have written extensively here on my site that the ‘rule of law’ should be followed and that means bond holders should be treated fairly and by the rules.
I am against those who try to circumvent the process and place the bond holders at the bottom of the pile for political agendas. I sincerely hope that the GM bonds you hold will get treated fairly and justly. God bless you my friend.
Having recently retired at the age of 82, because of a service incurred medical problem, I expected that I and my wife would be able to exist on the earnings of my conservative purchases, including General Motors bonds. As a former economist, teacher and Wharton graduate I always believed in a diverse portfolio chiefly big board stocks and conservative bonds. It was good advise, sound economic training and a self-defensive portfolio my wife and I achieved. Having been trained and believing that the bond holders stand first in line for reimbursement, without the risks of stock holding, the entire concept has been violated. To be called “greedy” for sticking to the rules and expecting the bonds to be honored is insulting.Let us hope bond holders will fight this flagrant violation of contract law.
While not a straightjacket, bankruptcy does have rules that are not being followed here. Irrespective of the long term effects of its actions, the administration should be concerned about following the law. Subordinating the debt of secured bondholders to that held by the union is both unfair and contrary to the law. There is nothing in the bankruptcy law that provides exceptions for when the federal government involves itself in the process.
A more accurate statement of the issue here might be: Does political influence override the rule of law? Sadly, the answer is yes.
It is nice see that enemys in foreing countries are being read their rights. It appears that Gm Bond Holders do not have any rights.The UAW gave a huge amount of campain donations to the right people. They are currently getting a large return on their investment.Who was that guy giving speechs about the rule of law and shared sacrafice?He wanted no lobbyists in Washington. Is the UAW considered a lobbyist ?
Obamma’s Administration and or the President himself have not only violated contract law for which he/they are immune; he/they VIOLATED CRIMINAL LAW, FOR WHICH THERE IS NO IMMUNITY!
ON 10/27/09 i ASKED IF THERE HAD BEEN A CALL FOR THE APPOINTMENT OF AN INDEPENDENT COUNSEL, USING MY REAL NAME. This regarded the wasting of assets to pay unsecurred creditors before the paying of secured creditors (bondholders). My informant is a 96 yr old who never made more than 34K$/year and who lost 50K$+int.through what appears to be Bankruptcy Fraud. That used to be a 5 year term in the “big house” (prison). (Probation with restitution as a condition(no tax-payer funds)is O.K. ON 12/24-25/09 after services I met an IUE laid off GM worker who was lamenting that the UAW got health care benefits for his union were zero as opposed to the UAW benefits–supporing the above writers’ comments about a pay off for UAW political support.
I agree with all of the previous writers critical of the GM Bankruptcy Conspiracy; But Forget about Contract Law violations, there is immunity-LOOK AT THE CRIMINAL LAW VIOLATIONS, with more victims and more than $50K+INTEREST for my victim, the penalties could rise to hundreds of years in prison. I can take a hard line because my bride’s ashes have been delivered to Lake Tahoe and my place in the drawer is ready. So, it may be easier for me to say “QUIT whineing AND GET GUTS!” INVEST IN FIREARMS & ANMMUNITION. When this message reaches greater circulation, I expect that someone will try to kill me. No rights reserved for republication, as long as my name IS mentioned. GOD SAVE AMERICA, AND PROTECT US FROM SLAVERY!