Thursday, May 28, 2009

More on that Cause and Effect Thing: As GM's Unions are Favored over Bondholders

It'd almost be worthy of a conspiracy theory concocted by Karl Rove. Did the US Government know that it would handicap companies where unions played a dominant role in their workforce? What if Obama isn't a friend of unions at all? From TheAtlantic (via Instapundit):

Schultze is quoted about lessons learned by bondholders though the automaker bankruptcies: "The obvious one is: Don't lend to a company with big legacy liabilities or demand a much higher rate of interest because you may be leapfrogged in a bankruptcy."

This strikes me as an extremely important conclusion, which is difficult to deny. Bond investors literally can't afford to lend to unionized companies because it's clear that current power in Washington will take the unions' side, despite past bankruptcy law precedents that favor senior creditors. That means Washington's actions in pushing for these bankruptcy verdicts to come out in favor of the unions will probably hurt unionized companies in the long run. As a result, it might be wise for Washington to reconsider the precedents it's setting for unionized companies undergoing bankruptcy.
Of course the simpler explanation is that for all the brilliance ascribed to the Obama Administration, this is simply a costly oversight - costly for all - unions, American taxpayers (& Canadian ones as well), and most costly for society overall, the innovators who would have fed off the carcass of a failed behemoth.

Update: On the other hand... another unintended casualty? Dead tree news (Newsosaur via Smalldeadanimals).

No comments: