No Runny Eggs

Fox Business reports that, in the wake of the failed bonds-for-stock swap attempted by GM, they and their Treasury masters have made a second offer that cannot be refused. If and only if a sufficient number of bondholders agree to not oppose a federal/UAW takeover of GM in bankruptcy court by 5 pm Eastern Saturday, the Treasury will reward them and the current stockholders with an initial 10% stake in Government Motors and an pair of warrants to ultimately increase that stake to 25%. The US Treasury will begin with a 72.5% stake, and the UAW with a 17.5% stake, so those of you still holding GM stock will likely be wiped out entirely.

Fox Business also reports that currently, 20% of the bondholders have swallowed the pill whole. Quoting a group of bondholders that apparently are at least part of that 20%: “Since the initial offer was made on April 27th, circumstances have materially changed that make today’s offer more attractive.” Could that be related to the utter thrashing that Chrysler’s secured creditors have taken?

Summarizing from the SEC filing:

• The transfer of assets from General Motors (“Old GM”) to Government Motors (“New GM”), which will not include the $27.2 billion in bonds or most of the unsecured claims, will happen under Section 363 of the bankrupcy code.
• All but $8 billion of whatever funding the US Treasury, and possibly the Ontario and Canadian governments, has or will pour into both Old GM overall (including the $20 billion in TARP bailouts) and New GM in relation to the bankruptcy proceeding will never be paid back.
• Related to that, it is anticipated that Debtor-In-Possession financing provide by the Treasury will be in excess of $50 billion.
• In addition to the $8 billion in debt the New GM will owe to the federal government, they will owe the UAW’s VEBA $2.5 billion and “other debtors” (presumably the secured creditors) $6.5 billion.
• In addition to the 72.5% common-stock stake that the Treasury will have, they will also receive $2.5 billion in perpetual prefered stock with a 9% dividend per annum (or $225 million per year). If the Canadians participate in the DIP financing, they will get a portion of this.
• In addition to the 17.5% initial common-stock stake that the UAW’s VEBA will have, they will also receive $6.5 billion in perpetual prefered stock with a 9% dividend per annum (or $585 million per year). They will also receive a warrant to purchase an additional 2.5% (as of 12/31/2009) any time before 12/31/2015 at a cost of $1.875 billion.
• If and only if a sufficient number of bondholders, unspecified in the filing, agree to not oppose this, “Old GM” will get a 10% common-stock stake in “New GM”. If that number is not reached, the Treasury will reduce or eliminate that stake, presumably with the percentages of Treasury and UAW ownership in New GM increasing accordingly to 80.6% Treasury and 19.4% UAW in the event of a outright elimination.
• Again if and only if an unspecified number of bondholders agree to not oppose this, they will recieve a pair of warrants: one to purchase an additional 7.5% stake of New GM any time in the next 7 years for $1.125 billion and one to purchase an additional 7.5% stake any time in the next 10 years for $2.25 billion. Again, if that number is not reached, the Treasury will reduce or eliminate this program.

Revisions/extensions (6:31 pm 5/28/2009) – I might be missing something here, but there is nothing in the SEC Form 8-K linked to above that says that the bondholders themselves will get anything. The 10% initial stake in “New GM” and the pair of 7.5%-stake warrants in same go to the owners of “Old GM”.

Previously:
– GM shuts down the bondholder buyout plan
– As the wheels turn, automaker edition

Earlier, I brought you news of three Indiana government trust funds (two pension funds and a construction fund) holding senior secured Chrysler debt that had sued (unsuccessfully, at least at this point) to stop the “sale” of Chrysler to the UAW, the American and Canadian governments, and Fiat because they would get far less consideration than the junior creditor UAW. While reading through the comments at a Hot Air post on the shutdown of GM’s stock-for-bonds offer), what is happening between the UAW’s retiree health-care fund (VEBA) plan and the various pension funds (mostly for the benefit of unionized government workers) hit me like a freight train.

It’s not exactly a battle between the UAW and the government unions. Since VEBAs are not defined-benefit plans, they are not covered by the Pension Benefit Guaranty Corporation. Worse, at least from the UAW’s, and thus the Democrats’, point of view, the VEBA obligations are junior in stature.

Since GM and Chrysler are utterly incapable of meeting their full obligations to the VEBAs ($20 billion and $10.6 billion respectively), even in the event of liquidation, a pair of complicated schemes to make the UAW whole came about. In both cases, the UAW was given preferential treatment over other creditors, including creditors senior to it. What is left unreported is that many of those creditors are the aforementioned pension funds, which would be made substantially-whole by the PBGC.

As I termed it in the comments, it’s the Chicago Double-Tap. Step 1 was to screw everybody to make whole the suddenly-politically-powerful UAW. Step 2 is to make the traditionally-politically-powerful government unions that were screwed whole. Other funds, like Indiana’s road construction fund, and the various 401(k)/403(b)/IRA plans, would still be left hung out to dry. Somehow, I doubt that is an unplanned coincidence.

The first stop is at UAW Motors (formerly known as Chrysler). Reuters reports (H/T – Gabriel Malor) that a District Court case brought by three Indiana trust funds (the teachers’ union retirement fund, the police retirement fund, and a road construction fund) has been rejected, which means the sale of Chrysler to the UAW/Fiat/US government/Canadian government (technically a hearing on that sale in bankruptcy court) will go on as scheduled tomorrow. The trust funds have been arguing that the federal government does not have any authority to give funds to Chrysler to facilitate the sale, which Judge Thomas Griesa sidestepped in his denial of the motion.

The next stop is Govern…er, General Motors, and their agreement with the UAW. Reuters has a comprehensive summary of that. The Cliff’s Notes version (which assumes that GM doesn’t go into bankruptcy; more on that in a bit):

• In exchange for a $10 billion payment into the VEBA (the retiree health care fund that GM was scheduled to pay $20 billion), the UAW would get a 17.5% common-share stake (with warrants to increase it to 20%), a $6.5 billion, 9% dividend (or $585 million/year) prefered-share stake, and a $2.5 billion note (with an effective APR of 11.1%, and scheduled payments of $1.38 billion in 2013, 2015 and 2017). Previously, GM had offered a 39% common-share stake to the UAW.
• GM reacquires 5 Delphi plants in Michigan, New York and Indiana.
• GM will make its small cars at an idled UAW plant, and will reopen 3 additional assembly and 1 stamping plant if sales “beat expectations”.
• GM will offer buyouts to all its UAW-represented employees.

The $1 billion-17.5% common-share UAW stake would make the common shares worth just over $5.7 billion at issuance of that stake. Reuters notes in that summary that other creditors and the government would get the rest of the common-share stake (more on that in a bit), with no mention of the fate of the current stock. The prior reorganization plan had the government getting 55%, UAW getting 39% in exchange for the $10 billion VEBA liability, unsecured bondholders getting 10%, and the current stockholders getting 1%, with the common shares worth $25.65 billion at issuance assuming the $10 billion-39% common-share UAW stake ratio).

Assuming that the current stockholders would still get 1% of the company, their current $873.1 million net investment (down from $1.25 billion when the previous reorganization plan was announced last month) would dip to $57 million (down from $256 million in the previous reorganization plan, which was rather inflated).

Stop number three is Governme…er, General Motors and the bondholders. Reuters has the interest in the aforementioned $27 billion for 10% stake offer, which expires in a couple hours and requires a 90% acceptance level to stave off bankruptcy, at well under 10%. Meanwhile, Fox Business says that the process could run all the way through the end of the weekend and up to the June 1 GM drop-dead deadline set by the Obama administration.

The final stop is Government (screw it, it’s no longer General) Motors and the government. The New York Times reports that the new deal envisions the federal government taking 70% of the common stock, with another $70 billion-$90 billion in taxpayer money on top of the $20 billion in TARP money already “loaned” anticipated to get GM through the bankruptcy process. Remember that UAW Motors will not be paying back either the $4.3 billion in TARP money that Chrysler received or the $3.2 billion in interim government bankruptcy financing, but will be expected to pay back the $6.2 billion in post-bankruptcy taxpayer money loaned to it. Using that ratio, it looks like there’s $60 billion, give or take $10 billion, down the hole in exchange for $4 billion in Government Motors stock.

Revisions/extensions (10:15 pm 5/26/2009) – DrewM. points us to an interesting quote in The News Organization That Cannot Be Quoted’s™ story from Kip Penniman, analyst for KDP Investment Advisors:

If GM announced they got low single-digit participation, it would be a slap to GM and the absolute response to the Treasury-mandated offer. … A cynical person would say that the offer was set up to ensure GM would go into Chapter 11 and provide the government a scapegoat.

That story also notes that those bondholders with credit default swaps could make up to $2.33 billion in the event of a GM bankruptcy filing. It does not specify what percentage of bondholders has credit default swaps, but under the prior, highly-inflated plan, the at-issuance worth of the bondholders’ equity stake would have been $2.56 billion, and under the current plan (assuming they still get 10% of the equity), the at-issuance worth of that stake would be $570 million. Do remember that the paper value of those bonds is $27 billion.

Further, The Wall Street Journal reports that, unlike the Chrysler offering, the government is going to pay off the secured creditors in full, to the tune of $6 billion.

(H/T – Alamo City Pundit)

The AP reports that, fresh from a denial by bankruptcy judge Arthur Gonzalez to delay the expedited sale of portions of Chrysler to Fiat, the US and Canadian governments, and the UAW, three Indiana trust funds that held senior secured debt in Chrysler, the Indiana Major Moves Construction Fund, Indiana State Police Pension Trust (both managed by Indiana’s Treasurer, Richard Mourdock), and the Indiana State Teachers Retirement Fund will be appealing to district court to try to stop the sale and the 29-cents-on-the-dollar return for the senior secured creditors.

The Louisville Courier-Journal puts the losses suffered by the teachers’ fund at $4,600,000, the police fund at $147,000, and the road-construction fund at $896,000. The NEA, which just took over operation of the largest teachers’ union in Indiana after possible fraud committed by the union’s insurance arm, can’t be happy about that.

As a result, Treasurer Mourdock has instructed the funds run by his office to not buy any more secured debt from companies receiving federal bailout money. I guess we can now add state/local public capital to the list of capital no longer flowing to bailed-out companies.

(H/T – Hot Air Headlines via Flip)

Remember what I relayed from Dad29 in what turned out to be Part 1 of what seems to be an ongoing series? Bloomberg reports that fund managers are now wary of lending money to unionized companies with unfunded pension liabilities because of what happened at Chrysler. Quoting George Schultze, head of Schultze Asset Management, one of the last Chrysler holdouts:

Lenders will have to figure out how to price this risk. 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….

It’s terrible precedent. The sad thing is it impacts the manufacturing sector and the companies that have legacy liabilities directly. It will be nearly impossible, or much more expensive, to get secured financing for these type of companies.

I do want you to read the entire article. However, I can’t let the closing paragraph escape notice:

“People are starting to think ‘This is a very activist administration, even more than we counted on,’” said Martin Fridson, CEO of money manager Fridson Investment Advisors in New York. “If it comes down to the interest of creditors or labor unions, the administration is going to override what you thought you could do.”

What’s left of private capital for at-risk companies is about to exit stage left.

Bloomberg is reporting that the dissident senior creditors of Chrysler have caved and will not be fighting for anything more than the 29% that the Obama administration initially offered them. The quote of the day is from Tom Lauria, which was representing the group, “After a great deal of soul-searching and, quite frankly, agony, they concluded they just don’t have critical mass to withstand the enormous pressure and machinery of the U.S. government.”

In fact, since the purchase price from Fiat is $2 billion, and the various bankruptcy fees will come out of that, they’re taking an even bigger haircut.

The Chicago Way has come to Wall Street.

(H/T – Brian)

I know I’m playing catch-up because I still have essentially no energy (no, it’s not the swine flu, or any other flu; it’s the start of Allergy Season), but CNN reported yesterday that the $4 billion bridge loan from TARP, the $300 million fee on that loan, and the $3.2 billion in bankruptcy financing provided to Chrysler UAW Motors will not be paid back, though the Treasury might be getting a portion of the liquidation of Chrysler Financial. Let’s see – that’s $7.5 billion for 8% of UAW Motors/”New Chrysler”. Brilliant!

The CNN story does note that the $4.7 billion in taxpayer funds that will go to “New Chrysler” upon it emerging from bankruptcy, as well as an additional $1.5 billion likely to be loaned to it in mid-2010, will be of the secured credit variety, and will be expected to be paid back.

One more item to consider – the 55% stake the UAW would hold in “New Chrysler” is expected to be turned into cash sooner rather than later. That is supposedly valued at $4.2 billion, with apparently no shareholder voting rights beyond a single seat on the board of directors. One of the many bankruptcy documents states that Fiat will be able to get 40% of that. Somehow, I doubt they’ll pay $1.68 billion (40% of $4.2 billion) for that non-voting share, or any entity other than your federal government will come up with the $2.52 billion for the other 60% (or that plus the shortfall between Fiat’s offer and the $1.68 billion) to make the UAW whole.

As a side note; none of the bankruptcy filings appear to address who initially holds the 15% interest in “New Chrysler” that Fiat can “earn” by meeting three metrics (in 5-percent chunks): introducing a 40-mpg Chrysler made in the US, creating a “fuel-efficient” engine family made in the US, and opening up Fiat’s worldwide distribution network to the Chrysler brand. They do note, however, that separate of the Fiat-UAW VEBA buyout agreement mentioned above, Fiat can increase its total stake in “New Chrysler” to 51%, apparently by an issuance of addtional shares.

Revisons/extensions (8:04 pm 5/7/2009) – (H/T – Jim Geraghty) ProPublica reminds us that $1.5 billion went down the black hole known as Chrysler Finance, which will not be part of “New Chrysler”. That puts the grand total between $9 billion and $9.2 billion (depending on whose numbers for what got sent down the black hole so far one believes).

One bit of a positive – I do expect a rather high dividend to be paid on the government/UAW shares, even higher than what is normally paid on non-voting shares. Still, I expect a very poor rate of return on that $9 billion wasted on Chrysler, even if they don’t ultimately go Tango Uniform.

(H/T – DrewM., and I highly recommend reading the comments, at least if you are able to handle AoSHQ-standard NSFW language)

Bloomberg reports that the United Auto Workers are poised to accept a new contract that gives them a 55% stake in Chrysler, LLC. It also reports that Italy’s Fiat will initially get a 20% stake, which may increase to 35% if certain performance goals are hit, and that the Treasury Department will retain the other 10%.

The story, and others on the web, don’t mention where the 15% that may go to Fiat will be held initially, but I presume it will be the Treasury. Somehow, I doubt the Ram and Dakota pickups or most of the Jeep lineup surviving will be part of the conditions set by the Obama administration.

The UAW portion is a bit complicated. Chrysler is obligated to put $10.6 billion into VEBA, the union-run retiree health care plan. In exchange for $8.8 billion, Chrysler will give UAW said 55% stake, valued at $4.2 billion, and put in a $4.59 billion promissory note, to be paid off in installments until 2023 at a 9% annual interest rate.

That brings up the same question that I had yesterday with General Government Motors – what happens when it’s time to convert that 55% stake into cash? With most of the VEBA funding to be paid later, I expect that to happen sooner rather than later, sooner even than at GM. The Bloomberg story notes that, if the UAW manages to get more than $4.2 billion for its full 55% stake, the Treasury will get the difference. That begs the question of what happens in the likelier eventuality that the UAW doesn’t get $4.2 billion. Will the Treasury we the taxpayers pony up that difference?

Related to that, the Washington Post notes at the end of its story that one of the key players in the Obama auto task force that has come up with both the union-owned Chrysler and government-owned GM is Ron Bloom. Bloom was instrumental in creating the employee-owned United Airlines. The Post notes that didn’t exactly work.

One more item – The News Organization That Cannot Be Quoted™ (that would be the Associated Press for those just tuning in) reports that the biggest of Chrysler’s secured creditors, representing 70% of the secured debt, including JPMorgan, Citibank Chase, Goldman Sachs and Morgan Stanley, have reached a deal with the Treasury to, if all 46 secured creditors sign on, take $2 billion in cash to retire the $6.9 billion in secured debt they hold. I note that those 4 banks are among the 19 undergoing the TARP “stress tests”, and I wonder if the hold the Obama administration has on them had anything to do with them swallowing the 71% haircut the Treasury is demanding. After all, as secured creditors, they get paid first in the event of Chrysler’s liquidation, and it is likely that they would do far better than $2 billion.

Revisions/extensions (8:13 pm 4/29/2009, involves a major ReWrite™ of the first R&E after reviewing the WaPo item) – The Washington Post reports (H/T – Dad29) that, in the now-likely event of a bankruptcy, the final US Treasury stake would be only 8%, with the Canadian government owning 2%. The hedge funds which own Chrysler secured debt are resisting the cramdown because a recent Standard&Poor’s analysis of it reveals that what the Treasury is offering is at the bottom end of what they could recover in a bankruptcy.

That is a risky proposition because a bankruptcy judge could force the cramdown down the funds’ throats. I’m sure that the Treasury knows precisely which judge will get the case, and how that judge will act.

In case you missed all the news about General Government Motors yesterday, let’s recap (courtesy Investor’s Business Daily):

• GM will drop Pontiac as a brand, 8,000 jobs, and 2,600 dealerships by next year. I suppose the good news is the performance division won’t be stuck trying to sell the Pelosi GTxi SS/Rt Sport Edition (© Iowahawk)
• GM is asking bondholders who hold $27 billion in GM debt to swap their notes for stock to the tune of 225 shares per $1,000 owed, or $4.44 per share. That is just over twice what the stock is trading at now, which represents something less than 50 cents on the dollar for the bondholders, and if math I’ve seen elsewhere is right, would represent roughly 10% of the stock.
• GM wants the United States Treasury to take a majority of common stock in exchange for forgiving $10 billion in debt. Also, they want the UAW to take 39% of the common stock in lieu of cash for $10 billion in retiree health care payments.

That leaves the current stockholders with 1% of the company. If you’re confused, join the club headed by Larry Kudlow.

Jimmie over at The Sundries Shack explains that it is all payback. He pulled a post from QandO from the memory vault that unspun a Los Angeles Times article attempting to pin the Congressional failure of the Big 3 UAW bailout on those eeeeeeeeeeevil Republicans. Not only have contributions from the UAW dwarfed those from the Big Three over the last 4 election cycles, and not only have those UAW contributions gone to the Democrats by a 99-1 ratio over each of those 4 cycles, but the Big Three donated mostly to Democrats last time around.

One more thing; the editorial gang at IBD noted that the UAW Jobs Bank, unlike the power of current GM stockholders and the value of the debt held by GM’s creditors, is going nowhere.

Revisions/extensions (7:51 am 4/28/2009) – Let’s do some math, using the assumption that the $10 billion-for-39%-of-the-common-stock the UAW is getting is a pure 1-1 deal. Of course, it is a very dangerous assumption because the market capitalization of GM is only $1.25 billion. That would put the new “market capitalization” at a tick below $25.65 billion. Assuming things don’t crater at the “new” GM (do remember, however, that assumption is the mother of all fuck-ups), we can use that to determine how badly the bondholders and stockholders get the shaft here:

– Ignoring the effect of the remainder of the loans, the $10 billion the government will spend to run General Government Motors would be worth $12.82 billion. Of course, there’s the “slight” matter of paying back the other $17 billion that GM is borowing/wants to borrow.
– The $27 billion the bondholders would pay to get 10% of GM would turn into a $2.56 billion “investment”. That’s a haircut of over 90%.
– The $1.25 billion the market has invested in GM suddenly turns into $256 million, or a haircut of just under 80%.

If I were one of the bondholders, I’d hold out for bankruptcy. That notes-for-stock plan won’t happen unless almost all of the bondholders agree.

R&E part 2 (10:12 am 4/28/2009) – Ed Morrissey has more on this effect.

There’s also a couple questions I don’t really want to consider because they are just too ugly:

– Who is going to buy the UAW 39% to convert those shares into cash? Do remember that the 39% is taking the place of $10 billion that was supposed to go into the retiree health fund, and I doubt that the dividends will make up for that lost cash.
– What happens when (not if) the market decides that Government Motors isn’t worth $25.65 billion?

R&E part 3 (10:38 am 4/28/2009) – The Washington Post has a few more details:

– The Obama administration is claiming they won’t use their majority position to run the company. Of course, when they had but 35% of the debt, they demanded the firing of former CEO Rick Wagoner and a reconstituting of the board of directors. As Jim Geraghty says, “All of Barack Obama’s statements come with an expiration date. All of them.”

– Related to that control, it was the Treasury that formally limited the bondholders to 10% in the new company.

– While GM bonds are currently trading in the $0.08-$0.13 on the dollar range, financial experts are expecting a return of 0%-5% for bondholders who take shares of common stock. That goes to the questions I had earlier, because that would represent a halving of the nominal “market cap” based on the UAW obligation-for-stock deal.

Those of us who at a minimum had severe reservations about TARP and at a maximum opposed it are being proven right about our concerns. Where, oh where to begin.

I’ll start with the news that I first heard Saturday and posted through the Emergency Blogging System now that I found a link – Bloomberg reports that the Treasury will be hanging onto their stock warrants after the TARP loans are repaid and the prefered stock the Treasury received as part of the package is bought back, only releasing the warrants after a further negotiated settlement.

Item #2 – Fox Business reports that Treasury officials are considering converting the the aforementioned prefered stock into common stock, complete with voting rights. In several instances, that would make the government the largest voting shareholder.

Item #3 (H/T – Legal Insurrection) – The Financial Times reports that repayment would be accepted only if it were in the “national economic interest”. That’s right; banks that have the money to pay back the loans and pass the “stress test” may not be allowed to pay back the government.

I’m just waiting for the booming voice that is in the Grand Finale of Rush’s “2112” to announce, “Attention all banks of the United States of America. We have assumed control. We have assumed control. We have assumed control.”

Goldman Sachs said on Monday, in the wake of its $1.8 billion first-quarter profit, that it was looking to have a stock offering of $5 billion in order to repay its $10 billion loan. Tuesday, a rift developed between Rep. Barney Frank (D-MA) and the Obama administration, as the former welcomed the repayment development. The administration, on the other hand, claims to want to not “stigmatize” those still on the TARP.

As a guest on “Your World with Neil Cavuto” pointed out yesterday, the more-likely reason is the Obama adminstration would rather keep control. After all, he who doles out the gold makes the rules.

The comments timed out back at Sister Toldjah, so I’m bringing the entire post here and moving it to the top. The placeholder I had up since April 6 is below the fold.

(H/T – Lawhawk)

Back at my regular home, both my co-blogger Shoebox and I have been monitoring attempts, some successful, others not, by banks to get out from under the Troubled Assets Relief Program. In today’s Wall Street Journal, Stuart Varney relates the story of a larger bank that was forced to take TARP money:

Here’s a true story first reported by my Fox News colleague Andrew Napolitano (with the names and some details obscured to prevent retaliation). Under the Bush team a prominent and profitable bank, under threat of a damaging public audit, was forced to accept less than $1 billion of TARP money. The government insisted on buying a new class of preferred stock which gave it a tiny, minority position. The money flowed to the bank. Arguably, back then, the Bush administration was acting for purely economic reasons. It wanted to recapitalize the banks to halt a financial panic.

Fast forward to today, and that same bank is begging to give the money back. The chairman offers to write a check, now, with interest. He’s been sitting on the cash for months and has felt the dead hand of government threatening to run his business and dictate pay scales. He sees the writing on the wall and he wants out. But the Obama team says no, since unlike the smaller banks that gave their TARP money back, this bank is far more prominent. The bank has also been threatened with “adverse” consequences if its chairman persists. That’s politics talking, not economics.

Why can’t this bank do what some tiny banks that received TARP money have done? Varney answer that with three words – “Control. Direct. Command.” He points to the Pay for Performance Act, which many have seen as merely a ceiling on pay at any company that has so much as a dime of TARP money. Given the Democrats’ support for a “living wage”, I see that as a vehicle for raising the minimum wage by means other than legislation. After all, if the biggest banks are forced to pay a large sum of money for entry-level tellers, that will force the smaller banks and other businesses that offer entry-level jobs to follow suit.

(more…)

In case you’ve been under a rock, the nationalization of the auto industry continues unabated as the Obama administration forced out Rick Wagoner as CEO of General Motors. I snatched the following reasons for that ouster out of the ether:

8. Obama wanted to be the official car company of the official team of HenCAR.

7. Queen was right; he wants it all and he wants it now.

6. Maybe the Swedes will listen to the Feds better than they listened to Wagoner.

5. Not enough kickbacks to the more-liberal half of the bipartisan Party-In-Government under Wagoner.

4. The GM plan was insufficiently French.

3. Obama liked The Beast so much, he decided to buy seize the company.

2. GM refused to make the Pelosi GTxi SS/Rt Sport Edition (© Iowahawk, and don’t forget it)

1. Only government can be allowed to not have a plan.

(H/T – Tom Maguire at JustOneMinute via Dad29)

The Washington Post did some actual journalism the other day, and took a look at AIG’s Financial Products subsidiary. Allow me to highlight a couple of key paragraphs from the story, written by Brady Dennis:

The handful of souls who championed the firm’s now-infamous credit-default swaps are, by nearly every account, long since departed. Those left behind to clean up the mess, the majority of whom never lost a dime for AIG, now feel they have been sold out by their Congress and their president….

They say what is missing from this week’s hysteria is perspective. The very handsome retention payments they received over the past week were set in motion early last year when the firm’s former president, Joe Cassano, was on his way out the door. Financial Products was already running into trouble on its risky credit bets, and the year ahead looked grim. People were weighing offers from other firms, and AIG executives feared that too many departures could lead to disaster.

So AIG stepped in with an offer to employees of Financial Products. Work through all of 2008, and you’d get a lump payment in March 2009. Stick around through 2009, and you’ll get paid through 2010. Almost all other forms of compensation — bonuses, deferred payments and the like — have vanished….

In actuality, (chief operating officer Gerry Pasciucco) said, nearly all the troublesome sectors of the business — namely, the risky credit derivatives written on mortgage-backed securities — are now out of the equation, as are the people who worked on them. That leaves a small number of employees to untangle the remaining trades in four main areas: commodities, interest rates, currency and equities — most of which were fully hedged and have caused little problem. The effort also requires a sizable number of “back office” staff, such as systems, computing, accounting, human resources and legal teams.

Of course, you won’t hear those little tidbits from the thundering herd bound and determined to use this for their own political and socioeconomic ends. For those that can comprehend what the WaPo said, you can leave now and report to the JustOneMinute thread. For those that need a shorter and far-more-vulgar explanation, please flip to page 2.

The title should give you a clue as to my thoughts on the calls for the feds to seize the $165 million in bonuses that certain AIG executives are due. Unless there’s a better reason than political expediency, those bonuses need to be paid out to preserve the sanctity of the contract, which is an underpinning of capitalism.

Now, what those executives do with the bonus is another matter. Mitt Romney made the point that they could voluntarily forego the bonuses by relating a similar situation he worked out at Bain & Co. Fausta Wertz, as part of a poll attached to a longer piece, suggested splitting the bonuses with the workers.

Of course, we shouldn’t lose sight of the bigger picture. The Wall Street Journal’s editorial board unleashed a rather devastating broadside. Oh, where do I begin? There’s the $20 billion from the feds through AIG to European banks (somewhere north of an order of magnitude bigger than the bonuses, and no known legal obligation to pay off the Europeans), the regulatory EPIC FAIL that led to AIG’s collapse, the role Elliot “Client #9” Spitzer played, and CEO Ed Liddy’s desperate attempt to remain firmly attached to the government teat.

Revisions/extensions (8:01 am 3/17/2009) – Ed Morrissey makes the same point a lot more coherently. He includes another kicker – the Obama administration could have let AIG lapse into bankruptcy, which would have voided the contracts that specified the payouts.

In case you haven’t heard, General Motors has requested another $16.6 billion in federal “loans” taxpayer subsidies after burning through its initial $13.4 billion in bailout money. My math says that is $30 billion, which doesn’t include all the billions that GM got for “clean car” research, or its share of $15 billion given by the feds taxpayers to it and the other members of the not-so-Big 3 for plant modernization.

Why is that $30 billion significant? Dave Schuler over at The Glittering Eye (H/T – Doug Mataconis) points out that the value of GM’s assets is roughly $30 billion. That’s right, sports fans. when GM gets its additional bailout money, it will owe the federal government its gross liquidation value. That does not account for GM’s liabilities or the fact that, in a liquidation, the liquidated company does not get its full value.

Given the speed with which GM burned through its initial $13.4 billion from the feds the taxpayers, they’ll be through the next $16.4 billion by summer. Then what? At that point, they’ll owe more to just the feds taxpayers than they can get by going through Chapter 7 bankruptcy liquidation. Do we say at that time, “Okay, we’re in for a pound, we’re in for the ton?” GM won’t even begin to repay the loans until 2012.

Do we say at that time, “Enough! Sink or swim?” Since former Treasury Secretary Henry Paulson put the feds at the front of the line in the event of liquidation, and since I expect current Treasury Secretary and Paulson acolyte Timothy Geithner to do the same, that would mean none of GM’s other creditors would get paid. Care to guess what would happen to them?

As painful as it may seem, now is the perfect time to tell GM to sleep with the fishes. We don’t have the money to burn (thank you, Obama and the Spendocrats), and at least some of the GM liquidation would make it to its other creditors.