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Latest News - September 2012

September 12, 2012
Golub Says Obama Violated Bankruptcy Principle in GM Rescue
Source: SF Gate
By: Craig Trudell

Harvey Golub, the former chairman of American International Group Inc., said President Barack Obama “violated every bankruptcy principle known to man” in the rescue of General Motors Co. and Chrysler Group LLC.

“One of the major elements of a bankruptcy is that debtors similarly situated get treated the same,” Golub told Bloomberg Television’s Betty Liu on the “In the Loop” program today. “They changed the rules and bailed out the unions, not the companies.”

Criticism of the $63.4 billion bailout of GM and Chrysler has intensified because the bailout divides Obama, whose administration points to the rescues as one of its biggest successes, and Republican presidential nominee Mitt Romney, who has called the restructurings “crony capitalism” that helped union allies.

The United Auto Workers union, which represents GM and Chrysler hourly workers in the U.S., agreed in 2009 to concessions including an end to programs that paid workers indefinitely when a factory was idled and accepted cuts in GM’s contribution to their pension fund and retiree health benefits.

The union’s retiree health-care fund did get preferential treatment over other unsecured claims. Obama’s task force that managed the restructurings saw the companies needing a cooperative union to build its vehicles once they reorganized, giving workers more leverage than other claimants.

 

GM-Chrysler Haircuts

Bondholders of GM’s bankrupt predecessor stood to recover 35 cents on the dollar from claims that should have been “worthless,” Steve Rattner, who led Obama’s automotive task force, wrote in the epilogue to his 2010 book “Overhaul: An Insider’s Account of the Obama Administration’s Emergency Rescue of the Auto Industry.” The $2 billion paid for Chrysler lenders’ $6.9 billion claim was “probably double what they would have extracted from a liquidation,” he wrote.

Golub, 73, is chairman of Miller Buckfire & Co., the New York investment-banking and advisory firm that focuses on corporate restructurings. The chairman and chief executive officer of American Express Co. from 1993 to 2001, he joined AIG’s board in 2009 as the company was trying to repay its own U.S. bailout. He stepped down as AIG chairman in 2010.

 

In criticizing the government’s involvement in the GM and Chrysler restructurings, Golub said today that the companies “would have survived, they had good brands, some of them had good products, and those products would have been manufactured by someone else.”

Bush Loans

 

Initial loans to GM and Chrysler were provided by President George W. Bush’s administration, which gave $4 billion to each company in December 2008 and January 2009. Bush eventually provided $17.4 billion in aid to the automakers before Obama’s administration expanded the rescue.

Rattner wrote in a Feb. 25 op-ed in the New York Times that Obama’s automotive task force “spoke diligently to all conceivable providers of funds, and not one had the slightest interest in financing those companies on any terms.”

“Without government financing -- initiated by President George W. Bush in December 2008 -- the two companies would not have been able to pursue Chapter 11 reorganization,” Rattner wrote. “Instead they would have been forced to cease production, close their doors and lay off virtually all workers once their coffers ran dry.”

The Treasury said yesterday it has collected $35.1 billion in repayments and income from the $63.4 billion in aid that went to GM and Chrysler through the Troubled Asset Relief Program.

The U.S. still holds 500 million shares, a 32 percent stake, in Detroit-based GM. The holding was valued at $11.49 billion as of yesterday’s close. The Treasury exited its investment in Auburn Hills, Michigan-based Chrysler in June 2011.--With assistance from Zachary Tracer in New York. Editors: Jamie Butters, Dan Kraut.

 

 


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