"Bankrupt but not really" carmaker, General Motors, which has already likely burned thru the $13.4 billion in taxpayer money it received a couple of weeks ago, is poised to keep the fire going a whole lot longer. Both holders of over $27 billion of corporate debt, as well as the United Autoworkers Union, are aggressively taking advantage of the government's insistence that the company is too big to fail, and have decided that they are not going to negotiate the concessions needed of them. Ray Young, GM's CFO, has said the company "may not be able to secure the agreement of all bondholders for the proposed debt for equity swap." As part of the original TARP release of critical funds, the company is supposed to force bondholders to accept a 66% reduction in existing debt, which means for every dollar invested, bondholders can hope to recoup at most 33 cents. Same thing goes for the UAW, which is expected to agree to receive less than the current $70/hour all in benefits. In a brilliant demonstration of communism, the government has already demonstrated it will not let the company fail, so neither bondholders nor the UAW feel pressured by the threat of an all out bankruptcy. This game of chicken will likely last until everyone but the US taxpayer gets what they want.
All this should make for an interesting showdown between all the involved parties and the soon to be appointed car czar, Steve Rattner. In the worst kept secret on Wall Street, the head of private equity firm Quadrangle, will soon become judge, jury and executioner of the U.S. auto industry. Due to his very substantial ties to the Wall Street community it would not surprise us if he ends up siding with the likes of Bill Gross and Larry Fink who owns a huge part of GM bonds. It would be even less surprising, when one considers that Rattner's economic priorities it seems are the continuation of the current trend of taxpayer-bails-everyone-out thinking (although he does have a good point about the biggest Ponz of all time: Social Security, 1000 times bigger than Madoff). Bottom line: like a good Joker, we expect him to idly supervise the wholesale arson of much more taxpayer money. We would be happy to be proven wrong.
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