Golub Says Obama Violated Bankruptcy Principle in GM Aid
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. (GM) 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 automotive restructurings saw the companies needing a cooperative union to build its vehicles once they reorganized, giving workers more leverage than other claimants.
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. (AXP) from 1993 to 2001, he joined AIG (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.
The U.S. committed $182.3 billion to New York-based AIG in a bailout that began during 2008’s worldwide credit crunch. The U.S.’s AIG stake fell to about 16 percent from 53 percent through a sale of the insurer’s stock that would raise $20.7 billion, the Treasury Department said yesterday.
The U.S. has recovered its full commitment to AIG under the bailout after Treasury’s latest sale with a profit. The profit includes results from the Federal Reserve portion of the rescue, such as a credit line and the purchase of mortgage-linked securities.
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.”
U.S. Bankruptcy Judge Robert Gerber in July 2009 approved of the sale by GM’s predecessor to a U.S. Treasury-funded buyer, writing in an 87-page opinion: “As nobody can seriously dispute, the only alternative to an immediate sale is liquidation.” He largely followed the ruling of his then- counterpart on the Manhattan court Arthur Gonzalez, who approved of the sale that formed Chrysler.
Chrysler’s bankrupt predecessor “was faced with either accepting the Fiat Transaction or liquidating,” Gonzalez wrote in his 47-page ruling in May 2009.
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.”
GM earned record full-year net income of $9.19 billion last year while surpassing Toyota Motor Corp. (7203) as the world’s top- selling automaker. Chrysler said in July that it plans to raise its full-year profit outlook from $1.5 billion after the company gives third-quarter results. The Auburn Hills, Michigan-based automaker has reported $909 million net income in 2012’s first half.
Since bankruptcy, Detroit-based GM has announced more than $7.3 billion of investments for U.S. factories that retain or create 18,600 jobs. Chrysler has said it has added almost 4,000 hourly jobs in the U.S. since the company was formed in June 2009 under the control of Italian automaker Fiat SpA. (F)
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 GM. The holding was valued at $11.6 billion as of today’s close. The shares rose 0.7 percent today to $23.13.
The Treasury exited its investment in Chrysler in June 2011.
The auto bailouts have returned to the spotlight ahead of the November presidential election. GM and Chrysler were “literally on the verge of liquidation,” Vice President Joe Biden said in his speech to the Democratic National Convention this month. He repeated an Obama campaign mantra: “Osama bin Laden is dead, and General Motors is alive.”
Romney said on NBC’s “Meet the Press” during a Sept. 9 interview that GM should have gone into bankruptcy earlier, and suggested that the president resisted putting the company through that process at a cost to the U.S. of $20 billion.
“I said, ‘Let them go into bankruptcy. Help them come out. But let them go in,’” Romney said. “And I don’t think most Americans know that GM went bankrupt. That they did go bankrupt. The president put them into bankruptcy. And he finally did what I also thought was the right thing to do.”
The suggestion that Obama’s task force held up GM going into bankruptcy was “ludicrous,” Rattner told the Detroit News in a story published Sept. 10. GM “had refused to prepare” for a bankruptcy and the filing was done as soon as possible, he said.
Public support for the government rescue of GM and Chrysler has increased since 2009. A Pew Research Center survey in February found that 56 percent of Americans saw the loans to GM and Chrysler as “mostly good” for the economy, up from 37 percent in October 2009.
“‘I think there’s a good chance that Governor Romney will win by 5 or 6 points and have an effective mandate,” he said.
To contact the reporter on this story: Craig Trudell in Southfield, Michigan at email@example.com