David Brooks in the "Car Dealer in Chief" looks at the GM announcement but overlooks Bill Gross of PIMCO, the patron saint of free-riding bondholders everywhere.
As to the current tough talk from Washington, Brooks says this:
Today, G.M. and Chrysler have once again come up with restructuring plans. By an amazing coincidence, the plans are again insufficient. In an extremely precedented move, the Obama administration has decided that the best time for possible bankruptcy is — a few months from now. The restructuring will continue.
But this, President Obama declares, is G.M.’s last chance. Honestly. Really.
Could this really be true? Could the Harvard Business Review’s longest-running soap opera possibly be coming to an end? Could President Obama really scare the restructural recidivists in Detroit into coming up with changes big enough to do the job?
Well, the president certainly acted tough on Monday. In a show of force, he released plans from his Office of People Who Are Much Smarter Than You Are. These plans insert the government into the car business in all sorts of ways. They pick winners (new C.E.O. Fritz Henderson) and losers (Rick Wagoner). They basically send Chrysler off into the sunset. Joe Biden will be doing car commercials within weeks.
The Obama team also raised the bankruptcy specter more explicitly than ever before. Even more tellingly, the administration moved to “stand behind” the companies’ service warranties. That lays the groundwork for a bankruptcy procedure and should be a sharp shock to Detroit.
I score this as true but incomplete. The Missing Person in the GM restructuring saga is Bill Gross, money manager of the enormous and enormously influential PIMCO. Why? Bond investors, but no one else, know the story of the GMAC restructuring:
One issue of the GMAC bonds roughly doubled in price after the holding company status was approved, so every bond holder (including PIMCO investors) who played the free rider and let some one else take the haircut and exchange their bonds picked up a windfall. To paraphrase General Patton, no one ever got rich exchanging bonds for their country; you get rich making some other poor fool exchange bonds for his country.
And the point? Obama is trying to extract concessions from General Motors bondholders, all of whom know that the free riders will pick up a windfall after Obama shocks everyone by deciding not to take GM into bankruptcy. The free riders could be controlled in bankruptcy, of course, but that won't be happening. However, a lot of huffing and puffing has to take place over the next few months to scare some bond holders into submission somehow. Clearly, the ordinary Washington Kabuki won't be enough - look for Super Kabuki!
And why is this not as problem for the UAW? Finally, collective bargaining reveals its virtue - there won't be any free riders on the labor side, since the union (unions?) can enforce wage concession on their entire membership.
We wouldn't be having this problem if investors would form a union, too. Maybe that can be a new Hope and Change agenda item.
MORE: David Sanger of the Times:
And with no edge to his voice, [Obama] left hanging the threat that he might yet force G.M. into a quick, managed bankruptcy, if it was the fastest way to remake the company. That message was directed at G.M.’s reluctant bondholders, an unsubtle warning that they must negotiate to get 16 or 20 cents on the dollar — or risk getting far less.
A STEP DOWN:
I welcome current poll data, but as of 2006, Obama as Car Dealer in Chief is taking a step down in public esteem:
Let's parse the polls!
Sure, back then!