Obama broke bankruptcy principles in GM bailout, says ex-AIG chairman

Article by Anita Panait, on September 14, 2012

Former chairman of American International Group Inc., Harvey Golub, accused President Barack Obama of violating “every bankruptcy principle known to man” in the financial bailout of carmakers General Motors Co. and Chrysler Group LLC. In an interview with Bloomberg Television’s Betty Liu during the “In the Loop” program, Golub noted that one of the major elements of a bankruptcy is that similarly situated debtors get the same treatment, quipping that rules were changed as it was the unions, not the companies, who were rescued.

The $63.4 billion bailout of GM and Chrysler has become one of the major issues discussed nowadays in the United States; especially that it is the center of debate for the two protagonists at the upcoming presidential election.

While the Obama administration considers the bailout as one of its biggest successes; his election rival Mitt Romney has called the restructurings as “crony capitalism” that helped union allies. The United Auto Workers (UAW), which represents GM and Chrysler hourly workers in the US, agreed in 2009 to concessions that included terminating programs that paid workers indefinitely when a plant was idled.

The union also agreed to cuts in GM’s contribution to their pension fund and retiree health benefits. The UAW’s retiree health-care fund did receive preferential treatment over other unsecured claims.

Obama’s task force that managed bailout saw it fit for the carmakers to have a cooperative union to build its vehicles once they reorganized, thus giving their workers more leverage than other claimants.

Steve Rattner, leader of 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,” that bondholders of GM’s bankrupt predecessor stood to recover 35 cents on the dollar from claims that should have been “worthless.” Rattner added that the $2 billion used to pay for Chrysler lenders’ $6.9 billion claim was “probably double what they would have extracted from a liquidation.”

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