The Heritage Foundation - Leadership for America

May 20, 2009 GM_Bondholder writes:

I’ve posted this before, but let me reiterate:
The offer to the UAW. 20Billion debt = $10 Billion CASH and 39% of the new company.
The offer to the government. $15 Billion debt = 50% of the new company AND half of the debt (7.5 Billion) remains owed.
The offer to the bondholders $27 Billion debt = 10% of the new company.

I’m a bondholder. I was offered 225 shares of the new GM for every $1000 GM owes me. In the fine print, this agreement comes with a 100:1 reverse stock split. This means for every $1000, I get 2.25 shares. If the shares double in value, that puts me at roughly $5 for every $1000 I am owed.

Before anyone villainizes the bondholders for “pushing GM into bankruptcy”, realize the offer we are given is neither fair nor equitable. The Fed gets 18x the return per dollar than the bondholders and maintains debts owed to them. The UAW gets 50% of their debt paid in CASH, AND they get more than 10x the return per dollar than the bondholders.

The bondholders stand get pennies, maybe less than one penny per dollar, and they’re being chastized for not jumping at the opportunity.

There’s no real expectation that bondholders will be eager to trade $1000 owed to them for as little as $5 of common stock. Both GM and the Fed actually get half of their money back AND nearly 90% of the company.

An equitable deal would be a division of GM based upon debts owed. If GM hadn’t accepted the government $, and had just gone into bankruptcy, they could have had a chance to really negotiate and come out solvent. Now, they’re forced to present a deal drafted by the Obama Auto Task Force. This case in bankruptcy will be at best a circus, and at worst criminal.

May 20, 2009 Spiritof76, New Hampshire writes:

This illustrates how far away we have come as a nation from our Founding ideals of private property and private contract protection. The federal government is breaking the laws when it arbitrarily says what it would pay the bond holders. They are first in line but they are put last in line to receive any compensation. Obama and UAW are colluding to redistribute the wealth. Obama believes that by offering a much better deal to the UAW (violating the private contract laws) he is returning the company to its “rightful” owners- the socialist and Marxist creed.
I suggest that these bond holders bring a class action law suit and march on Washington to honor their bind obligations.

May 20, 2009 G Jiggy, Kenmore, WA writes:

Sorry to say that in the Obamaworld of favored groups Mr. Graves and his mother are not. Our country has now transitioned from the rule of law (which assures a level playing field) to the rule of favored constituency groups. ACORN, unions, eco-extremist groups - any group that threw enough money to buy favored status - are reaping the benefits of federal largess. Those like me, the self employed and small businesses, are at the bottom of the food chain where the “stimulus” will be the last to arrive if at all. I’m watching my peers fall all around me while the country goes into debt, beyond and rational counting, to feed those favored groups.

May 21, 2009 MEB4, Virginia writes:

This is sad. A sad state of affairs when our government led by a socialist president is taking over everything he can grab onto at the expense of individuals who rely on the govenrment to stay out of commerce and protect us.. Should be a big turn-around in both houses mid term….

May 21, 2009 Grace, Florida writes:

It is sad. Here is a case of a woman who thought she was doing the right thing and now her retirement is in jeopardy. Why is it we (the people) always suffer. Jim, it’s horrible what is happening to you and your Mom and the other small bondholders. Obama has now shown his true colors and it’s worse than many of us expected. Hang in there- this will turn around one way or the other. One thing some of us realize now is there needs to be a cleaning out in 2010 - start over and see what happens.

May 21, 2009 ra,ohio writes:

Obama is egotistical and removed from the common people, I don’t care what he says.

He and his administration should be removed from office in 2012, and in the interim, 2010 should be a very interesting election.

If we can change the majorities in congress in 2010, we may be able to impeach him.
Wouldn’t that be interesting, considering his ego?

May 21, 2009 Ray Nations, Hampton VA writes:

This is so sad! Where’s our major media outlets? Why are they not reporting on some of these atrocities? Obama is a Marxist/socialist, despite what he and his liberal cohorts tell us. It is disturbing to see how far to the left we have come in less than 6 months! We are sliding very quickly into abject socialism. Socialism brings with it atheism, forcing people to depend on the government instead of God. And then Christian persecution will follow. We need to step up, scream, write protest letters, and whatever else to get the rest of the country to see how wrong all of this is!

May 21, 2009 Moose writes:

How can the Obama administration dictate the terms of the settlement? I thought that the Bankrupcy Court had control dictated by the types and terms of the securities held? Is the Obama administration now telling the courts what to do and ignore the laws of the counrty?

May 21, 2009 DF, Arkansas writes:

I am a GM bondholder. Forgive me, but living off the interest of $100,000.00 in bonds doesn’t make you a “common person.” Of course it is sad that anyone loses an investment, but everyone is losing. Everyone has lost.

If you’re complaining of socialism, you’re a hypocrite. Our bonds would be virtually worthless in bankruptcy. Government money props up the entire system. Is this wrong? I don’t know. But everyone wants their rights protected, but no one wants to assume any responsibility. So, just out of spite (for the UAW perhaps), we balk at 10%. Why? Because we can afford it. This is pure self-interst, pure capitalism run amok.

The whole idea of tears being shed for “mom and Pop” investors holding $100,000 in bonds is absurd. It’s not about Obama. It’s about US. Forget socialism. Whatever happened to sacrifice. Whatever happened to America?

May 21, 2009 Frankie Canada writes:

It was pathetic to watch the so called bondholders rally today. This old lady had a very professional looking folder in her hand; It is obvious that this rally was organized by large mutual funds.

A lot of those bonds were bought at very distressed levels, hence, the inherent risk. Also, large retirement funds were not allowed to buy those bonds the minute they were downgraded to junk, which is quite a while ago.

When I hear about our legal system, the rights of the debtolders, it makes me smile; the small prints also tell the investors that there is a real potential risk.

Even my broker told me that the return on investment was huge on those; he also told me the danger was great. If you have $100,000 worth of GM bonds, you obviously had a very bad broker.

May 21, 2009 parvent, Minnesota writes:

Apparently Barack Obama agrees with former President Richard Nixon, whom said: “When the President does it, it’s not illegal.”

This thievery of bondholders’ retirement nest eggs is Obama’s achilles heal. It will bring him down.

May 21, 2009 Barb -mn writes:

Broker Obama and his constituents. ARRESTS NEED TO BE MADE NOW!

May 21, 2009 James Raider, WA writes:

We are watching a slow death of an American industry. Its best days are unfortunately behind it.

http://pacificgatepost.blogspot.com/2009/05/detroit-icons-ending-more-than-era.html

Many of us are in mourning for era that won’t return.

May 21, 2009 Marcia Picou, Baton Rouge, LA writes:

I believe we all need to work to get the government out of our banks, auto industries, energy industries, health care industries - you name it. Do you realize that in his first 100 days, Obama’s administration has allocated for expenditure more that ALL 43 previous presidents COMBINED! And this doesn’t include his cap and trade initiatives nor his national health care initiatives. This is stunning. Why are people so willing to let the government take over everything? Other that the Hoover Dam, I can’t think of a single instance in which the government did something within its financial constraints and with any degree of efficiency. We need to let our private businesses flourish.
I believe that he and the current congressional bodies have it as their goal to make everyone so dependent upon government handouts that we will be living in a Venezualan type state. So write your congresspeople, vote for new candidates that actually represent you, talk to your friends and family - we need to return to the principles that our nation was founded upon. I thought the 13th amendment prohibited slavery and involuntary servitude, but taxpayers are now being forced to pay for every cockamamie idea that out “leaders” impose. Taxpayers are becoming 2nd class citizens. If you haven’t checked out the FairTax - do so - it would be a great way to return to some form of fiscal responsibility. It’s benefits? No IRS, no income taxes, no payroll taxes, no business taxes, no dividend or capital gains taxes - all of these would be rolled into one national sales tax. It would be simple and transparent. Everyone would be treated equally and every single person living here - whether illegal, or doing business under the counter - would be paying their fair share of keeping our country intact, you keep what you work for and decide where to spend it - so imagine how this would encourage an ethic of work and responsibility instead of a welfare state.

May 22, 2009 DF, Arkansas writes:

Apologies for posting again, but I just read that GM is offering bondholders 225 shares per $1,000.00 of debt. And, if shares go to $4.00, you get the value of what you had.

But then there’s something out there about a 100/1 dilution of shares for common shares.

I have tried but can’t find a straightforward description of the deal. Could someone at the Heritage Foundation be helpful and actually explain the deal without all the politics? Or, is the point to obfuscate the facts with sappy stories about those who feel entitled to return on investments that have gone bad—as the country faces the worst financial crisis since the Great Depression.

Please. Could someone here help? Can we just get some facts?

May 22, 2009 DF, Arkansas writes:

Apologies for posting again, but I just read that GM is offering bondholders 225 shares per $1,000.00 of debt. And, if shares go to $4.00, you get the value of what you had.

But then there’s something out there about a 100/1 dilution of shares for common shares.

Please. Could someone here help? Can we just get some facts?

May 22, 2009 Ross Writes, Bradenton, Florida writes:

A majority of the American voters got exactly what they asked for, change for change-sake no matter the consequences. The rest of us will have to suffer until we can start turning this around this obama abomination in the 2010 legislative vote or civil war errupts.
Now is the time to really seek out the truth and study the reason the southern states lawfully seceded from the union in 1861 and it wasn’t over slavery. After that war, states lost very significant rights and powers to the Federal government. Now the very core of our belief in individual liberties and God-given rights including free enterprise is under attack by the American Socialist Democrats Party.

May 22, 2009 Tom McKinney writes:

Who pays for the retired UAW pensions? The annual pensions amount to 15 Billion dollars annually! (500,000 retirees X $30,000 annual pension)! Contract law applies unless GM goes into bankruptcy.

Tom McKinney
Dunwoody, Georgia

May 23, 2009 Peter Warren, Cannes writes:

To the “you should have known better gang”. You guys are missing out the most important fact. Namely, that theft is legal in the US provided it is the UAW or the government doing it and that is how it should be in our great country. In fact, the ones to come out with 5 cents on the dollar (they deserve less) should be the UAW, whose long term greed has killed the US auto industry, just as their English union brother’s greed killed the UK car industry which no longer exists today. But the UAW was quite happy for years and years to pocket the bond money borrowed from Mr and Mrs America to pay its rediculously uncompetitive salaries and benefits that it parasitically extorted from its mother company (pocketed in payment over many years for building sub-standard, shoddy cars, uncompetitive cars, cars where any Asian out of nowhere with no car-building experience at all proved he could do better) and when that process inevitably hit the wall, rip of Mr and Mrs America for the bond-holder-rights-to-pay rest, by stealing what little is left of the company they quite knowlingly wrecked. Disgusting, criminal, sub-human, slug behavior, confidence trickster fraud behavior. To be spat upon. But typical of a parasite that half-kills its host - GM would be better off dead. As a bondholder seeing this vulture performance, I would not now buy a GM car if you paid me to take off the lot because I would be thinking all the time I drove it, of the tainted, thieving hands that built it and that would make me sick and who wants to ride in a car that stinks of vomit?

May 25, 2009 Josh, South Dakota writes:

Bondholders, regardless of how much they paid for the bonds, are not evil and have certain rights because GM owes them money. The UAW, regardless of how much they were paid, are not evil and have certain rights because GM owes them money. Everyone should get less than what they are owed, in equal proportion to what they are owed.

Forget about placing blame on who should have known better or who was responsible for bankrupting the company. GM made these promises in exchange for something. Forget about how much someone paid for or worked for the debt/promise. They all need to be treated equally. $1 of debt is $1 of debt. No matter who it is owed to or why it is owed.

This is with one exception. The government is senior to both groups. The money the government lent GM is not unsecured debt, it is DIP financing. This, however, does not give them the right to give the UAW more than the bondholders. I would have no problem if the end result was $0.27 for the bondholders, $0.20 for the UAW, and the rest for the government; as long as the 27:20 ratio is respected.

May 27, 2009 Dan Texas writes:

Many years ago one of the news magazines had a couple of social scholars on talking about a new order of values where capital would no longer be senior to labor. Historically capital has been senior to labor. It is argued that it has resulted in dynastic wealth where legatees end up having nothing to do but spend inherited money and earn interest. Perhaps this is a symptom of that order being presented for digestion. It is changing the rules in the middle of the game. The only other way to do this is via violent revolution. This is Scissors wins over paper. Now don’t go throwing any rocks. I don’t like it either. Numskulls are getting a break. But have you seen some of our supposedly educated leaders and listened to their incoherent children?

May 30, 2009 John McBaine, Largo Florida writes:

As a GM Salaried Employee with 38 years service, I thought I knew my company fairly well. I promoted GM products and investments to my friends and neighbors and expressed my firm belief many times that GM was too fundamentally strong in talent, product lines, and assets to ever go bankrupt.

That belief was supported (and strengthened) numerous times by former CEO Rick Wagoner’s declarations that bankruptcy was not an option GM would pursue as it would destroy the dealer and supplier networks and drive potential car and truck buyers away from considering a GM purchase.

Instead, GM came to Washington with hat-in-hand and asked for a “loan” of federal dollars. Not a “bail out” as it was quickly portrayed to the public, but loans plus interest that would be paid back.

Then the unthinkable. Obama forced Wagoner out (where the Hell did Obama get the authority to do that?) and proceeded to dictate terms to GM that effectively ended all control and ownership of GM by the shareholders (like me) who watched in disbelief as our shares were “zeroed out).

As a GM employee who invested in a sizable position in GM Common Stock and GM Bonds for a major part of my retirement income I am now left holding an empty bag and have, somehow, been labeled as an evil “speculator” who is not willing to consider a bond offer of ten cents on the dollar.

This is madness.

I had no opportunity to vote my shares on whether to go bankrupt or not. I received no chance to express my agreement (or disagreement) on the proposed bond exchange offer.

Instead, I watch my GM investment values evaporating up in smoke.

I’m made as Hell. This is criminal. There are, in my opinion, too many crooks and socialist thugs in the Obama Crowd who are focused on the opportunity to nationalize and take control of my company.

And GM Management is following the Obama dictates to the letter. How the Hell do we get rid of them as well and get somebody in there to regain control of our company and save our investment valuations before it’s too late???!!!

August 18, 2009 Hilda, Delray Beach, Fl writes:

I wonder how they’re able to live with themselves knowing how they’ve mishandled the bondholders.

Shame on GM and shame on our government for giving permission.