The news out of Wall Street today is that GM plans to make an Initial Public Offering (IPO) to raise $20 billion in new funds. This is a pretty big deal, and it prompts this leading question:
Q: Why is a run-of-the-mill IPO such big news?
A: Because it is being offered by a corporation that stiffed its previous investors with the help of the federal government. The victims included bondholders, to the tune of $27 billion. (Full disclosure: I am one of them.)
In previous articles in this column-space, I mentioned how President Obama – acting in the first flush of his new power – intervened in the bankruptcy proceedings of General Motors and Chrysler. Until that event, established law had put bondholders first in line for recovery of assets in the event of a bankruptcy. But Mr. Obama overturned that law and those conventions with a pre-structured, strong-arm deal that moved union pension funds to the front of the line. At this writing, GM bondholders (including yours truly) are still waiting for redress under the Obama version of Chapter 11 bankruptcy law.
It is not clear to this writer what legal authority the president used to contravene Chapter 11 law. Nor do analysts more knowledgeable than I seem to understand it – including a cabinet-level economic advisor to several presidents who happens to be an acquaintance of mine. He says that neither he nor his colleagues “have ever seen anything like it.” The Obama-blitz simply blew in, took over, and elbowed-aside preferred investors. Bondholders will receive either pennies on the dollar of their original investments or stock positions (of dubious value) in the reformed GM and Chrysler corporations.
Although the “packaged” GM bankruptcy is now a year old, no final settlement of bondholders’ claims has emerged. Nor is there any obvious news of a lawsuit, on behalf of bondholders, contesting this abrogation of established bankruptcy law. The defrauded bondholders have vanished from the public consciousness like a wisp of smoke on a breezy day. We are as dead as Jacob Marley.
I still meet people who produce blank stares when I mention GM bondholders as a prime example of Obama-administration hubris and illegality. Many have no idea what I am talking about; others vaguely recall a “government bailout” of GM, but they don’t know much about the bondholders except that they are banks and “rich guys” who took a risk that turned bad.
“Well, when you buy stocks, it’s a gamble,” said one young acquaintance. He was surprised to hear (but not entirely convinced) that bonds were not the same as stocks. The concept of “secured investment” was unknown to him, as it is to millions of others. This is why Mr. Obama was able to get away with his union-favoring grab.
The general public’s lack of understanding about what happened here is not unusual in such matters, of course. Relatively few people grasp the nuances of financial instruments. Stocks, bonds… whatever – as articulated by my young acquaintance – is the general attitude of the man on the street. Also, polls show that the public’s “collective memory” is about 6 months’ duration on all but the most sensational news items. None of this is surprising. But I do find two things quite surprising: (1) the absence of any legal action challenging the GM and Chrysler packaged bankruptcies; and (2) the apparent willingness of investors to buy the new GM IPO.
The absence of contesting lawsuits is the most amazing aspect, given the country’s propensity for litigation and the plenitude of lawyers. With bondholders having lost some $27 billion, the financial stakes certainly seem large enough to attract ambitious tort lawyers. Yet none seem drawn to this potentially rich case. Why is that?
Is it possible that the “fix” is in on the Chrysler and GM bankruptcies? Have powerful political figures made tort lawyers “an offer they can’t refuse?” Could that be why high-level economists can’t figure out how bondholders got cheated out of their rightful place in line? No one seems to know. Or, at least, no one who knows is talking. If news of a high-level “legal conspiracy” ever leaks out, the ethics charges and disbarments will rock the nation. So far, though, no word has leaked. The litigation non-event is the classic “dog that did not bark in the night” – very mysterious.
The other surprising development is the GM IPO – coming just a year after the bondholder swindle, and coupled with the expectation that investors will rush to invest in the same untrustworthy gang who fleeced previous investors. Who are these investors? And why they are willing to risk their money on any financial instrument connected to GM? Don’t they know what happened to the last GM investors? Or has a previously unknown cadre of moron-investors escaped from an asylum? Again, it is a puzzlement.
In the course of writing a regular column, I must guard constantly against the impulse to see a conspiracy under every bed. Often, what looks like a possible conspiracy is just a confluence of chance events. In reality, conspiracies are very difficult to conceal for any length of time – particularly when they involve many people. Even a relatively small conspiracy can be busted, if one of the conspirators feels cheated or otherwise mistreated. This is how the great Boston Brinks Robbery of 1950 was cracked, in 1955. The crime was skillfully executed, with very few clues left. The thieves had originally agreed to keep the loot (nearly $3 million) hidden until after the 5-year statute of limitations had elapsed – thereby denying police any way to trace the stolen money back to them. But just days before the five years expired, a member of the gang came forward to inform and break the case open. It turned out that he had felt shortchanged by the division of the stolen money.
As an affected party in the Great GM Bondholders Swindle, I am naturally suspicious about the absence of litigation and the apparent willingness of new investors to buy a disgraced firm’s new stock offering. Who would take such an investment risk? I wouldn’t invest 5¢ in that IPO. Could labor-union pension-funds have been arm-twisted into it? Or has the word been put out on Wall Street that “The Boss” wants the new IPO to be pushed and fully subscribed? I don’t know; I don't know; I don't know! And no one is saying. Maybe it’s all my imagination.
What I do know is that a considerable amount of my retirement funds – as well as the funds of other little guys like me – have vanished into thin air. Few of us could afford that loss. We invested in GM and Chrysler on the time-honored promise that bondholders would be paid first, should those companies fail. But that promise has been broken by powerful political forces.
Today, with talk abounding of bailing out more banks and pension funds with taxpayers’ money, we hear nothing about making GM bondholders whole. The Mainstream Media have forgotten all about them. But the bondholders have not forgotten. This administration lost our vote when they stole that money. Legal or not, it was still theft. If this isn’t a High Crime, I don’t know what one would be.
Sometime – somewhere – somebody will spill the beans on how this all went down. When it happens, the doo-doo hitting the fan will bury the financial community and this presidency. Hopefully, it will awaken the wider public to the realization that a president who thinks he can set aside bankruptcy laws will think he can set aside any law. He is a dangerous man, and he must be stopped. Millions of Americans who have retirement savings and other funds need to understand that they could be next.