GM and Chrysler, Yet Again

A quick note about yesterday's editorial from Sherk and Zywicki. I'm loath to wade in yet again on this issue, as I doubt there would be any interest in these old bankruptcy cases if there were not an election looming.

But the Sherk and Zywicki argument is stated quite clearly, and merits comment:

Had the UAW received normal treatment in standard bankruptcy proceedings, the Treasury would have recouped its entire investment.

They then let us know that they don't like the UAW, and wish they'd suffered more. Not exactly a surprise for a WSJ op-ed based on a Hertitage Foundation paper, but Adam rightly questions the relevance of all this.

And then they conclude:

If the government treated the UAW in the manner required by bankruptcy law, it could have given the stock and promissory notes to the Treasury instead of to the UAW.

Aparently logic is not part of the editing process at WSJ. The sentence itself makes no sense, essentially saying that the government could have recovered more if it gave money to itself. Yes, I supose if you spend less you spend less ...

But would the automakers have survived? The authors assume that the government could have imposed losses on the UAW and the union would have taken it and liked it.

Maybe as some kind of free market dream this sort of deus ex machina solution works, but back in reality chapter 11 is a process of give and take. Imposing losses on parties that have the ability to respond has consequences. And labor unrest at the automakers would have resulted in real losses for everybody, including investors.

In both of the automotive cases another class of creditors -- "critical trade vendors" -- got paid in full, which also would seem to violate "absolute priority." That the critics of the auto cases repeatedly harp on the unions, who did not get a full recovery, while ignoring the critical trade creditors I find quite telling.

Bankruptcy law has very little to do with these cases anymore.