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Winners and Losers

Not every loser chosen by the government is a fat cat banker making millions of dollars, or a perceived corporate bad actor such as Lehman.  Many are just ordinary people, which is what makes some of the choices of the US government over the last year so much more difficult to fathom.  At issue is the results of the auto industry bankruptcies earlier in the year and how the pension mess has fallen out. We have written on this subject numerous times, and today the NYT has a feature on it (NYT, B1, 10/27/09).  The example “loser” is a woman who took early retirement at Delphi as the company encouraged, received a pension of $2,925 monthly since retirement, but after the end of the bankruptcy she will receive $390 monthly.  That’s correct - from $3k a month to $400.  I’d say that qualifies as losing. 

So what was makes her a loser?  Not being in a union is the short answer, but it’s not the full answer.  When GM spun off Delphi in the late 1990s, the Delphi United Auto Workers were given a promise that if their pensions were underfunded by Delphi that GM would “top-up” the payments.  So far, so good, as these are the dealings of private companies with their labor. 

Then Delphi does indeed go bankrupt in the mid 2000s.  The company quits making full contributions to their pension plans for all workers - UAW, United Steel Workers, white collar workers, etc.  In fact, they make tiny fractional payments.  Just as you would expect, four years and one heck of a bear market later, the pensions are all dramatically underfunded.  So Delphi does what is expected of a company in bankruptcy, they kick their pension obligations to the PBGC, which pays according to a very un-generous schedule, NOT according to what your pension benefits were at the company.  This is where the Delphi UAW workers hold up their trump card, the one that says GM has to “top-up” their pension payments in the event of underfunding.  Still, so far so good.  Except, GM is now bankrupt too.

This is where the winners and losers are sorted.

GM now agrees to make those payments. But there’s more.  The steel workers, electrical workers, and other unions cry foul because only the UAW is covered.  So GM graciously agrees to top up all union payments.  White collar payments? No.  Nada.  Zip.

Where did GM get the funds to make such payments, since they were bankrupt?  From taxpayers, who infused the company with $53 billion.

This is the same convoluted scheme that allowed unsecured creditors (union health trust) to jump ahead of secured creditors (bond holders).

 There are real consequences to these actions.  Those that control capital, both investors and corporate officers, will long remember these actions and include them in their decision-making in the years to come.  To pretend that such things have no consequence is disingenuous.  To treat these situations lightly, when they have such a devastating and unequal affect on people, is callous.