Senator Corker's Bailout Plan for the Big 3

Thu, 11 Dec 2008 22:00:17 +0000

I've praised Senator Bob Corker in the past for his opposition to poorly designed stimulus plans. I'll do so again for his opposition to poorly designed bailout bills. From his op-ed yesterday, here's a better starting point for what stakeholders in the Big 3 auto companies should expect from Congress:

To that end, I have put forth several measures that need to occur for any government-backed loan to be successful:

• One, give existing bondholders 30 cents on the dollar to help reduce their overall debt load.

• Two, bring wages immediately in line with companies like Nissan and Volkswagen.

• Three, GM owes $23 billion to the United Auto Workers' VEBA (voluntary employees' beneficiary association) account. The union must agree to take half of that payment in GM stock.

• Four, the union must agree to do away with payments to workers who are still receiving almost full compensation up to four years after their jobs ended.

These are the same types of conditions a bankruptcy judge might require but without some of the stigma and problems that accompany a formal bankruptcy. We need to insist the automakers get their balance sheets right on the front end, or they will be back over and over again and miss this opportunity to become viable and prosperous for the long term.

He should also add the condition that the moment any of these aspects of the companies' operations are changed, the government's loan is payable in full.

But even with that condition, this offer is more generous than it needs to be. The White House and Congressional Democrats are acting as if bankruptcy hurts the rest of us more than it hurts the stakeholders. Under that mistaken belief, it continues to offer them loans gifts to keep them afloat. Why do that? Why not drive the hardest possible bargain with them, one that exchanges the easy access to government funds for deeper cuts in operating expenses than would be imposed by the bankruptcy process, with the resulting saving flowing back to the taxpayer?