GM was rushed through bankruptcy, but there is another part of their problems that wasn’t solved, and could still drag them down, or possibly require us to throw more good money after bad.
Back in the 1990s, GM split out its part making operations into a separate company called Delphi (kind of a nicer name than AC Delco). Delphi has been languishing in bankruptcy for upward of 5 years, with many of the core component businesses being sold off to competitors, but Delphi still makes many of the critical parts and components for GM – the kind of stuff where you have to be directly involved in the engineering of the car long before it even hits the prototype stage.
Delphi’s bondholders voted and refused the latest reorganization plan. More than likely their game plan is… GM is now owned by Tim Geithner and he can’t let Delphi fail and take GM with it, so either GM will have to buy us back (with what money?) or Geithner will have to show up with a bucket full of money to bail us out, too.
Hence the principle that Geithner still doesn’t understand:
“When you reward failure, you get more of it”… if people believe you will “rescue” them, they not only will avoid solving their own problems, but start engaging in more and more reckless behavior knowing that Mommy & Daddy will be there to “backstop” them.
The suggestion has been made to use the same “We gotta do it yesterday” fast track bankruptcy procedure on Delphi – but since their bankruptcy is five years old, it seems hard to make a case that this is now an emergency. I don’t know if there is a precedent for declaring an emergency because “if this company fails, it would cause another company to fail”. Then again, following the law doesn’t seem to be in fashion for the past few months.
The news today is that the Feds have taken over responsibility for the Delphi employees pensions. The federal agency that handles this sets caps on overly generous pensions, especially for those who retired way before 65…. so it will hit early retirees hard (or high income retirees), in order to keep the pension fund solvent and pay a reasonable pension for the rest (and not totally turn it into a government bailout). If you make the pension guaranty corporation’s terms too good, then companies will just stop funding their pension plans, knowing the Tim Geithner will jump in and rescue the people on pensions 5 years from now.