The true subsidy to General Motors?

The true subsidy to General Motors?

bailout bankruptcy GM

Remember the $50 billion in direct subsidies? Remember the $45 billion in tax write-offs? Well, apparently those weren't the only benefits. What is below is one of the reasons that the tax treatment shouldn't have moved to the "new" GM. From Reuters:

General Motors Co (GM.N) is seeking to dismiss a lawsuit over a suspension problem on more than 400,000 Chevrolet Impalas from the 2007 and 2008 model years, saying it should not be responsible for repairs because the flaw predated its bankruptcy.



The lawsuit, filed on June 29 by Donna Trusky of Blakely, Pennsylvania, contended that her Impala suffered from faulty rear spindle rods, causing her rear tires to wear out after just 6,000 miles. [ID:nN1E7650CT]



Seeking class-action status and alleging breach of warranty, the lawsuit demands that GM fix the rods, saying that it had done so on Impala police vehicles.



But in a recent filing with the U.S. District Court in Detroit, GM noted that the cars were made by its predecessor General Motors Corp, now called Motors Liquidation Co or "Old GM," before its 2009 bankruptcy and federal bailout.



The current company, called "New GM," said it did not assume responsibility under the reorganization to fix the Impala problem, but only to make repairs "subject to conditions and limitations" in express written warranties. In essence, the automaker said, Trusky sued the wrong entity. . . .

No Bailout: Let the Post Office default, and really privatize the company

No Bailout: Let the Post Office default, and really privatize the company

bankruptcy governmentwaste Taxes USPS

Just as there was no reason to bailout GM, there is no reason to bailout the USPS. Courts properly handle bankruptcy all the time. From the AFP:

The US Postal Service warned on Friday that it could default on payments it owes the federal government, just days after the US government itself narrowly averted a default.

The government's mail service said it lost $3.1 billion in the period from April to June, blaming "the anemic state of the economy" and the growing popularity of electronic communications over old-fashioned letters.

As a result of its mounting losses, the US Postal Service said it would not be able to make a legally required $5.5 billion payment in September to a health-benefits trust fund.

"Absent substantial legislative change, the Postal Service will be forced to default on payments to the federal government," it said in a statement. . . .

Of other interest: Postal Workers' Union Inaccurately Claims that the Post Office doesn't get Government Subsidies

Here is one story about how the post office has been run. A very long report is available here. Politico discusses it here.

In 2008 — one year before the Postal Service's long-term lease on the Sarasota property was to expire — the agency announced plans to exercise its option to buy the property for $825,000, a fraction of its estimated $12 million market value, the IG report said. The deal would have meant a big loss for the property's owners, Post Office Associates (POA), who bought it in 1988, the IG report said. POA's partners include Band Family Partnership Ltd. Douglas Band, who is Clinton's counselor and top adviser, has a financial interest in POA and is its legal representative, according to the report.



POA objected to the sale and the Justice Department in July 2010 filed a lawsuit on behalf of the Postal Service against POA to force it to sell the property. That lawsuit is still ongoing.



The IG's report said that the Postal Service's vice president of facilities, Tom Samra, "believed Governor Kessler's actions wasted Postal Service time and resources, and potentially weakened [the Justice Department's] litigation position."



The report found that Band enlisted Kessler to help scuttle the deal. Kessler held multiple meetings with postal officials urging them to settle with POA, the report said. Kessler was the only postal official urging a settlement, the IG said.



The IG said that Kessler also worked behind the scenes to help POA come up with a political strategy to fight the Postal Service: POA threatened to get members of Congress to intervene to quash the purchase on the grounds that this leasing program was improper and unfair. Kessler later raised similar concerns with postal officials, the report said. . . .

So much for hoping that the changes in the mortgage rules would only be a one time problem

So much for hoping that the changes in the mortgage rules would only be a one time problem

bailout bankruptcy

While the judge in the NHL case has yet to approve this request, I am sure that there are lots of other cases that are now going to ask for the same exception. The Obama administration is able to take some money from the Chrysler and GM bond holders, but at what cost? One wonders how much interest rates are already going up because of this increased risk. From the WSJ:

Within days of a bankruptcy-court judge's approval of the government's plan to sell Chrysler to Fiat SpA and leave creditors with big losses, a lawyer in the bankruptcy case of the National Hockey League's Phoenix Coyotes invoked Chrysler in trying to push through the speedy sale of the team.

Should the judge approve that move and allow the Coyotes to be sold quickly, as Chrysler was, it could put some creditors out in the cold, leaving the NHL and other investors without the kind of input typically afforded by bankruptcy law. . . .

"The concern is that you have thousands of lenders, hedge funds, insurance companies who model their investments on rules and laws," said Stephen Lerner, a lawyer for a committee of Chrysler dealers. "How do these folks make investment decisions when they're faced with bankruptcy courts that appear to disregard the rules?" . . . .