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Thread: Welfare Case Companies - General Motors

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    Banned Melonie's Avatar
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    Default Welfare Case Companies - General Motors

    with the recent Supreme Court ruling that the FED must disclose the identities of banks and other companies who received TARP money, some extremely interesting information is now coming to light ...


    (snip)Barack Obama has some 'splaining to do about taxpayers' profitable "investment" in General Motors. It turns out the president is imagining things.

    Though Democrats tout the auto bailout as a success, recent reports illustrate the taxpayer cost of the GM auto bailout was substantially larger than the Obama administration and a Congressional Oversight report has owned up to.

    "American taxpayers are now positioned to recover more than my administration invested in GM,” President Obama said, according to a piece in USA Today last November. Steven Rattner, former head of the Treasury's auto task force agreed, telling CNN in November: “Recent progress at GM gives reason for optimism that it may be possible for taxpayers to get every penny back.”

    In fact, Investor's Business Daily reported that even the White House’s Director of the National Economic Council remarked that the Treasury Department Department had a good chance in "recovering most, if not all, of its investment in" GM.

    However, a March 16 Congressional Oversight report, tells a different story. It estimates taxpayers will be out of $25 billion. Additionally, the report points out that “full repayment will not be possible unless the government is able to sell its remaining shares at a far higher price.”

    That's only the beginning. Both the White House and the Congressional Oversight report omit the fact that during its bankruptcy, GM got a $45 billion tax break, courtesy of the American people.

    GM is driving “away from its U.S.-government-financed restructuring with a final gift in its trunk: a tax break that could be worth as much as $45 billion,” reported The Wall Street Journal last November.

    Over one year after the promises President Obama and his administration made about the auto bailout, a February piece on AutoBlog also confirms that GM will also get a $14 billion dollar domestic tax break:

    GM will be able to skip its tax tab due to years of massive losses. Companies are typically forgiven a portion of future taxes due to their past losses, but that benefit is typically stripped after an organization goes through bankruptcy.

    However, the Obama administration and its allies presently continue to celebrate the success of the auto bailout, regardless of the facts. "I don’t think there’s any doubt that this was a success," said (H/T Detroit News) acting assistant secretary at the Treasury Department Tim Massad, who oversees the TARP program at Treasury, to a House panel on Wednesday.

    In Obama's world, success mean taxpayers only lost as much as $84 billion.(snip)

    from

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    God/dess Zofia's Avatar
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    Default Re: Welfare Case Companies - General Motors

    "GM is driving “away from its U.S.-government-financed restructuring with a final gift in its trunk: a tax break that could be worth as much as $45 billion,...."

    Tax loss carry forwards in bankruptcy are allowed provided the company meets the continuity of ownership test. That tax break is available to all companiesthat meet the test.No "special" break for GM here. Of course, GM has to have profits to make use of the tax break.

    "Over one year after the promises President Obama and his administration made about the auto bailout, a February piece on AutoBlog also confirms that GM will also get a $14 billion dollar domestic tax break:"

    You're going to have to clarify that one. But, this posting looks like a bunch of bunk.

    Z

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    Default Re: Welfare Case Companies - General Motors

    here's one of the many components of the additional $14 billion in gov't 'assistance' to GM ...

    (snip)With little fanfare in September and October, Detroit's city council
    unanimously approved resolutions designating Tower 500 of the GM-owned
    Renaissance Center, and four other downtown sites, as tax-free "renaissance
    zones." (See box)

    If a state board appointed by Governor John Engler approves the zones,
    General Motors and its prospective Tower 500 tenant, Electronic Data
    Systems (EDS), two of the wealthiest corporations in the world, will not
    have to pay city and state taxes including corporate income, real and
    personal property, utility, and single business taxes, at that location for
    15 years (snip) from


    Tax loss carry forwards in bankruptcy are allowed provided the company meets the continuity of ownership test.
    ^^^ which GM doesn't qualify for because of 17.5% 'new' ownership stake by the UAW plus ( immediately post bankruptcy ) 61% 'new' ownership stake by US taxpayers plus 10% 'new' ownership stake by Canadian taxpayers. Pre-bankruptcy bondholders only retained a 10% ownership share !!!

    from


    Nope, sorry, but this is a clear case of 'special rules' being applied ... special rules that actually provided a double positive for GM and GM's Union workers, and a double negative for US and Canadian taxpayers.

    And to rub salt in the wound, Obama's TARP Czar has just ruled that, while executive salaries of TARP recipient companies such as GM and GMs financing arm ALLY BANK cannot receive increases in SALARY payments, they ARE entitled to receive increases in other forms of compensation such as deferred stock options. In many cases involving top corporate execs of TARP recipient companies, the dollar value of deferred stock options being granted may be 5-10 times the level of the executives' regular salary. Of course, the deferred stock option part of these executive pay packages isn't mentioned at all by mainstream media !

    ~
    Last edited by Melonie; 04-02-2011 at 05:11 AM.

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    Default Re: Welfare Case Companies - General Motors

    Quote Originally Posted by Melonie View Post
    here's one of the many components of the additional $14 billion in gov't 'assistance' to GM ...

    (snip)With little fanfare in September and October, Detroit's city council
    unanimously approved resolutions designating Tower 500 of the GM-owned
    Renaissance Center, and four other downtown sites, as tax-free "renaissance zones." (See box)
    $93,000,000 per year? I gotta see a tax bill to believe that.

    ^^^ which GM doesn't qualify for because of 17.5% 'new' ownership stake by the UAW plus ( immediately post bankruptcy ) 61% 'new' ownership stake by US taxpayers plus 10% 'new' ownership stake by Canadian taxpayers. Pre-bankruptcy bondholders only retained a 10% ownership share !!!
    Exchanging debt for equity does not make a new ownership stake under the Internal Revenue Code.

    Nope, sorry, but this is a clear case of 'special rules' being applied ... special rules that actually provided a double positive for GM and GM's Union workers, and a double negative for US and Canadian taxpayers.
    Everybody is entitled to her own opinion, but not her own set of facts. The IRC and the Bankruptcy Code clearly state that exchanging debt for equity is not a new ownership stake for the purpose of tax loss carry forwards.

    Z

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    Default Re: Welfare Case Companies - General Motors

    ^^^ granted that US courts have made some extremely strange rulings in regard to bailouts ... in particular stripping previous bondholders of their preferential repayment rights and thus their 'rightful share' of equity in the bankrupt company. However, the fact remains that prior to the GM bankruptcy US and Canadian taxpayers held no direct GM debt. Thus at a very minimum, 71% of 'new' GM ownership did NOT involve a debt for equity swap that would have preserved 'carry forward' tax losses.

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    Default Re: Welfare Case Companies - General Motors

    Quote Originally Posted by Melonie View Post
    ^^^ granted that US courts have made some extremely strange rulings in regard to bailouts ... in particular stripping previous bondholders of their preferential repayment rights and thus their 'rightful share' of equity in the bankrupt company. However, the fact remains that prior to the GM bankruptcy US and Canadian taxpayers held no direct GM debt. Thus at a very minimum, 71% of 'new' GM ownership did NOT involve a debt for equity swap that would have preserved 'carry forward' tax losses.
    Not a strange court ruling. Once again, you are not entitled to your own set of facts. Prior to GM's bankruptcy the US government loaned the company $20 billion. The Canadian government loaned $C 4 billion. Both governments did so on a debt basis with a repayment preference. That makes them debtors pre-chapter 11 and under the rules at the time, and now converting them to equity holders does not create "new" ownership under the bankruptcy code or the internal revenue code.

    Z

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    Default Re: Welfare Case Companies - General Motors

    Quote Originally Posted by Zofia View Post
    Not a strange court ruling. Once again, you are not entitled to your own set of facts. Prior to GM's bankruptcy the US government loaned the company $20 billion. The Canadian government loaned $C 4 billion. Both governments did so on a debt basis with a repayment preference. That makes them debtors pre-chapter 11 and under the rules at the time, and now converting them to equity holders does not create "new" ownership under the bankruptcy code or the internal revenue code.

    Z
    Only under the Supreme Court's tortured interpretation of the bailout vis a vis the Bankruptcy Code. Who do you think the previous owners of GM were ? It WAS the stockholders !

    You approve of debt to equity swaps and think that what happened with GM passes muster under the Bankruptcy Code ? By that logic the bondholders should have had their LOANS ( GM's DEBT ) converted to stock in the "New GM ". Was it ? No. They were wiped out just like Chrysler's bondholders.

    Where did the equity stake of the UAW come from ? Previous stock holdings in GM and Chrysler ? Bonds held ? No. It was effectively a "gift" from Obama in exchange for certain wage and benefit concessions that paled in comparison to what would have happened to the UAW contracts in a REAL bankruptcy.
    Last edited by Eric Stoner; 04-04-2011 at 11:44 AM.

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    Default Re: Welfare Case Companies - General Motors

    indeed ...

    (snip)"JANESVILLE — Since General Motors declared bankruptcy, its stock is up 72 percent.

    While the dramatic jump might be good news for day traders, it’s likely meaningless for the longer-term investors who bought stock in the company they either worked for or believed would never fail.

    That’s because stockholders in the “old GM” will fade in the rearview mirror as the “new GM” drives out of bankruptcy with the federal government, the United Auto Workers and bondholders behind the wheel.

    If they’re lucky, current shareholders might get through the bankruptcy with a 1 percent stake in the “new GM,” according to financial analysts. Such a small ownership stake would never allow existing shareholders to recover their losses, the analysts say.

    John Berkley, a former GM worker and now a financial adviser with SII Investments, said he knows of plenty of people in Janesville—primarily GM employees—who held onto the stock for far too long.

    “As far as that stock goes, they’re basically wiped out,” Berkley said.

    That’s because common shareholders are typically far down the list of creditors considered in bankruptcy cases.

    But GM’s is not a typical bankruptcy case, Berkley noted, adding that 100 years of U.S. bankruptcy rules are being rewritten for the automaker.(snip)

    from

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    Default Re: Welfare Case Companies - General Motors

    Quote Originally Posted by Eric Stoner View Post
    Only under the Supreme Court's tortured interpretation of the bailout vis a vis the Bankruptcy Code. Who do you think the previous owners of GM were ? It WAS the stockholders !
    Again, you don't get your own set of facts. Go read the law and post again. Not what some blogger said, but the statute.

    You approve of debt to equity swaps and think that what happened with GM passes muster under the Bankruptcy Code ? By that logic the bondholders should have had their LOANS ( GM's DEBT ) converted to stock in the "New GM ". Was it ? No. They were wiped out just like Chrysler's bondholders.
    What was done to GM's bond holders was a grave disservice and will haunt the bond market for years. However, that has nothing to do with the legality of the tax loss carry forwards. And, the bond holders did get some equity stake in the new GM, just not the share that they should have. Again, you don't get your own set of facts.

    Where did the equity stake of the UAW come from ? Previous stock holdings in GM and Chrysler ? Bonds held ? No. It was effectively a "gift" from Obama in exchange for certain wage and benefit concessions that paled in comparison to what would have happened to the UAW contracts in a REAL bankruptcy.
    Again, you don't get your own set of facts. The facts are that GM owed the UAW billions for pension and health plan obligations. Very real debts. Chrysler is a completely different issue, which is not the subject of the tax loss carry forward.

    Z

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    God/dess Zofia's Avatar
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    Default Re: Welfare Case Companies - General Motors

    Quote Originally Posted by Melonie View Post
    But GM’s is not a typical bankruptcy case, Berkley noted, adding that 100 years of U.S. bankruptcy rules are being rewritten for the automaker.(snip)
    But, the tax loss carry forward rules are not among those being rewritten.

    Z

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    Default Re: Welfare Case Companies - General Motors

    Quote Originally Posted by Zofia View Post
    Again, you don't get your own set of facts. Go read the law and post again. Not what some blogger said, but the statute.

    What was done to GM's bond holders was a grave disservice and will haunt the bond market for years. However, that has nothing to do with the legality of the tax loss carry forwards. And, the bond holders did get some equity stake in the new GM, just not the share that they should have. Again, you don't get your own set of facts.

    Again, you don't get your own set of facts. The facts are that GM owed the UAW billions for pension and health plan obligations. Very real debts. Chrysler is a completely different issue, which is not the subject of the tax loss carry forward.

    Z
    Excuse me. Under the Bankruptcy Code the BONDHOLDERS were supposed to be FIRST in line. They were SUPPOSED to be SECURED CREDITORS. Even you admit that is NOT how they were treated under the GM travesty. Instead of being first in line, they were pushed to the rear and the equity stake they ended up with was a joke compared to what the UAW got.

    Yes, GM owed billions to the UAW . Billions in UNSECURED DEBT. Technically, most of it was not even debt per se. It was future obligations under the UAW contract .
    A contract that would have been torn up and discarded in a REAL bankruptcy.

    The bondholders were not just Wall St. "Fat Cats" . A lot of bonds were held by state, local, union and corporate pension funds. Why do you think many of the prime plaintiffs against this deal were state and local government pension funds like Tennesee's and Indiana's ?

    The main reason this lousy deal was able to go through is because technically it was a bailout and NOT a true Chapter 11 proceeding.

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    Default Re: Welfare Case Companies - General Motors

    Quote Originally Posted by Eric Stoner View Post
    Excuse me. Under the Bankruptcy Code the BONDHOLDERS were supposed to be FIRST in line.
    Possibly cogent argument if we were discussing the reorganization plan. But, we're not. What is under discussion is the tax loss carry forward rule. The simple fact is, under the law as it stood before GM filed bankruptcy and for many, many, many years before that, exchanging debt for equity no matter pro-rata or not does not constitute "new" ownership. You may not like that, I don't like the raid on the treasury, but it does not make this some sort of special deal for GM.

    You and Mel keep asserting your own set of facts which are simply not the reality to support your economic opinions. All that does is undermine whatever validity your opinions might have. As Daniel Patrick Moynihan said, everyone is entitled to their own set of opinions, but not their own set of facts. You and Mel consistently, as you did in this thread, cook up a set of facts that are simply fantasy. When you do that, you are completely unpersuasive.

    Z

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    Default Re: Welfare Case Companies - General Motors

    Quote Originally Posted by Zofia View Post
    Possibly cogent argument if we were discussing the reorganization plan. But, we're not. What is under discussion is the tax loss carry forward rule. The simple fact is, under the law as it stood before GM filed bankruptcy and for many, many, many years before that, exchanging debt for equity no matter pro-rata or not does not constitute "new" ownership. You may not like that, I don't like the raid on the treasury, but it does not make this some sort of special deal for GM.

    You and Mel keep asserting your own set of facts which are simply not the reality to support your economic opinions. All that does is undermine whatever validity your opinions might have. As Daniel Patrick Moynihan said, everyone is entitled to their own set of opinions, but not their own set of facts. You and Mel consistently, as you did in this thread, cook up a set of facts that are simply fantasy. When you do that, you are completely unpersuasive.

    Z
    No one is trying to have their own set of facts. Even you agree that not everything about the GM Bankruptcy was done according to Hoyle. The question is whether GM is entitled to the tax break despite the lack of continuity of ownership ? Where did the UAW ownership stake come from ? It's SUPPOSED to be "debt to equity" , right ? The U.S. taxpayer at least has an argument that the bailout funds advanced to GM could be converted to a share of the new GM stock. If , IF the UAW had lent money to GM then they could make the same argument. If, IF the bondholders had truly received their pro rata share of stock in the new GM , this deal would smell a lot better AND would come closer to a real debt for equity swap as envisioned by the Bankruptcy Code. Like it or not, there is no getting around the FACT that the Obama team cut a lot of corners to put this deal together. We are supposed to be "a nation of laws, not of men ". Therefore little technicalities like the Bankruptcy Code with it's preferences for various classes of creditors is supposed to be more than just a set of suggestions.

    Just as I was surprised that the Federal Courts , including the Supreme Court, went along with this Bankruptcy deal and let the bondholders get screwed ( obviously it was punishment for their recalcitrance in going along with the original bailout plan ) I have little doubt that somehow, some way this tortured interpretation of the Bankruptcy Code vis a vis tax treatment of losses just for GM will probably pass judicial muster.

    Yes, an argument can be made that saving GM was a laudable goal with beneficial effects throughout the rest of the economy. So too are there benefits to following the law and not running roughshod over same to accomplish said laudable ends. Ultimately, Mel and I care about the taxpayer. Who is certainly stuck riding in the trunk on this deal.

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