Congressman Jeb Hensarling, the lone sitting Member of Congress on the Congressional Oversight Panel for TARP and the top Republican on the House Financial Services Committee Subcommittee on Financial Institutions and Consumer Credit, sent the following letter, signed by twenty two lawmakers to Secretary of the Treasury Timothy Geithner today, advocating for equity and fairness for all involved in GM bankruptcy negotiations:e
The Honorable Timothy Geithner
United States Department of Treasury
1500 Pennsylvania Avenue, NW
Washington, DC 20220
Dear Mr. Secretary:
We all agree it is a national tragedy that our car makers find themselves either in bankruptcy or on the verge of it. However, it is exceeded by the greater tragedy of hundreds of millions of taxpayers being saddled with unprecedented debt to bail them out.
Many of us did not agree with efforts to reward these failed institutions with taxpayer assistance. Now that the federal government has saddled our constituents with this unprecedented action, spending and debt attached to the bailout, we want to make sure that the money is distributed fairly and that the rule of law is not undermined by any federal government action.
We are extremely concerned that in the name of restructuring General Motors, the Presidential Task Force on the Auto Industry (Auto Task Force) has begun waging what some believe amounts to a war on capital: contractual rights of investors are being trampled by the government under the rationale of "extraordinary circumstances." Investors in General Motors relied upon rules inherent in the U.S. bankruptcy code that define the rights of creditors in the event of a default or a bankruptcy filing. The government's proposed reorganization of the company appears to subvert these rules to arrive at a politically motivated solution in the name of reviving the company.
The proposal seems to favor the rights and claims of the UAW, a political ally of the current administration and a powerful lobbying force in Washington, over the rights and claims of the company's diverse group of bondholders, who collectively hold $7 billion more in General Motors debt than the UAW's health trust and are equal members of the creditor class. The proposal would give the government and the UAW's health trust a combined 89 percent stake in a reorganized company, while the company's bondholders would receive a mere 10 percent.
General Motors bondholders have been vilified recently for what amounts to purchasing low-interest bonds in an American company. They have been derisively called "speculators." We used to call them "investors" and celebrated the jobs, hope and opportunity they helped create throughout our land. Millions of the bondholders are working families, retail investors and retirees who depend on income from these investments. General Motors bonds totaling in the billions of dollars were purchased by individual investors in $25, $50 and $100 increments. Billions of dollars more are part of the pension funds, 401(k) plans and retirement programs of thousands of others Americans.
Choosing sides between equal classes of creditors sets a terrible precedent - one that could cause serious long term challenges to the financing marketplace by eroding investor confidence at the worst time in our recessionary period. General Motor's restructuring, in essence, has become an exercise in favoring one group of retirees over another. Simply put, the administration has overstepped its bounds and by doing so will chase jobs and capital overseas.
It is fair to say that a reasonable investor may rightly second guess buying stocks or bonds in a company financed by the American government if the rules can change at any time. The government should instill confidence, not fear, into our markets.
We believe there is still time for the Auto Task Force to act before the company files for bankruptcy. Bondholders must have a seat at the table during negotiations in how the company would be restructured. The company, the government, the union and the bondholders should negotiate details of a reasonable debt-to-equity swap before stepping into court, and with only days remaining before the inevitable filing, these negotiations must take place soon and at an expedited pace.
By wading into the waters of private sector restructuring, the government has the obligation to taxpayers to see this process through to an equitable solution. Rather than blaming lenders or exercising favoritism to a political ally, this situation can be resolved in a manner that respects the rule of law and injects confidence and certainty into the markets that will help our economic recovery."
Signatories to the letter: