The Wonk Room

Rep. Cantor: GM Bankruptcy Plan ‘A Downright Suspension Of The Law’

With regard to both the General Motors and Chrysler bankruptcies, conservatives have been up in arms, claiming that the companies’ bondholders were being illegally shortchanged in favor of the United Auto Workers (UAW). For instance, Bloomberg’s David Reilly wrote today that, under the government’s approach, “bondholders are told to give up legal rights, and cash, as part of a government-mandated tradeoff that favors a politically connected special-interest group.”

Rep. Eric Cantor (R-VA) picked up on the meme today during an interview with CNBC:

This is really unfathomable, you’re right…So now what we’re seeing, as you suggest, is the White House coming in and favoring the UAW, basically making the rights of the bondholders inferior, outside any kind of legal framework whatsoever. There has been a downright suspension of the law.

Watch it:

Cantor and the others screaming about the legal rights of bondholders are off the mark. As the Washington Post noted, “there are a number of precedents for retiree health funds getting preferential treatment during bankruptcies, particularly in the steel industry in recent years when Bethlehem Steel and others were sold off.” And as Felix Salmon pointed out, an unsecured creditor like a bondholder “has no ‘legal right’ to get exactly the same outcome as any other creditor”:

The creditor does have the legal right to kvetch to a judge about fairness, that’s about it. And if the bondholders have a better idea of what’s fair, they’re more than welcome to provide tens of billions of dollars in debtor-in-possession financing in order to make that happen. But of course they’re not willing to put in so much as a nickel, which means that it’s not up to them, and the entity providing the financing — in this case, the US Treasury — gets to call the shots.

Even CNBC’s Carl Quintanilla wasn’t buying Cantor’s claims, saying “some might argue, Congressman, that that is sort of akin to having someone help you repair your house, but complaining about the color of paint they used…Don’t you think you’re almost nitpicking, given the amount of trouble the administration had to tackle?”