Large corporations, like large governments, can become bloated bureaucracies with incompetent managers who become sloppy, secretive and corrupt.
And when trouble arises — and criminal investigations ensue — the corporate bureaucrat cuts a deal with the government bureaucrat in D.C. and other people’s money exchanges hands. Nobody goes to jail.
Then they all go across the street to the Old Ebbitt Grill for martinis and oysters and to laugh at the fools who are footing the bill.
In 2001, General Motors discovered a problem with their ignition switch. If it moved slightly, the engine could shut off abruptly. If an accident occurred, the air bags would not inflate. The repair would cost 57 cents, but they decided to hide it and not incur an expensive recall. Meanwhile people died.
They not only kept their customers in the dark, they ignored the provisions of the Tread Act that required them to report the problem to the feds within five days of discovering it.
It was finally reported to the National Highway Traffic Safety Administration in 2005.
Image source: AP Photo/Carlos Osorio, File
The financial collapse of 2008 exposed GM’s precarious financial condition, but they were an economic basket case before 2008. They lost $10.6 billion in 2005, $38.7 billion in 2007 and sales declined 45 percent between 2007 and 2008.
Had they filed for bankruptcy, their $90 billion in assets would have been liquidated and their secured lenders, bondholders and, perhaps, some of their unsecured creditors would have recovered some of their losses.
One of those unsecured creditors was the United Auto Workers union, whose retirement and health care funds were owed about $10 billion. After a few meetings between the UAW and the new Obama administration in 2009, the White House took control of the discussions.
The administration decided to invest $50 billion of other people’s money – the taxpayers' money – in a new General Motors.
The priority of creditors established through 200 years of bankruptcy law was ignored. It was decided that the company would stiff the secured lenders and shore up the union.
America's new GM took over the assets of old GM. The federal government would own 60.8 percent of the new company. The UAW would own 17.5 percent and bondholders, who were owed $27 billion, would get 10 percent. The remaining 11.7 percent went to the governments of Canada and Ontario.
The Obama administration decided that there were too many dealerships in the country, and they determined which ones could retain their contract with GM and which ones would have to shut down.
The White House also announced that it planned to influence who would serve on the new board of directors.
The investigation into the ignition switch problem was put on hold from 2009 to 2011 as the death toll rose.
In 2012, the investigation into the safety issue was opened again. About the same time the White House announced that it would sell the government's shares in GM over the next year. By Dec. 9, 2013 the taxpayer’s position was liquidated at a $10.5 billion loss.
Two months later GM recalled 1.4 million vehicles due to the problem with the ignition switch.
The federal officials who controlled the board of GM had to know about the safety issue. The liquidation of shares, two months before the public was informed, was not coincidental. It was arguably criminal.
After the recall was announced, GM’s share price declined and news stories celebrated the administration’s shrewd decision to have liquidated the taxpayer’s position. If that had been you or me, we would be under investigation right now for insider trading.
And now we have found out that just last week, the Department of Justice reached an agreement with General Motors regarding the criminal exposure of the company and its employees and the compensation for the families of the dead and injured.
As reported by the New York Times, justice fell short. The largest share of the settlement will go, not to the families, but to the government. The criminal investigation will end.
General Motors will pay $900 billion of other people’s money — the shareholders — to rid itself and its employees of all criminal exposure. They will give the Department of Transportation $35 million for failing to adequately report to the NHTSA and will provide for $150 million for a fund to reimburse families of the fatalities. They will also pay $575 million to settle 1,300 pending lawsuits.
Corporate bureaucrats got together with government bureaucrats and cut a deal with other people’s money. Nobody goes to jail.
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