Blame game

President Barack Obama must be sorely tempted to lambast General Motors’ bondholders. Their sound rejection last night of the carmaker’s offer to exchange $27.5 billion in debt for a 10 per cent equity stake — a level set by the US government — makes a bankruptcy filing for the carmaker in the next few days a near certainty. When Chrysler’s lenders took a similar path last month they received a public tongue-lashing from the president. But GM’s bondholders shouldn’t be Obama’s latest scapegoats.

For starters, it’s much harder to claim GM’s bondholders are mere “speculators”, as he did with Chrysler’s holdout lenders. Retail counts for a significant minority of GM’s bondholders — mom and pop investors who bought Detroit’s largest carmaker’s debt thinking it offered stable, long-term return.

Moreover, GM’s bondholders have played a significant role in keeping GM afloat in the past: the company raised more than $17 billion in unsecured debt six years ago to help plug a whopping $19 billion deficit in its workers’ pension plans.

In any event, neither Chrysler’s secured lenders nor GM’s unsecured bondholders rejected the respective offers out of greed: both groups were well aware they needed to take a significant hit to help restructure the companies. They balked at the Obama administration’s union favouritism. In Chrysler’s case, the lenders were higher up the pecking order and in GM’s, the bondholders were owed much more money than the UAW’s healthcare trust. Yet in both instances, the government offered a better deal to workers. That doomed both offers — and any chance of avoiding Chapter 11 — from the start.