Um, the UAW bailout didn't benefit the rich much. Most bondholders/etc took a haircut. The primary beneficiaries were the upper middle class UAW workers/nonworkers (they didn't take a haircut).
CWuestfield and I were discussing actions taken by the government during the bailout, not a business plan the UAW and GM entered into in the 60's.
During the bailout, the administration funneled billions of taxpayer dollars (many of which were paid by people earning less than UAW employees) to the UAW. In the process, they also screwed over bondholders (and ignored the rule of law) who had a legitimate claim to part of the proceeds of GM's liquidation.
That's an example of the government screwing over the rich (and middle class) for the benefit of the upper middle class.
Yeah, but the reason the bondholders were unhappy (as anamax said) is that it officially sanctions this sort of malfeasance, and therefore makes the bond market more risky.
But it's certainly true that equity holders came out quite a bit richer than they otherwise would have. Owners of common stock are last in line in a liquidation, so they likely would have gotten very little. But now they've got more equity than at the time of the bailout.
Thus, the government pumped taxpayer money into GM shareholders.
In the bankruptcy, the Motors Liquidation Company purchased all the valuable assets (including the names and trademarks) from GM. The proceeds were (and are still being) used to pay bondholders and other creditors. Anything remaining would be given to shareholders, but the proceeds of the sale are not expected to be even close to sufficient for this to occur (that's why GM went bankrupt to begin with).
http://en.wikipedia.org/wiki/General_Motors_Chapter_11_reorg...
Update: the more I think about it, the more convinced I am that this is true. If the company really had to be liquidated, the bond holders may have been paid off. But the equity holders would have really taken a bath. So the government did, in fact, keep the equity market rolling.
One of the consequences of not honoring the usual rules of debt in bankruptcy is that loans to govt favored industries/companies are now seen as more risky, which makes them more expensive.
Correct. It's the big corporations, out of the goodness of their hearts, that accomplish this generous task.
Isn't this completely predictable? When the government invests hundreds of billions of dollars into the market, by way of dumping money into the financial and automobile industries, and that money's source is loans backed by the people-at-large, then of course this is happening.
The government is transferring money from the taxpayers to those invested in the capital markets. Anybody who believes that the government (not just the GOP but the Democrats as well) is working for the little guy, is a sucker.