Some counterparties are more equal than others

President Obama gave GM and Chrysler another monetary lifeline today coupled with another ultimatum about coming up with a workable plan for the future. Who knows, maybe this time really will be the last time. The NY Times quoted his announcement (emphasis added):

“And so today, I am announcing that my administration will offer G.M. and Chrysler a limited period of time to work with creditors, unions and other stakeholders to fundamentally restructure in a way that would justify an investment of additional tax dollars...”

That is to say, GM will no longer be able to meet all of its current obligations to workers and to creditors. It is clear these parties will be expected to accept less than they are owed. This is the dreaded "haircut," that one often hears about in the press.

So, to be clear, AIG has a bailout history that looks like a version of the movie Groundhog Day, except that Bill Murray gets a new $1 billion dollar check every time he wakes up. Even after this long and winding and very expensive road, the folks sitting on the other side of the table from AIG are certainly getting different treatment than those across from GM.

Counterparties to AIG contracts, which include some of the biggest financial institutions in the world, get paid in full using taxpayer money. Folks that lent money to GM, or sold them parts on credit, no such luck. Get ready for the haircut.

AIG employees, some of whom helped bring the company down, get bonuses to which they were contractually entitled. Workers on GM assembly lines - haircut!

I'm not a GM worker, but even I can't help wondering where Larry Summers is. When it was AIG bonuses it was, we are a nation of laws and contracts must be honored, but today, nothing.

In both cases, I don't think we are talking about a little off the sides. These two groups may not even be recognizable after Uncle Sam the barber gets done with them.