Fox News' Rove Misrepresents Bankruptcy Rules To Push False Account Of Detroit Bailout
Blog ››› ››› SERGIO MUNOZ
In addition to repeating the debunked claim that Mitt Romney supported the government bailout of the auto industry, Fox News contributor Karl Rove mischaracterized the bankruptcy plan that saved millions of jobs, falsely asserting that the treatment of unions as part of the restructuring was "unprecedented."
The morning after the third presidential debate, Rove recycled right-wing media misinformation that Romney's call in 2008 to "Let Detroit Go Bankrupt" was in fact a call for the type of plan that ultimately saved the country's auto industry:
This false claim has been repeatedly debunked. The plan that rescued the auto industry through Chapter 11 reorganization bankruptcy was entirely dependent on the immediate "bailout" that the federal government provided. Romney condemned this intervention and wanted to rely on non-existent private financing. Contrary to Rove's explanation, Romney's proposal that the government should come to the industry's aid after it went bankrupt would have resulted in a Chapter 7 liquidation bankruptcy of General Motors and Chrysler, leading to the rippling loss of millions of auto-related jobs across Ohio and Michigan. As reported by The New York Times:
To go through the bankruptcy process, both companies needed billions of dollars in financing, money that auto executives and government officials who were involved with Mr. Obama's auto task force say was not available at a time when the credit markets had dried up. The only entity that could provide the $80 billion needed, they say, was the federal government. No private companies would come to the industry's aid, and the only path through bankruptcy would have been Chapter 7 liquidation, not the more orderly Chapter 11 reorganization, these people said.
In addition, Rove inaccurately claimed that the eventual Chapter 11 bankruptcy was "unprecedented," because creditor claims were reorganized. But as Moody's Mark Zandi explained, a Chapter 11 reorganization plan that restructures a failing company's debt requires consensus from "all stakeholders," including those of unionized employees:
Given the economic costs, allowing the Big Three to go bankrupt without government help would thus be a serious mistake. Congress should instead encourage the automakers to begin a pre-packaged bankruptcy, with Washington guaranteeing the  financing for the Big Three in bankruptcy. The government guarantee would enable an orderly restructuring and prevent liquidation. All stakeholders--management, creditors, suppliers and the unionized workforce--would be forced by the bankruptcy to make the tough choices they have thus far been unable to confront.
Thus, any reorganizing of debt claims was negotiated and agreed upon by all necessary stakeholders, pursuant to standard practice. Unions' claims may have changed during reorganization negotiations, but collective bargaining strength is not uncommon in bankruptcy proceedings, and others - such as hedge funds -- emerged with new claims as well. Indeed, as noted by the lead adviser of the President's auto task force, the reorganization plan was approved by multiple courts:
Among Mr. Romney's grievances -- and to be fair, those of other opponents of the auto rescue -- is that the auto task force trampled on bankruptcy precedents and even the law to effect President Obama's plan of "shared sacrifice" by all stakeholders.
What he conveniently ignores is that the president's plan was litigated throughout the federal court system -- all the way to the Supreme Court, in the case of Chrysler -- without so much as a nod to the opponents from a single judge.
In retrospect, I recognize the emotions surrounding the decision to give members of the United Auto Workers company stock in exchange for resolving their health care claims. But the courts were emphatic that what we did was legal, because we remained true to a core principle of bankruptcy reorganization: every stakeholder received more from our plan than if the companies had been left to go bankrupt on their own.