[sethg]

The article leads with: NO ONE who lent money to General Motors (GM) or Chrysler can have been unaware of their dire finances. Nor can workers have failed to notice their employers’ precarious futures. These were firms that barely stayed afloat in the boom and both creditors and employees were taking a punt on their promise to pay debts and generous health-care benefits.

False equivalence.

If I hold GM or Chrysler debt and I perceive that the company is going downhill, then I can sell off that debt at a discount and cut my losses. If I spend twenty years working for the company under a contract providing generous retirement benefits in lieu of money up front, and then I start wondering if the company will actually be able to afford those benefits, I'm stuck riding the elevator all the way to the bottom (where "the bottom" is whatever minimal pension the government can guarantee).

Obviously in a case of insolvency these are both contractual obligations that the company can't satisfy, and everyone has to take some kind of haircut, but if the law doesn't give retirees priority over bondholders in this situation, then the law is an ass.

[yummyfajitas]

UAW members did not get generous retirement benefits in lieu of money up front. They got above market wages up front AND generous retirement benefits.

[sethg]

If they hadn't gotten such good retirement benefits, they would have gotten even more money up front.

Before the Japanese arrived on the scene, these contracts made perfect sense from the management's point of view, because American car companies were making money hand over fist. When competition from Japan became serious, such contracts still made sense, because they would rather pay later than pay now. And, well, "later" has arrived.

[anamax]

> if the law doesn't give retirees priority over bondholders in this situation, then the law is an ass.

These bondholders recently made secured-by-real-property loans to GM, Chrysler, and Ford.

Because these loans were secured by real property, that is collateral, they were thought to be safer and thus the rates were lower. (It's sort of like the difference between mortgages or home equity loans and credit cards.)

Without those lower interest rates, the automakers would have gone under years ago. But, that's water under the bridge.

Going forward, if secured lenders aren't first in line, why will anyone make secured loans at lower interest rates?

Heck - why will anyone loan money to a union-dominated industry that is experiencing rough times?

[mynameishere]

if the law doesn't give retirees priority over bondholders in this situation, then the law is an ass

That's an extremely foolish remark. The entire economy depends upon the rights of senior debt, without question.