President Obama swept into office in 2009 promising to bring the hammer down on special-interest lobbying. At the same time, he was arranging a deal that would result in billions of taxpayer dollars going to his Big Labor allies in the United Auto Workers union. "Crony capitalism" commonly refers to regulatory favors and sweetheart deals dispensed by government officials to their pals in Big Business. But, as the favoritism in the auto bailout shows, crony capitalism also greases the palms of Big Labor.
In December, when the Treasury Department sold the remaining shares of the GM stock it got in the auto bailout, taxpayers absorbed more than $10 billion in losses. That’s in addition to another $3 billion in write-offs for the Chrysler deal and $8 billion in losses for Ally Financial Inc., formerly GMAC. So Treasury lost about $21 billion overall in Obama's 2009 bailouts.
|Big Labor overall spent a total of $160 million on the election and for lobbying in 2008 and 2009.|
In the case of GM, it wasn’t primarily the stereotypical Wall Street bondholders who got the benefit. Even those with secured debt, meaning creditors who by law were entitled to recoup their investment first in a bankruptcy, were pushed aside in favor of the UAW.
The union went straight to the front of the line thanks to Obama. GM and Chrysler together owed more than $29 billion to the union’s pension fund. While the secured creditors got just 29 cents on the dollar for their investments, UAW eventually got all of its money.
This was a major violation of bankruptcy law, but the Obama administration typically doesn't let legal particulars get in its way. Heritage Foundation scholar James Sherk has estimated that, had UAW’s claims been treated as they would during a conventional bankruptcy, the GM bailout would have cost at least $14 billion less – enough to wipe out all of the taxpayer’s losses for that part of the deal.
Big Labor has countered that the UAW made sacrifices and took on risks itself since the bailout paid them in GM stock. But the union's risks were minimized by the fact that its interests were being carefully protected by the U.S. Treasury Department.
As for sacrifices, the wage and benefit concessions were mainly laid on future GM hires, not current union members or retirees. Current UAW members retained compensation packages averaging $71 per hour — about $22 to $29 an hour higher than those paid Toyota or Nissan employees. The tax-funded bailout also protected their generous pensions. Never mind that these labor costs were a major reason why the U.S. auto industry was struggling in the first place.
How did the UAW gain such favoritism? Well, it shelled out $13 million in the 2008 election, virtually all to Democrats, including $5 million for Obama. The union spent another $3 million to lobby the government in 2008 and 2009. That’s just one union. Big Labor overall spent a total of $160 million on the election and for lobbying in 2008 and 2009, according to Center for Responsive Politics figures. That’s the essence of crony capitalism: buying the right friends in government.